ABSTRACT
Financial statements are a product of judgment by their authors. The readers of the financial statement look to it for drawing inference about the future of the organization. Both these features make credibility a critical factor for the financial statements. While credibility takes time to buildup, it is organizations without a track record that require credibility the most, in the early stages. In auditors, these organizations found a mechanism to enhance their credibility. The work of auditors, their report, and their responsibility to stakeholders, all these evolved from various incidents that erupted in the corporate world. Audit was initially mandated to protect shareholders with unlimited liability from the acts of management that could ruin them. With limited liability, the auditor's responsibility gradually extended to other stakeholders. This responsibility was recognized in the United States, more than in other parts of the world. This responsibility has proved expensive for auditors as in the last two decades two leading firms of auditors went out of business. This highlights the needfor companies to build credibility even if it takes a longer time, as borrowed credibility may not be enduring.
