National Management College
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Role of Auditing

In the past, companies often relied on accountants from their audit firms to assist in reconciling accounts, preparing the adjusting journal entries and writing financial statements.

Small companies, in particular, often lacked the level of accounting sophistication necessary to carry out these tasks. Relying on the audit firm often made sense from the perspective of efficiency and cost containment.
But an increased focus on auditor independence has come about during the last decade in new requirements by the American Institute of CPAs and a host of related regulatory guidance issued by the Securities and Exchange Commission, the General Accounting Office and the U.S. Department of Labor.
The standards generally restrict the nonattest services – such as tax or consulting services – that auditors may perform and the circumstances under which those services may be allowed. The increased regulations serve to muddy an already often-misunderstood set of expectations.
In the past, companies often relied on accountants from their audit firms to assist in reconciling accounts, preparing the adjusting journal entries and writing financial statements.
Small companies, in particular, often lacked the level of accounting sophistication necessary to carry out these tasks. Relying on the audit firm often made sense from the perspective of efficiency and cost containment.
But an increased focus on auditor independence has come about during the last decade in new requirements by the American Institute of CPAs and a host of related regulatory guidance issued by the Securities and Exchange Commission, the General Accounting Office and the U.S. Department of Labor.

The standards generally restrict the nonattest services – such as tax or consulting services – that auditors may perform and the circumstances under which those services may be allowed. The increased regulations serve to muddy an already often-misunderstood set of expectations.

The outside, independent auditor is engaged to render an opinion on whether a company’s financial statements are presented fairly, in all material respects, in accordance with financial reporting framework. The audit provides users such as lenders and investors with an enhanced degree of confidence in the financial statements. An audit conducted in accordance with GAASand relevant ethical requirements enables the auditor to form that opinion.

To form the opinion, the auditor gathers appropriate and sufficient evidence and observes, tests, compares and confirms until gaining reasonable assurance. The auditor then forms an opinion of whether the financial statements are free of material misstatement, whether due to fraud or error.