Account Balance

1. Describe the goal of an auditor in examining an account balance.

2. List audit tests that might be performed on an account receivable total.

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3. Understand the reason that an independent auditor only provides reasonable assurance and not absolute assurance.

Question: A company is preparing a set of financial statements for the most recent year. It has hired an

independent firm of CPAs to audit those statements and provide a report that will be attached to them. Perhaps

this action is required of the company by the SEC or maybe by a local bank or other lender. What work does

an independent auditor perform in examining a set of financial statements? The audit firm seeks to provide

reasonable assurance to decision makers that these statements are presented fairly and, thus, contain no material

misstatements according to U.S. GAAP. How is the auditor able to gain the evidence needed to make that


Answer: An independent audit is an elaborate and complicated activity that often requires scores of experienced

CPAs many months to complete. A basic understanding of the audit process is best achieved through one or more

upper-level college courses as well as years of practical experience. Thus, coverage here must, by necessity, be

rather superficial.

The numbers found on a set of financial statements do not appear by magic. For example, if receivables are

disclosed on a balance sheet as $12.7 million, a legitimate reason has to exist for reporting that particular figure.

In preparing statements, company accountants should document how each balance was derived and why it is

considered appropriate according to U.S. GAAP. The statements are the representation of the company; thus, the

burden of proof is on that organization and its officials. The independent auditors then examine the available

evidence to determine whether reliance on the reported information is advised.

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