Chapter 2, Problem 1CC

Summary Introduction

Auditor:

An auditor is a third party for an organization who is hired to check neutrally the annual financial statements of that organization in order to make sure that they have adhered to the GAAP principles while preparing their financial statements and it also provides a proof to the stakeholders of the organization about the authenticity of the information.

To Identify:

The role of an auditor.

Answer to Problem 1CC

An auditor plays a very important role in an organization. It is the third party and it provides neutral evaluation of the authenticity of the company’s financial statements. The roles that an auditor plays are as follows:

• Auditor’s report
• Reviewing financial statements
• Analyzing the company’s performance
• Ensuring compliance with the GAAP principles
• Identifying the areas of high risk

Explanation of Solution

An auditor has got several important roles to play in an organization. They are as follows:

• Auditor’s Report − The auditor prepares a report which represents their true opinion or view about the quality of accounting policies and practices that the company has been following. By doing this, instead of the company management, the auditors become responsible for the true and fair disclosure of the company’s statements as they have provided their opinion for the same.

• Reviewing Financial Statements − It is the task of the external auditors to review the financial statements of the company and all their accounting processes as well. They are supposed to review their entire performance of each business units and segments for a particular time period along with it.

• Analyzing The Company’s Performance − The auditors also analyze the performance of the company as a whole and also for each of its business units and segments. This provides as an additional assurance for the stakeholders of the company that the disclosure that the company has made is authentic

• Ensuring Compliance With The GAAP Principles − GAAP stands for generally accepted accounting principles. The auditors of a company make sure that the company adheres to the GAAP principles and also that the disclosure that they make is complete and true.

• Identifying The Areas Of High Risk − The auditors of a company points out those headings in the statements that have high risk factor attached to it This helps the stakeholders of the company to make wise decisions.

Conclusion

An auditor has got a very crucial role to play for any organization. He adds credibility to the financial disclosure of any organization and eventually takes the responsibility of the authenticity of the same.