External Auditors Are Responsible For Ensuring A Company's Financial Statements

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External auditors are responsible for ensuring a company’s financial statements are free from material misstatement. These individuals work to provide comfort and reliability to third parties, such as investors or creditors, who may rely on a company’s financial performance. As such, auditors must objectively perform audits in a systematic and consistent manner to limit the risk of material misstatement and false representation. However, to conduct an effective audit, extensive planning and supervision is necessary, as defined under the first auditing standard of field work under the Generally Accepted Auditing Standards (GAAS) created by the Public Company Accounting Oversight Board (PCAOB) (find source). This standard states that “the…show more content…
However, auditor’s must conduct certain preliminary planning activities and create an extensive plan prior to performing the audit to guide in the collection of sufficient, appropriate evidence. Performing Preliminary Engagement Activities As listed in PCAOB Auditing Standard 2101, auditor’s should perform the following three activities prior to planning an audit: (1) perform procedures regarding the continuance of the client relationship and the specific audit engagement, (2) determine compliance with independence and ethics requirements, and (3) establish an understanding of the terms of the audit engagement with the audit committee. Auditors update client continuance and ethical compliance throughout the audit process; however, this task must occur prior to planning in order to address appropriate risks. The PCAOB added the third preliminary engagement activity as of 2012 fiscal year end, which outlines the information that an auditor must communicate to a client’s audit committee. This information must include “the objectives of the engagement, management’s responsibilities, the auditor’s responsibilities, and limitations of the engagement” and may also include other issues such as fees, billing, and access to audit documentation (AU Section 311). Auditors should communicate this information in the form of a formal engagement letter. All of the listed preliminary engagement activities help the auditor assess and
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