Jonas Elmerraji
What Do Auditors Look For?
When reviewing a company's financial statements, auditors have two primary concerns: errors and fraud. Because of the complex nature of accounting, it's not uncommon for auditors to find unintentional accounting errors when they look at a company's "books." Of course, fraud is something that auditors must also look for. Before taking on a new client, auditors sit down and consider where frauds are most likely to occur, and put more resources toward checking those areas of the company. It's impossible for auditors to uncover every possible accounting issue during the course of an audit, so they make sure that they're spending more time looking for fraud where it's most likely to occur. Sarbanes-Oxley
has added a new responsibility for auditors: evaluating a company's internal control procedures. Internal controls are processes used by companies to avoid fraud, comply with laws and stay on a path toward profitability... You can probably see why these are so important. This is now found as an additional paragraph in the audit report.
The Audit Report
The audit report is that page near the end of every 10-K, but what exactly is it, and how might it affect your investment decisions?
The audit report is the document produced by the auditor at the conclusion of an audit. It lays out the auditor's opinion on the company's financial statements and the effectiveness of the company's internal controls. The audit report should contain paragraphs that present you with the responsibilities of the auditor and the company's board, the scope of the audit and -- of course -- the auditor's opinion.
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