Jonas Elmerraji
In order to placate the investing world after Enron and make sure that scandals like this never spread to independent auditors again, the accounting world has gone through some bumpy changes in the last few years. This started with the formation of the Public Company Accounting Oversight Board (PCAOB), and implementation of rules brought on by legislation like the Sarbanes-Oxley Act.
Auditor Independence In order for an external auditor to be effective, he or she must be independent. Independence means that the auditor isn't affiliated with the client, and has nothing to gain by delivering a misleading audit opinion. A company's audit committee
hires the firm that will be performing the external audit. The committee is usually composed of directors of the company, and is responsible for its financial reporting. Having auditors deal with the audit committee directly helps ensure independence by keeping the chain of command at a high level. When auditors do uncover fraud in a company, the audit committee is the first group they turn to (followed closely by the SEC ).
So now you know that an audit opinion is a pretty important piece of paper -- probably something you shouldn't overlook the next time you're thumbing through a company's annual report .
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