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.

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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.

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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 recognized Accounting Standards. 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.

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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.

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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.

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The SEC Office of assistance  group 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.