Public companies are obligated by law to ensure that their financial statements are audited by a registered CPA. The purpose of the independent audit is to provide assurance that the management has presented financial statements that are free from material error. Additionally, hiring an independent and qualified CPA provides reassurance to banks, suppliers, and potential investors that the business is financially sound and creditworthy. Audited financial statements are needed to provide information to decision makers.
The following are the main types of audited financial statements:
#1 Income Statement
The balance sheet reports the financial position of the company at the end of the fiscal year (or at any other time a balance sheet is done; for example, companies are usually required to submit a balance sheet when applying for a loan). It reveals the value of assets, liabilities, and equity of a company. The items in the assets and liabilities columns are presented in order of liquidity, with the most liquid items reported first. The auditor may verify the existence of assets and liabilities, and the accuracy of the figures presented.
#2 Balance Sheet
The cash flow statement may also be included in the audited financial statements. The cash flow statement reveals the cash inflows and outflows during the fiscal year. It provides an insight into the company’s ability to meet its short-term obligations and continue operating in the foreseeable future. The auditor may verify the entries in the cash flow statement against the bank statement and also check the accuracy of the footnotes.
#3 Cash Flow Statement
An auditor issues an audit opinion letter after completing the audit process, and this is included in the audited financial statements. In this letter, the auditor reveals the financial statements reviewed and the audit method used. If there were no material errors in the financial statements, then the auditor will give an audit opinion that the financial statements represent a true and fair view of the company’s performance and position.