Purpose of Auditing Financial Statements


Audited financial statements are an important piece of information for investors and economists when judging the health of a company and the overall economy. Certified public accounting firms are tasked with auditing companies and reviewing the application of generally accepted accounting principles--known as GAAP--in accounting departments.

Purpose of Audits

  • Audits of a company's financial statements provide an outside look into the heart of a company's operations. Audits ensure that financial transactions are recorded properly on company books. While smaller companies may just have one yearly audit, larger companies and public corporations may be subject to numerous audits throughout the calendar or fiscal year.

Types of Audits

  • Large companies and public corporations have two types of financial audits for their operations: internal and external. For large companies, internal audits are conducted by accounting staff after the accounting period has ended. Financial statement audits conducted by internal accounting staff do not certify the statements for outside users; the financial statements are considered nonaudited and are usually intended for internal purposes only.
    Public corporations face more requirements and regulations for auditing financial statements. Most companies have an annual audit conducted by a public CPA firm registered in accordance with the Securities and Exchange Commission guidelines. Corporations may contract with a smaller CPA firm for internal audits, ensuring that the official public audit will go smoothly.

Unqualified Opinion

  • After the CPA firm has finished conducting an audit, it will issue an audit opinion with the audited financial statements. An unqualified opinion on an audit states that the auditors believe the company has followed all accounting rules according to the generally accepted accounting principles and the financial information as presented is accurate. Once an unqualified audit opinion is issued, the company's financial statements are presented as officially audited financial statements.

Qualified Opinion

  • When auditors find significant or material errors in a company's financial statements or accounting information, they will release a qualified opinion regarding the financial statements. This qualified opinion will state the reasons the auditors believe a company has violated GAAP and what internal controls should be improved to correct the information. Auditors will not sign off on the financial statements until a remedial audit is conducted on the company accounting operations.

Importance of Audits

  • Audited financial statements are important because they provide an outside look at accounting operations and the overall fiscal health of a publicly held company. Investors rely on these audited statements to determine whether the company is a worthwhile investment and how the company affects the overall business industry. The audited financials also show that no fraud or corruption has been detected in the company and that existing shareholder investment is protected.


Promoted By Zergnet


You May Also Like

  • The Purpose of an Audit Report

    An audit is an external review of a company’s financial information. It provides external stakeholders with an objective opinion of the company’s...

  • The Purpose of an External Audit

    An external audit process ensures that a company's internal controls, processes, guidelines and policies are adequate, effective and in compliance with governmental...

  • What Is the Purpose of an Audit & Evaluation for a Budget?

    Companies, government agencies and individual business owners ensure the budget plan is realistic and effective by conducting audits and evaluations. Budgets consist...

  • Purpose of a Social Compliance Audit

    The American Society for Quality, which promotes social responsibility, advises, "Many companies who are looking for long-term profitability are looking for ways...

  • Primary Purpose of the Quality Audit

    Quality audits are common processes that larger businesses use to check their own goals, strategies and implementation. Companies spend millions of dollars...

  • Definition of a Financial Statement Audit

    A financial statement audit is a review completed by a Certified Public Accountant who is trained to look for GAAP ... Purpose...

  • What Is a CPA Compiled Financial Statement?

    A certified financial statement has been reviewed and certified as accurate by an outside accountant. A compiled financial statement ... Audited financial...

  • How to Write an Internal Audit Plan

    An internal audit is a financial assessment of a company's accounting operations and ... Public companies must have their financial statements and...

  • What Is a Financial Statement Restatement?

    A restatement often involves a completely new audit and could affect future financial ... However, the reason for the financial statement restatement...

  • What Is Financial Auditing?

    Purpose of Auditing Financial Statements. ... Financial statement audits are geared toward confirming that the finances of governments, ...

Related Searches

Read Article

Are You Really Getting A Deal From Discount Stores?

Is DIY in your DNA? Become part of our maker community.
Submit Your Work!