| Audited financial statements, which have been | | | | also demonstrates operating, investing, and |
| prepared by an independent Certified Public | | | | financing activities. The statement of cash flows |
| Accountant (CPA) on behalf of a business or | | | | helps investors and management determine the |
| non-profit organization, are used to provide | | | | short-term viability of a company, specifically their |
| financial accountability and accuracy to a | | | | ability to cover expenses. |
| company’s stakeholders and people with a | | | | The CPA examines these three financial |
| vested interest in the company. In order for an | | | | statements and their supporting documentation |
| accountant to properly prepare an audited financial | | | | provided by the company and assesses the |
| statement, the CPA needs certain financial reports | | | | overall accounting principles used. From this |
| from the company. The company needs to | | | | information the CPA creates an audited financial |
| provide their income statement, balance sheet, | | | | statement which will include an opinion, either |
| and statement of cash flows along with financial | | | | qualified or unqualified, about the nature of the |
| documentation to support these reports. | | | | financial documents. |
| A company’s income statement can also be | | | | An unqualified opinion in an audited financial |
| called the P&L (Profit and Loss) and | | | | statement indicates that the CPA is in agreement |
| Statement of Operations. The income statement | | | | with the methods used by the company to |
| demonstrates how revenue earned (the top line) | | | | prepare their financial documents. The audit is |
| from the sales of products and services before | | | | found to be accurate, complete and fairly |
| expenses are taken out is transformed into the | | | | presented to meet the requirements of the US |
| net income (bottom line), the end result after | | | | GAAP (Generally Accepted Accounting Principles). |
| revenue and expenses are accounted for. The | | | | The audit provides the CPA a reasonable basis for |
| income statement documents whether the | | | | their opinion that the financial statements are free |
| company made a profit or not during a reported | | | | of material misstatements or false/missing |
| period of time. | | | | information. |
| The balance sheet, also called statement of | | | | A qualified opinion indicates that the CPA is not in |
| financial position, is a summary of a | | | | agreement with aspects of the financial |
| company’s balances as of a specific date, | | | | statements and/or methods used to prepare |
| usually the last day of the fiscal year. The balance | | | | their financial documents. A qualified opinion |
| sheet is composed of three parts: assets, liabilities, | | | | indicates that the CPA is not confident that the |
| and ownership equity or net worth, with assets in | | | | financial statements are correct or accurate. |
| one section and liabilities and net worth in the | | | | Occasionally an opinion will not be given within an |
| other, with the two sections balancing. The | | | | audited financial statement. This could be due to |
| difference between assets and liabilities is a | | | | the fact that there were insignificant documents |
| company’s net worth or equity. A | | | | available to properly prepare the audit, or there |
| company’s assets also equal their liabilities plus | | | | were issues that need to be addressed before |
| owner’s equity, which will show how the | | | | evaluating the accuracy of the financial |
| assets were financed, either by borrowing money | | | | documents. A lack of opinion usually indicates that |
| (liability) or using the owner’s money (owner | | | | a company needs to improve their accounting |
| equity). | | | | practices so they can meet the requirements of |
| The statement of cash flows shows how | | | | the US GAAP (Generally Accepted Accounting |
| changes in the balance sheet and income | | | | Principles). |
| statement affect cash and cash equivalents. It | | | | |