More handpicked essays just for you.
Essays on auditing assurance
Chapter 4 analysis of financial statement
Chapter 4 analysis of financial statement
Don’t take our word for it - see why 10 million students trust us with their essay needs.
( )( )( ) “A financial statement represents a formal report, showing records of financial activities of an entity at the end of an accounting period, in order to review the financial strength and performance of the entity. Where it summarizes the accounting process and reflects the financial effects of a business’s transactions, and the financial position of a business during a particular period of time. Furthermore it serves as the main method of communicating financial information about decisions that have been made by a business entity to inside and outside parties.” ( ) “People who might be interested in an entity’s financial statements need information on that entity for a variety of purposes. Lenders for example need information about the ability of the entity to pay back the loan on time and with interest, employees are a second example as they are interested in information on their employer’s stability and profitability. Potential investors need to know the risk inherited after investing in an entity thus they use financial statements to help them” ( ) “A financial statement is made up of …show more content…
Thus, imposing my second claim against financial accounting. Estimates involve the use of management 's predictions to determine the values needed for a financial statement. Therefore, proving the lack of precision estimates and assumptions are, subsequently reducing the liability of the accounting information. Nevertheless some might argue that the credibility and liability of a business’s financial statement is auditing’s job. Audit is a mechanism where inspections are done to enable users to have more trust in financial statements.” ( ) “However, audit only provides 'reasonable ' and not absolute assurance on the truth and fairness of the financial statements which means that certain material in financial statements may yet
The objective of financial reporting/statements is to provide information about the reporting entity’s financial performance and financial position that is useful to a wide range of users for assessing the stewardship of the entity’s management and for making economic decisions.
The statement displays the relationship of the net income to the changes in the cash balances. It is important to understand that cash balances can wane despite an increase in net revenue (Horngren, 2014, p. 674). The statement also aids in the evaluation of management’s use of cash and management’s generation, defining a company’s capability to pay dividends and interest to pay debts when the time comes to pay them, and forecasting upcoming cash flows (Horngren, 2014, p. 674). The balance sheet displays the status of an entity at a specific time. Contrary to the balance sheet, income statements and cash flows cover periods over time.
Financial statement users around the globe use financial statements to evaluate the performance of companies (Fundamentals of Financial Accounting, 2006). In order to locate a company’s reported assets, liabilities, expenses and revenues, statement users rely on four types of financial statements. The four financial statements include: Balance Sheet, Income Statement, Statement of Retained Earnings, and Statement of Cash Flows (Fundamentals of Financial Accounting, 2006, p. 6). Each of these reports provides different information to the financial statement user. The Balance Sheet reports at a point in time: a company’s assets (what it owns), liabilities (what it owes) and stockholder’s equity (what is left over for the owners) (Fundamentals of Financial Accounting, 2006, p.7). The Income Statement shows whether a business made a profit (net income) during a specific period of time (Fundamentals of Financial Accounting, 2006, p. 10). The Statement of Retained Earnings illustrates what portions of the company’s earnings was paid to stockholders and retained by the company for future operations (Fundamentals of Financial Accounting, 2006, p.12). Finally, the Statement of Cash Flows reports summarizes how a business’ “operating, investing, and financial activities caused its cash balance to change over a particular range of time” (Fundamentals of Financial Accounting, 2006, p.13).
• Accounting (financial) statements for a period of several years. The statements include the balance sheet and profit and loss account, in addition, cash flow statement, capital and the annex to the financial balance.
According to the conceptual framework, the potential users of financial statements are investors, creditors, suppliers, employees, customers, governments and agencies, and the general public (Financial Accounting Standards Board, 2006). The primary users are investors, creditors, and those who advise them. It goes on to define the criteria that make up each potential user, as well as, the limitations of financial reporting. The FASB explicitly states that financial reporting is “but one source of information needed by those who make investment, credit, and similar resource allocation decisions. Users also need to consider pertinent information from other sources, and be aware of the characteristics and limitations of the information in them” (Financial Accounting Standards Board, 2006). With this in mind, it is still particularly difficult to determine whom the financials should be catered towards and what level of prudence is necessary for quality judgment.
Auditing is used to enhance the degree of confidence that users of financial statements have in those statements. This is achieved through gathering sufficient evidence to come to a conclusion on whether the financial statements are prepared “in all material respects, in accordance with the applicable financial reporting framework”. (IFAC, 2013). This usually refers to how true and fair the statements are when looking at the financial position of the company at the end of the period.
There are four financial statements which are the income statement, statement of owner’s equity, balance sheet, and the statement of cash flows.
By the Companies and Allied Matters Acts 1990(CAMA), the primary function of an auditor is to audit the financial statements of the company and form an opinion as to whether a) proper accounting records have been kept by the company and b) the company’s balance sheet and profit and loss account are in agreement with the accounting records and returns provided to the auditor by the company. The True and Fair view opinion by auditors on the financial statements of companies gives credibility to such reports. This have a way of convincing the users of such information that the financial statements can be relied
As illustrated in ISA 200, “Objective and General Principles Governing an Audit of Financial Statements,” the objective of an audit of financial statements is to empower the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework. Owing to the inherent limitations of an audit, there is a mandatory risk that some material misstatements of the financial statements will not be detected, even though the audit is properly planned and performed in accordance with
Financial accounting is the analysis, classification, and recording of financial transactions and reporting such information to respective users especially external users who use the information to make decisions about their engagements with the entity. In financial accounting general purpose financial statements are used for external reporting. The public by standards imposes the development of the statements through respective national professional bodies, International Accounting Standards Board and respective company Acts for various nations.
The Purpose of Financial Statements The financial statements of a business are used to provide information about the status of the business, set performance targets and impose restrictions on the managers of the firm as well as provide an easier method for financial planning. The financial statements consist of the Profit and Loss Account, Balance Sheet and the Cash Flow Statement. There are four areas of information, which we can collect from a company's financial statements. They are: Ÿ Profitability - This information comes from the Profit and Loss account. Were we can compare this year's profit with the previous years.
In general financial statements represent a formal record of an entity’s performance over a certain period of time which contains useful information to shareholders to assist them in making decisions (IFRS, 2014). In recent years, a wide range of users including shareholders and investors are interested in financial statements such as competitors, lenders and so on. Hence the audit report is prepared to provide an independent examination and the expression of opinion on financial statements (Millichamp and Taylor, 2012). However whether the information that auditors faithfully present or the users can totally rely on might still be the big question. Nonetheless under rules and regulations set by accounting boards, audit reports show the external opinion on true and fair view of the company’s financial statements and reduce the “Audit Expectation Gap” (AEG).
Audit is a process to evaluate and review the accounts and financial statement objectively. We can divide it into internal auditors and external auditors. Internal auditors have a inner knowledge of business process. Auditor has access to the much confidential information and all levels of management. But they may lose their judgement and they are not acceptable by the shareholder. “The overall objective of the external auditors is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to report on the financial statements in acco...
Financial statements provide an overview of a business' financial condition in both short and long term. They help in understanding the past performance of the company and making future predictions about the company. It thus helps us to look beyond the profit figures.
...e financial reports and statements are correct. This auditing will be conducted by auditing department of the organization, even may be done by an independent auditor who is not part of the organization, and sometimes public officials are elected. In case of unmatched consequences the organization need to give explanation on the misrepresentation of wrong statements. Auditors purpose is then to ensure that the misrepresentations are corrected, then maintain accurate, reliable financial documents and statements.