What should an auditor know

As the U. Supreme Court stated in the landmark case of U. Arthur Young : "The SEC requires 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.

The best way to identify the auditor of a publicly traded company is to check the company's most recent filings using our EDGAR database of corporate filings. You'll find the identity of the company's auditor in its annual report on Form K. Whenever a company hires a new auditor to certify its financial statements, it must announce that news on Form 8-K under Item 4 within 5 business days. Be sure to check any Form 8-K filings submitted after the company's most recent annual report to find out whether the company subsequently hired a new auditor.

A variety of commercial resources exist that list publicly traded companies and their auditors. Some resources also list major auditing firms and the publicly traded companies they audit. You should be able to find these resources at your local public library or the nearest law or business school library. You can also find much of the information contained in these resource materials on the Internet. In addition to serving as auditors, some accounting firms offer non-audit consulting services to their audit clients.

You can check a company's annual proxy statement for information concerning the company's relationship to its independent auditor and the extent of other services the auditor might be performing for the company. Is the auditor required to examine all transactions underlying the financial statements? The purpose of an audit is to provide reasonable, but not absolute, assurance that the financial statements are free of material misstatements. The auditor gains an understanding of internal controls over financial reporting in order to understand your business, assess risk and design appropriate audit procedures.

For example, if the auditor discovers internal control weaknesses in certain areas, he or she may conduct more rigorous testing in those areas. Are there options short of an audit that will satisfy lenders or other financial statement users?

CPAs also provide review and compilation services, which may be acceptable to some financial statement users. A review provides limited assurance, based primarily on analytical procedures and inquiries, that the CPA is not aware of any material modifications necessary for the financial statements to conform to GAAP.

Reviewed financial statements include the same disclosures as audited financial statements. In a compilation, the CPA simply assists management in presenting financial information in financial statement format, without offering any assurance as to its reliability.

Ensure that your financial documents and accounting software are in order. This includes ensuring that all account balances are reconciled with supporting documentation. Work closely with the audit firm to define mutual expectations regarding time commitments and deliverables.

Care must be taken, however, to ensure that the auditor does not impair his or her independence, as CPAs must be independent of the companies that they audit. Make sure the firm you choose has a solid reputation in the financial community and the qualifications, staffing, and industry experience to perform the audit.

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What Is an Auditor's Opinion? Key Takeaways An auditor's opinion is made based on an audit of the procedures and records used to produce financial records or statements.

There are four different types of auditor's opinions. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate.

You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. An unqualified opinion is an independent auditor's judgment that a company's financial records and statements are fairly and appropriately presented.

Qualified Opinion A qualified opinion by an auditor indicates that there was an issue discovered in the audit of the financial statements of a company that are not pervasive,.