Audit

A check of an organization's accounting systems and records. The key responsibility of an auditor when examining the financial statements of a client is to obtain reasonable assurance that the F/S as a whole are free from material misstatement (overstatement or understatement of certain items) whether caused by fraud OR error.

Audit is obtaining an external expert’s opinion on the quality of the financial reporting of a company allows firms to attract both equity and debt capital from investors

- Auditors obtain evidence to determine whether the information in the financial statements is reliable.

- They then report on the reliability by expressing an opinion that the company’s presentation of the financial position and results of operations is in line with GAAP.

What is Auditing?

• Obtaining an external expert’s opinion on the quality of the financial reporting of a company allows firms to attract both equity and debt capital from investors

- Auditors obtain evidence to determine whether the information in the financial statements is reliable.

- They then report on the reliability by expressing an opinion that the company’s presentation of the financial position and results of operations is in line with GAAP.

• Therefore, there is verification of data by someone else other than the preparer which lends credibility to the info.

• I.e. consider you were going to buy an existing business, why would you want the numbers to be audited?

• Risk Reduction – Independent auditors are obtained to reduce information risk (failure of f/s to appropriately reflect the economic substance of the business activities)

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