SCOPE OF AUDITOR'S ACTIVITY 1. Widening the scope of the auditor's activity.— Originally, as we have seen, the auditor's activity was confined to verifying the accuracy of certain accounts presented to him. While this is still one of his im portant duties, business men are learning to depend more and more upon the experience of the properly trained professional auditor for advice on other busi ness problems. The scope of the auditor's activity includes the following: (1) The audit, examination or certification of an nual statements of accounts.
(2) The preparation and certification of state ments of past results, as a preliminary either to the issue of new capital stock and debt or to the sale of the business. In the latter case the auditor's certifi cation will probably form an important part of the prospectus issued by the underwriters of the securities.
(3) The preparation of statements of affairs and realization and 'liquidation accounts of organizations involved in financial difficulties. This phase of activ ity includes the preparation of reports to the govern ment, as for example, income tax reports. It em braces further the preparation of required accountings by the courts of those acting in a fiduciary capacity.
(4) General advice. The auditor is frequently called upon to act as arbitrator in disputes between partners or between members of a corporation. Not infrequently the advice of the auditor is sought re garding policies of internal organization and business expansion. The duties thus devolving upon practis ing public accountants are by no means light, and call for the exercise of the highest mental attainments.
2. Audits and examinations.—In this country the practising public accountant who acts as auditor for the corporation is usually appointed by the board of directors; he is therefore accountable to it and makes his report direct to the board. In England, the com pany auditor has always been appointed by the stock holders, and the present statute in Canada provides for the compulsory audit of the accounts of all Cana dian banks by auditors selected by the stockholders who select one individual or firm to make the audit from a list of not less than forty qualified to do the work.
There is no doubt that many of the dishonest prac tices which have marked the past history of corpora tions in this country, would have been effectually pre vented had the 'auditor been selected by the stock holders of the corporation. It is evident that where an auditor has been appointed by the board of direc tors, the board is at liberty to suppress his report if it is unfavorable, and cases are not unknown where favorable portions of an auditor's report have been published and vital adverse criticisms made by him were suppressed. In other cases, excerpts from the auditor's report have been published which apart from the context were misleading.
3. Corporate auditors should be elected by stock honest corporation manager has noth ing to fear and, in fact, welcomes a thoro examina tion into his stewardship. The stockholders who have invested their money and who are, in the last analy sis, the real owners of the corporation are gradually coming to assert their rights. It would seem desir able that state laws or by-laws of corporations to be organized in the future, should contain a provision for an independent report on the affairs of the company by an auditor appointed by the stockholders. The auditor should have access at all times to the books, accounts and vouchers of the company, and should be privileged to call upon any officer or employe for any information or explanation that he deems necessary. It should also be provided that the auditor's report be read as a part of the proceedings of the annual meeting, and that any stockholder may receive a copy.
An auditor's position should be safeguarded by a provision that he should not be removed without cause, and only upon vote at a stockholders' meeting in the notice of which the intention to displace the present auditor should be given due prominence. The auditor selected should be one licensed to practise because, in the event of his failure to discharge the duties of his position, there will be an opportunity to punish him for wilful neglect by depriving him of his right to certify.