What Is an Audited Financial Statement?
What Is an Audited Financial Statement? – It is a report that verifies the accuracy of a financial statement. An auditor reviews the statements to ensure that they reflect cash transactions and are consistent with the company’s accounting standards. In the U.S., this is known as GAAP, while other countries follow International Financial Reporting Standards, or IFRS. Though efforts are underway to bring these standards closer together, the differences remain.
Although auditors are not legally bound to disclose their findings, they provide reasonable assurances that the financial statements accurately reflect the organization’s financial condition. They do this by working within an acceptable margin of error. Materiality of errors depends on the size of the organization, its revenue, and its expenses. However, there is no such guarantee. Therefore, it is important to get an audited financial statement when possible. The auditors’ reports should never be used as the sole basis for assessing the company’s financial health.
The difference between a reviewed and an audited report lies in the level of scrutiny applied to them. Reviews are more thorough than compilations. A review involves limited analytical procedures, including inquiries to management, and is more reassuring than compilations. An audited report, however, involves the use of internal protocols to test the financial statements. By contrast, a compilation is often enough to evaluate a company’s financial position.
In general, an audited financial statement consists of four main parts. The balance sheet, the statement of income, and the statement of cash flows. A report from an auditor will contain a statement by the company’s management. The statement should clearly state that the financial statements are the responsibility of the management. If a company has a financial statement that contains errors, the auditor will issue a report that contains any adjustments needed to make them more accurate.
A thorough audit will include an examination of internal controls. During the review, the auditor will determine if the company has implemented effective accounting controls. If these controls are ineffective, they will carry out additional testing to identify any weak areas. If necessary, the auditor will provide recommendations for improvements or alternative measures to satisfy the user. Once a financial statement is audited, it must be followed strictly. A business can improve its standing by implementing improvements, but only if the management has done a thorough audit.
An audit is not complete without an opinion. It can also contain qualified or adverse opinions. The latter is the best possible outcome of an audit. It provides assurance that the financial statements are not misleading. A qualified opinion also provides assurance that a business follows generally accepted accounting principles (GAAP).
An audited financial statement provides confidence to a board of directors. It is based on a thorough analysis by an independent third party. Many private foundations require nonprofits to have audited financial statements. The principles of FASB require auditors to report to the board of directors and express a professional opinion. If the audit produces a negative opinion, it can negatively affect fundraising efforts. The results of an audit are often published in the nonprofit’s annual financial report.