William Penn Life, 2002 (37. évfolyam, 1-11. szám)
2002-07-01 / 7. szám
All about auditors What investors need to know l ENRON. WORLDCOM. ARTHUR Anderson. These names have become household words of late.. .and not for the best of reasons. These companies (and others) are embroiled in financial scandals which, at least in part, are due to "mistakes" in bookkeeping. The Enron and WorldCom stories have focused attention on the role of auditors in the business and financial world. But, exactly what are auditors? What are their responsibilities? And to whom are they responsible? When companies register their securities with the U.S. Securities and Exchange Commission (SEC) and file annual and other reports, they must disclose important financial information. In many cases, this information must be audited. What follows is information from the SEC describing the role of the auditor in reviewing a company's financial records. What is an auditor? An auditor is an independent certified public accountant who examines the financial statements that a company's management has prepared. Federal laws require publicly held companies that file reports with the SEC to submit financial statements that are accurate, truthful, and complete and prepared according to a set of accounting standards called "Generally Accepted Accounting Principles" (or "GAAP"). Many of these financial statementsincluding those in the company's annual report and others provided to shareholders—must be examined by an independent auditor. What such auditors do? A company's outside, 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 GAAP. 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. Who prepares a company’s financial statements? A company's management has the responsibility for preparing the company's financial statements and disclosures. The company's outside, independent auditor then subjects the 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. These procedures must 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. 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. Why are audits done? An audit provides the public with additional assurance that a company's financial statements can be relied upon. As the U.S. Supreme Court stated in the landmark case of U.S. v. 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." That 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 individuals who deal with the company. Who audits what company? 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 resources on the Internet. What else should I know? 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. [jfjij~j Money Links For more information on investing wisely, log onto the “Investor Information" section of the SEC’s website at: w www.sec.gov/investor.shtml 4 William I'eiiii Life. July 2002
