| Audited financial statements, which have been | | | | financial statements, document the fraud risk |
| prepared by an independent Certified Public | | | | factors, and detail the client’s response to |
| Accountant (CPA), are used to provide financial | | | | these risk factors. |
| credibility, accountability and accuracy for a | | | | A client representation letter is provided to the |
| business. There are specific procedures | | | | company to sign at the conclusion of the audit. |
| performed by the CPA during the audit process. | | | | The purpose of this letter is for the client to take |
| An engagement letter, which is a letter of | | | | responsibility for the written statements explicitly |
| agreement which stipulates the services to be | | | | or implicitly given to the auditor by management; |
| performed by the CPA and the fees associated | | | | such as management’s acknowledgment of |
| with such service, is signed by both the CPA and | | | | its responsibility for the fair presentation of the |
| the company having the audited financial | | | | financial statements, compliance with laws and |
| statement done. This letter is designed to prevent | | | | regulations, assertion that they are unaware of |
| misunderstanding between both parties and to | | | | any fraudulent activity and have implemented |
| reduce the risk of law suits. | | | | procedures to detect and prevent fraud. |
| The accountant will request financial reports from | | | | From this information the CPA creates an audited |
| the company to review. These reports include the | | | | financial statement which will include an opinion, |
| income statement, balance sheet, and statement | | | | either qualified or unqualified, about the nature of |
| of cash flow along with financial documentation to | | | | the financial documents. The intention of the audit |
| support these reports. The auditor will review the | | | | of financial statements is to gather evidence that |
| company’s internal control system to | | | | will ultimately produce and support an opinion |
| determine what controls are in place and assess | | | | about the audit as well as defend the auditor if a |
| the control risk of the controls failing to detect or | | | | lawsuit resulted from reliance on the audit opinion. |
| correct any material misstatements in the | | | | The goal of an audited financial statement for a |
| accounting records which could affect the financial | | | | company is to provide the CPA with a reasonable |
| statements, review specific financial statement | | | | basis for an unqualified opinion that the financial |
| items required by the AICPA Statements on | | | | statements are free of material misstatements |
| Auditing Standards (SASs), and documentation | | | | or false/missing information. With an unqualified |
| about financial statement items they deem | | | | opinion, the audit is found to be accurate, |
| necessary. The auditor is also required to: confirm | | | | complete and fairly presented to meet the |
| accounts receivable, observe the inventory count, | | | | requirements of the US GAAP (Generally |
| inquire with client’s lawyers regarding any | | | | Accepted Accounting Principles). A qualified opinion |
| litigations, claims, or assessments, evaluate | | | | indicates that the CPA is not in agreement with |
| accounting estimates made by management | | | | aspects of the company’s financial |
| confirm business activities and account balances | | | | statements or accounting procedures and is not |
| with outside entities, assess the degree of risk | | | | confident in the accuracy of the financial |
| that fraud will cause a misstatement in the | | | | statements. |