What Is a Certified Financial Statement?
Companies of all sizes, public or private, engage the services of independent auditors to examine their financial statements and to render an opinion on their fairness. Financial statements that have been reviewed and approved in this way are known as certified financial statements. Upon completion of the audit, the accountants prepare an audit report for the company's management. The report is often affixed to the financial statement and made a part of the company's annual report to shareholders.
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Auditing Standards
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External auditors are guided by the standards set forth by the American Institute of Certified Public Accountants (AICPA). These standards state that those performing audits should be properly trained, be independent in all respects during the audit and prepare the final audit report with a high degree of professionalism.
Audit Certification
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The certification of the audit must indicate whether the company prepared the financial statements in accordance with generally accepted accounting principles. The auditor's report must give a clear opinion about the state of the company's financial statements and records. If the auditor is unable to give such an opinion, he must say so in the report.
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Auditing Process
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During the audit, the external auditor and her team normally follow three distinct steps: planning, gathering evidence and issuing a report. This activity results in a record of events and transactions that have taken place in the company. Examination of this information, or evidence, enables the audit team to evaluate the company's internal controls, systems, policies and procedures.
The Report
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The resulting report sets forth the auditor's findings about the financial statements and their conformity with generally accepted accounting principles. The most favorable report for a company is an unqualified opinion -- meaning that all needed materials were available, were in order and passed all tests. Another common type of report is the qualified opinion -- meaning that most materials were in order, with the exception of some items. An adverse opinion can result when the financial statements do not accurately present the company's financial position.
Users of Certified Financial Statements
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Audited financial statements are the most dependable indicators of a company's financial health and, depending on the size of the company, there are numerous parties who have an interest in this information. The managers and owners of the company can use the statements to ensure smooth operation of the organization and for making business decisions. Outside investors need good financial information in making investment decisions. Banks and other lenders need to assess the creditworthiness of the company. Labor unions need to understand the company's finances when the time comes for contract negotiations.
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