Audit Includes such procedures as confirmation with outside parties, observation of inventories, and testing selected transactions by examining supporting documents.A public or private company may engage a CPA to audit its financial statements and to issue a report that provides the highest level of assurance that the financial statements are presented fairly in conformity with generally accepted accounting principles. In an audit, as in a review, the CPA must be independent of the client and the financial statements must contain all required footnotes.
Here’s
what an audit entails: To gather evidence on the reliability of the financial statements, the CPA performs "search and verification" procedures. In an audit, the CPA generally confirms balances with banks or creditors, observes inventory counting, and tests selected transactions by examining supporting documents. In addition, the CPA contacts sources outside the client organization to gather information that may be more objective than that obtained from internal sources. For example, the CPA usually obtains written confirmation from a client’s customers about amounts owed to the client at a specific date. By accumulating this type of evidence, the CPA tries to reduce the risk that the financial statements will be materially misstated. The auditor then issues a report stating that the financial statements are presented fairly, in all material respects, in conformity with generally accepted accounting principles. An audit is planned and performed with an attitude of professional skepticism; that is, the auditor designs the audit to provide "reasonable assurance" that material errors or fraud are detected. However, fraud concealed through forgery or collusion may not be found because the auditor is not trained to catch forgeries, nor will customary audit procedures detect all conspiracies. An audit provides a reasonable level of assurance that the financial statements are free of material errors and fraud. An audit does not, however, provide a guarantee of absolute assurance.
Here
is an illustrative audit report: Independent Auditor’s Report Stockholders
and Board of Directors We have audited the accompanying balance sheet of AU Company as of December 31, 19X5, and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AU Company as of December 31, 19X5, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Able, Baker and Charlie, CPAs February 15, 19X6
Prepared
by: This information is for general purposes and is not intended as specific advice for any individual business. In addition, late-breaking tax developments may alter certain tax-planning strategies. Before acting on any advice, consult a CPA. |
