 What
Investors Need to Know About Auditors
When companies register their business in the Philippines and
file annual and other reports, they must disclose important
financial information. In many cases, this information must be
audited. An external auditor shall enable an environment of good
corporate governance as reflected in the financial records and
reports of the company. In this topic you will learn the role of
the auditor in reviewing a company's financial books and records
and their value to the public mostly to investors
What Is an Auditor?
An auditor is an independent
certified public accountant who examines the financial
statements that a company's management has prepared. The
Philippine government requires companies to file reports and
submit financial statements that are accurate, truthful, and
complete and prepared according to a set of accounting
standards. These financial statements must be examined and
reported on by an independent auditor.
Responsibility for Preparation of Company's Financial
Statements?
It is the company's management who
has the responsibility for preparing the company's financial
statements and related disclosures. An independent auditor then
subjects the financial statements and disclosures to an audit.
During the audit, the outside auditor obtains an understanding
of the company's internal controls and then applies "auditing
procedures," which may include inspection of the company's books
and records, observation, inquiries, and confirmations. The
procedures the outside auditor uses must be sufficient to allow
the auditor to obtain enough competent evidence to express an
opinion on the fairness of the financial statements and whether
they conform to GAAP in all material respects. If the auditor
cannot reach that conclusion, then the auditor must either
require the company to change the financial statements or
decline to issue a standard audit report.
Examination of Financial Statement by an Independent Auditor
An independent auditor examines
the company's financial statements and provides a written report
that contains an opinion as to whether the financial statements
are fairly stated and comply in all material respects with
Generally Accepted Accounting Principles (GAAP). In addition,
some companies also use internal auditors to review the
financial reporting processes and internal accounting controls
to assure that the company's systems are appropriately designed
and operating effectively.
The Value of an Audited Financial Statements.
Government agencies require the
filing of audited financial statements in order to obviate the
fear of loss from reliance on inaccurate information, thereby
encouraging public investment in the Nation's industries. An
audit provides the public with additional assurance — beyond
managements' own assertions — that a company's financial
statements can be relied upon. Audited financial statements has
important implications for investors making investment
decisions, for banks and financial institutions that may extend
credit or make loans to the company, and for other businesses
and members of the public who deal with the company.
What Else Should I Know?
In addition to serving as
auditors, some accounting firms offer non-audit consulting
services to their audit clients such as management advisory, tax
compliance consulting, and all other related services.
The
SEC's Office of Investor Education and Assistance provides a
variety of services to address the problems and questions you
may face as an investor. We cannot tell you what investments to
make, but we can tell you how to invest wisely and avoid fraud. |
