Conflicts of interest exist among the different classes of users of financial statements, such as creditors and stockholders.On account of the following advantages people get their accounts audited: The present-day the need for independent audits of financial statements is increasing day by day. So users rely on the independent auditor’s report to meet their needs. So to evaluate the quality of the financial statements, users rely on independent auditors.ĭistance, time and cost make it impractical even for the most knowledgeable users of financial statements to seek direct access to the underlying accounting records to perform their verifications of the financial statement assertions. So statement users look to the independent auditor for assurance’ that the financial statements have been prepared in conformity with GAAP, including all the appropriate disclosures.Īs the level of complexity of accounting increases, so does the risk of misinterpretations and unintentional errors. Published financial statements are the only source of information for users in making significant investments, lending and other decisions. neutral concerning the various user groups.Thus, users seek assurance from outside independent auditors that the information is both This apprehension extends to a fear that the financial statements and accompanying data prepared by management may be intentionally biased in management’s favor. Many users of financial statements are concerned about ah actual or potential conflict of interest between themselves and the management of the reporting entity. The need for independent audits of financial statements can be attributed to four conditions as follows:
#Amazon 2017 financial statements audited series#
Suppliers may also require audited financial statements before they will be willing to extend trade credit (though usually only when the amount of requested credit is substantial).Īudits have become increasingly common as the complexity of the two primary accounting frameworks, Generally Accepted Accounting Principles and International Financial Reporting Standards, have increased, and because there has been an ongoing series of disclosures of fraudulent reporting by major companies.īefore we proceed further, it is considered necessary that one should understand the relationship between accounting and auditing. Similarly, lenders typically require an audit of the financial statements of any entity to which they lend funds.