So many people have different perspectives on what a financial statement audit really is. Some think auditors are looking at every penny of the company, others think they are looking at payroll records and expense reports, and still others have really no idea what is looked at. I guess if you think about it, each person’s perspective of what a financial statement audit can vary significantly.
Below are some misconceptions that we hear when we perform audits:
Most employees in a manufacturing company are not given enough information about the company’s financial results in order for them to see how their hard work and effort affects the company’s financial operations. So an audit of the financial statements in the mind of a factory worker could mean the following:
- It is to make sure the company has money to pay the bills
- It is to make sure the company is using their money wisely so that payroll is paid on time
- The auditor is looking into every penny that is received and spent by the company
What do you think an audit means in the mind of a privately-held business owner? Below are some potential reasons that business owners request an audit of their financial statements:
- I want to make sure no one is stealing money from the company
- I want to make sure the accounting department is doing what is right
- An audit produces a point in time financial statement that lists out total assets and liabilities and includes an income statement that says if “we made money this year”
- An audit is what my bank tells me I need done every year
What is a financial statement audit as performed by a Certified Public Accountant?
An unqualified (“clean”) audited financial statement provides the user with an audit opinion which states that financial statements are fairly stated, in all material respects, are in accordance with generally accepted accounting principles. While some of the perceptions above may be included in the underlying audit procedures or are embodied in the financial results, an audited financial statement definition provides a high, but not absolute, level of assurance that the amounts includes in the company’s financial statements and notes (disclosures) are free from material misstatement. In addition, generally accepted accounting principles (GAAP) are a combination of authoritative accounting standards which help define the accepted ways of recording and reporting accounting information. Financial statements prepared in accordance with U.S. GAAP provide a level of consistent financial reporting that users of the financial statements can rely on when analyzing different companies.
As a certified public accountant who performs audits, I could bore many of you with discussions about what we do to perform our audit procedures. Or just ask any seasoned auditor and we’ll talk your ear off about risk assessment, internal control reviews, materiality, sampling, preliminary and final analytical procedures, etc.
But in the end, the reader of any audited financial statement wants to know is, “Are the numbers right?” Short answer, YES… but as we know, there is a whole lot more to it.