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.
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
assertion?
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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