What Is a Balance Sheet Audit?

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If the balance sheet says you own a building, the auditor wants proof.
If the balance sheet says you own a building, the auditor wants proof. (Image: Purestock/Purestock/Getty Images)

A balance sheet audit requires looking at more than the financial statement itself. The auditor must also confirm that the balance sheet follows proper accounting standards as well as confirm the assets and liabilities on the balance sheet really exist.

How It Works

Auditing a balance sheet means checking every item on it to confirm both the item and its value. For example, suppose a company claims to own a tool-manufacturing plant. The auditor must confirm the plant exists and that it is worth what the balance sheet says. To do this, he might have to physically see the plant and the proof that the company owns the plant. He'll then want evidence proving the value of the property. The auditor doesn't have to appraise the building, just decide if the company's estimate of the value is reasonable.

The End Game

The balance sheet and other financial statements are what investors use to make decisions about the company. Having an auditor sign off on the statements confirms the material is trustworthy. If an auditor finds problems with items or values on the balance sheet, the company can address these discrepancies and resolve the differences. If the company disagrees with the auditor's conclusions, the auditor publishes what's called a modified opinion, noting the disagreement.

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