Insolvency and the Role of Auditors

Abstract

Globally, the understanding of the role of auditors has been a complex phenomenon especially the contents and interpretation of financial statements. The perceived role of auditors in protecting clients interest against fraud, insolvency, and other matters of great concern to the shareholders and other interest groups have been a sensitive discuss that have generated strong debates in the literature. In contributing to this issue and extending the frontiers in this regard, this study examined insolvency and the role of auditors. To achieve the objective of this study, an exploratory research design was adopted, as some journals, periodicals, and other materials related to the topic were reviewed. Consequent to the reviews, the study revealed that signals of insolvency of corporate organization are detectable if the auditors are thorough and exercise professional due diligence and care in carrying out the audit assignments. The study recommended that the international auditing standards (IAS) should consider including in the standards, such sensitive variables as fraud and insolvency for special treatment and reporting in the auditing standards and guidelines. While auditors' independence should not be compromised for whatsoever reasons, the international auditing standards should mandate auditors to conduct a predictive analysis of clients' going-concern health condition diagnostic analyses to give respite and significant comfort and assurance to investors, and other financial statement users who might rely of the auditor's reports in making informed investment decisions.