Audited financial statements can be very valuable to an organization and its decision makers. CPA (Certified Public Accountants) professionals are required to obtain high levels of practical education and are held to the highest ethical standards. Current auditing standards can lack outside objectivity and independence and threaten the accuracy of financial statements. Information risk can be greatly reduced with an outside audit, allowing decision makers higher levels of confidence in financial statement data for judgments.
CPA professionals have high standards to ensure that each member is well qualified to conduct his or her work to the prescribed accounting standards. CPA’s are required to ensure that financial statements and other accounting items are reported correctly and true to the performance of the organization. CPA’s participate in assurance services, attestation, tax review, tax preparation, financial accounting, management consulting, and many other financial services (Louwers, Ramsay, Sinason, & Strawser 2008). The AICPA (American Institute of Certified Public Accountants) is an institution that holds its members to high standards. Ethics play a large role in the CPA. The AICPA has a code of professional conduct that include responsibilities, the public interest, integrity, objectivity and independence, due care, and the scope and nature of services (Louwers, et al., 2008). This code holds its members to the highest standard of ethics and requires its members to work in the best interest of the public.
The minimum degree required in Florida to be eligible to sit for the exam is a Baccalaureate Degree (Becker, 2009). The first step in becoming a CPA is qualifying to take the CPA exam. The qualifications include completion of 120 semester hours as follows: a) 24 semester hours of accounting education at upper division level covering auditing, cost and managerial accounting, financial accounting, and accounting information system b) 24 semester hours in general business that includes at least six semester hours in business law courses that cover uniform commercial code, contracts, and torts (Florida Department of Business and Professional Regulation, 2009). To become licensed as a CPA, an individual must pass all four parts of the CPA exam including audit, financial, regulation, and business with a 75% or higher grade over an 18 month rolling period and work for at least one year under the supervision of a licensed CPA (Florida Department of Business and Professional Regulation, 2009).
An outside auditor can be a valuable asset to the organization because they are well educated on GAAP (Generally Accepted Accounting Principles) standards and FASB (Federal Accounting Standards Board) pronouncements and are capable of identifying fraud and theft within an organization. Beyond these measures, an outside auditor is withdrawn from the internal situation and can assist in developing standards for controls within the organization that may not be obvious to those participating in the accounting function on a daily basis. The independence of the auditor can be a valuable asset in identifying problematic controls and systems within the organization.
The outside experience and industry knowledge provided by an external auditor can be very important to a private organization that has not been exposed to the changing rules and standards of the accounting profession. An auditor can expose the organization to new standards and methods of accounting, allowing the organization to grow and meet requirements of the current financial standards. Although an outside auditor can be very valuable to an organization, there are limitations to the services that they can provide. Due to the sheer volume of transactions in many organizations an outside auditor will not be able to check all transactions for accuracy, but will only be able to check samples and work using a materiality threshold.
An outside auditor with be able to provide the organization with a set of generally accepted auditing standards. Current auditing standards within the organization do not reflect the necessary components as outlined by the AICPA. Current auditing standards are flawed by lack of technical training in the organization and independence of the internal audit. Internal auditors are linked to the organization and can have challenges being impartial when auditing the organizations controls and financial statements. The following are the “AICPA Generally Accepted Auditing Standards
- The auditor must have adequate technical training and proficiency to perform the audit.
- The auditor must maintain independence in mental attitude in all matters relating to the audit.
- The auditor must exercise due professional care in the performance of the audit and the preparation of the report.
- The auditor must adequately plan the work and must properly supervise any assistants.
- The auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess risk of material misstatement of financial statements whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures.
- The auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit.
- The auditor must state in the auditor’s report whether the financial statements are presented in accordance with generally accepted accounting principles (GAAP).
- The auditor must identify in the auditor’s report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.
- When the auditor determines that informative disclosures are not reasonably adequate, the auditor must so state in the auditor’s report.
- The auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed, in the auditor’s report. When the auditor cannot express an overall opinion, the auditor should state the reasons therefore in the auditor’s report. In all cases where an auditor’s name is associated with financial statements, the auditor should clearly indicate the character of the auditor’s work, if any, and the degree of responsibility the auditor is taking, in the auditor’s report” (Louwers, et al.,, 2008, p. 38).
These measures are put into place to ensure the audits are done as completely and impartially as possible. The current standards within the organization lack many of the prescribed standards as outlined by the AICPA such as independence.
Ethics are extremely important in the auditing process. As internal auditors may be swayed by personal connections to the business such as their livelihood, external auditors must maintain a personal distance from the organization being audited and hold a very high ethical standard. When reviewing an organization’s financial statements and looking for material misstatements ethics are very essential. Identifying fraud or errors in accounting data requires an auditor to be involved in the intimate details of the organization. There is much temptation to overlook a problem or exclude it from the audit report if requested by an organization. Auditing ethics requires that all auditors abide by a code of ethics and conduct themselves in a professional manner before, during, and after the audit is complete. These standards help maintain a level of trust and confidence in the audited financial statements for those who use these statements to make decisions.
Information risk “is the probability that the information (including financial statements) distributed by an entity will be materially false and misleading” (Louwers, et al., 2008, p. 78). Decisions are made daily within an organization based on the financial information provided by the accounting department. Auditing assists decision makers in remaining confident that the data they are using to make decisions on the organizations asset distribution are founded on good information. The risk of information being inaccurate or misstated is reduced greatly with an external audited financial. Current “auditing standards require auditors to design audits to provide reasonable assurance of detecting material errors and frauds to minimize” audit risk (p. 78).
Banks and other lending institutions can be much more confident in the financial results when it has been audited by an independent auditor whose ethical standards require them to report any misstatements or incorrect items in the financial statements. The decision makers within the organization can be more confident in the results of the financial statements when they have been audited by an independent firm. As decisions are made to invest in certain business entities, profitability and other financial results are extremely important in determining what business endeavors require additional capital infusions and which endeavors should be terminated. Relying on unaudited financials can be very risky for an organization due to undiscovered fraud or errors in the statements. Decisions based on inaccurate data can lead an organization to waste resources and possibly invest in items that can threaten solvency.
External auditing professionals are held to the highest standards. These standards include exhaustive educational and skill requirements for CPA’s. An organizations internal audit can be skewed by lack of independence and purposeful fraud. To reduce the risk of decision makers who rely on financial information, it can be extremely helpful to perform an external audit to uncover fraud or unintentional errors and also increase internal controls and adhere to the most recent GAAP standards.
The information provided here is intended to help you understand the general issue and does not constitute any tax, investment, financial/accounting, medical, or legal advice. Consult your accounting, financial, tax, medical, or legal advisor regarding your own unique situation.
Author: Jason Bloom, Jupiter, Palm Beach Gardens, and the Palm Beaches
Becker Professional Education. (2009). Florida CPA Exam Requirements. Retrieved from
Florida Department of Business & Professional Regulation. (2009). CPA – Licensure. Retrieved
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(2008). Auditing and Assurance Services (3rd ed.). New York, New York:
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