|
Correct Answer: an auditor’s opinion guarantees the accuracy of the financial statements.
publicly held firms are required to have their accounting statements audited by an independent certified public accountant (cpa). the purpose of an audit is to provide an objective assessment of the financial statements to ensure they have been prepared in accordance with generally accepted accounting principles (gaap) and to provide reasonable assurance about whether the financial statements are free from material misstatement. however, misconceptions exist about the role and responsibilities of auditors in this process.
the first statement, "the auditor’s opinion must be included in the firm’s annual report," is accurate. the auditor’s opinion is a crucial component of the audit report, which is included in the public company’s annual financial report. this opinion informs stakeholders, including shareholders, creditors, and regulators, about the auditor's view on the accuracy and fairness of the financial statements.
the second statement, and the focus of our discussion, "an auditor's opinion guarantees the accuracy of the financial statements," is incorrect and represents a common misconception about the role of auditors. an auditor's opinion does not guarantee the accuracy of financial statements; rather, it expresses an opinion on whether the financial statements are free of material misstatements and are presented fairly in all material respects in accordance with gaap. this means the auditor provides reasonable assurance, not absolute assurance, which implies there is still a possibility of undetected errors.
auditors perform tests on a sample basis and evaluate the appropriateness of accounting policies, not every single transaction. therefore, while auditors strive to ensure that the financial statements are free from major errors, they do not certify that the financial statements are absolutely accurate. it is the management of the company that is responsible for the preparation and fair presentation of these financial statements.
the third statement, "an auditor’s objectivity enhances the financial statement’s credibility," is true. the independence of the auditor from the company being audited is fundamental to the credibility of the audit opinion. the auditor's independence assures stakeholders that the analysis and judgment were made without bias, thereby enhancing the reliability of the financial statements for decision-making purposes.
in summary, while auditors play a critical role in enhancing the credibility and reliability of financial statements through their independent reviews, their opinions are based on assessments of whether the financial statements are presented fairly, in all material respects, in accordance with applicable financial reporting frameworks. the actual guarantee of the accuracy of those statements remains the responsibility of the company’s management. hence, the statement that an "auditor's opinion guarantees the accuracy of the financial statements" is a misconception and is not accurate.
|
ExamEdge's online practice test is that they mimicked the actual exam. I walked into the exam feeling confident I knew the material and walked out knowing my time studying with Exam Edge was well worth the effort."
Back To General Exam Info