Chapter 19, Problem 1RQ

To determine

Evaluate the given statement about the audit of companies on an annual basis.

Explanation of Solution

Auditing:

Auditing is a process of examination of the financial statements of the company to check the fair and accurate representation of the financial data. Auditing includes the collection of evidence from all possible sources for the process of auditing. As it includes all possible sources, then it has the least risk of material misstatement.

All companies should be audited annually:

This is not the correct statement. The annual audit cannot be conducted by every entity. The small companies might face the expenses if the audit is made on an annual basis. The audit can be done annually only if the expense incurred for getting the financial statements audited equals the benefits arrived out of it. The small entities opt to get their financial statements prepared and reviewed by the Certified Public Accountants. Thus, it cannot be said that all companies have to be audited annually. The large companies can adjust to get their financial statements audited.