For Investors
"Did You Know?"
A company’s CEO and CFO are required by law to disclose to the auditor and the audit committee any significant deficiencies in the design or operation of the company’s internal controls over financial reporting.
(May 15)
Public companies that are traded on the stock exchanges have to produce an annual report with financial statements that show the company’s financial performance in the previous year.(May 9)
A company’s CEO and CFO are required by law to certify that they are responsible for establishing a system of internal controls over financial reporting and have evaluated and presented their conclusions about the effectiveness of those controls.(May 3)
Public companies that are traded on the stock exchanges have to produce an annual report with financial statements that show the company’s financial performance in the previous year.(April 25)
The independent auditor examines, on a test basis, evidence supporting the amounts and disclosures in the company’s financial statements.(April 17)
The audit opinion is included in a company’s annual report and is filed with the U.S. Securities and Exchange Commission, which posts the financial statements in an online database available to the public.(April 9)
PCAOB standards require that independent auditors modify the audit report if it is determined that a company’s consolidated financial statements are materially misstated.(April 4)
The external auditor reports to the audit committee throughout the audit, particularly if there are concerns relating to the company’s accounting policies.(March 26)
When deciding whether to accept a new engagement, audit firms consider the reputation and integrity of company management to assess the possibility that the company may engage in questionable or unethical business practices.(March 20)
The external auditor is required to perform review procedures on the interim financial statements reported on Form 10-Q prior to filing with the SEC, but is not required to issue a review report for inclusion in the filing.(March 12)
The independent auditor may not express an opinion on the financial statements if a company’s management or audit committee places significant restrictions on the scope of the audit. (March 5)
An integrated audit includes audit procedures supporting the opinion on financial statements and procedures to test internal control over financial reporting. The two audits are conducted concurrently.(February 27)
The PCAOB’s oversight of public company auditing firms includes responsibility for developing auditing standards, performing inspections of registered firms, and enforcement authority related to the rules of the PCAOB and the SEC.(February 20)
The audit process follows PCAOB auditing standards, which the external auditor applies with judgment and experience to the accounting and auditing issues particular to an audit.(February 14)
An independent auditor conducts a risk assessment to determine whether complex transactions, weak internal controls over financial reporting, or industry-wide issues, among other things, could lead to a risk of material misstatement in the financial statements.(February 6)
Audit firms must have internal quality control programs that include policies that require their professionals to exercise objectivity, professional skepticism, integrity and independence.(January 30)
An audit team is made up of certified public accountants and other professionals with the particular skills and knowledge required to conduct the particular audit.(January 24)
The audit includes assessing the accounting principles used and significant accounting estimates made by a company’s management as a part of evaluating whether the financial statements are fairly presented.(January 17)
A company’s management is responsible for the preparation and fair presentation of the company’s financial statements in accordance with generally accepted accounting principles. (January 9)
Auditors conduct audits of public companies in accordance with the standards of the Public Company Accounting Oversight Board. (January 3)
Before accepting a new engagement, an audit firm reviews business and personal relationships of firm staff and other matters that could prevent auditors from complying with PCAOB and SEC independence rules (December 26)
Independent auditors are required to read management disclosures outside the financial statements in the annual report and consider whether the information contains material misstatements or is materially inconsistent with the financial statements.(December 19)
Public companies with market capitalization of $75 million or more are required to have an audit of management’s assessment of the effectiveness of the company’s internal control over financial reporting.(December 12)
By law, the audit committee is responsible for the appointment, compensation, and oversight of the external auditor, including resolution of any accounting disagreements between the auditor and company management.(December 5)
In considering whether to accept an audit engagement, an audit firm evaluates whether it has the necessary industry-specific expertise and resources to perform the engagement with competence and due professional care.(November 28)
By law, a company’s CEO and CFO must individually certify that financial reports filed with the SEC are materially correct and fairly present the company’s operations and financial condition in all material respects.(November 21)
Auditors’ judgments about materiality are affected by the auditors’ understanding of the financial information needs of investors and other users of the consolidated financial statements.(November 15)
At the beginning of the audit process, the independent auditor conducts a risk assessment of the potential for the financial statements to contain a material misstatement due to error or fraud and adjusts the audit plan based on the assessment.(November 7)
The audit team’s work continues until there is sufficient evidence to provide reasonable assurance that the company’s financial statements taken as a whole are free of serious or material misstatement.(October 31)
The audit team documents the work performed and why they did it. To assure quality, an experienced auditor who’s not on the team reviews the work and conclusions before the audit report can be issued.(October 25)
Independent auditors use their experience and judgment in selecting the areas they will test in light of the risks posed by the company, such as complex transactions, weak financial controls, and issues affecting the particular industry.(October 17)
When evaluating audit evidence, the independent auditor must exercise professional skepticism, which requires an objective questioning mindset, and be attentive for any inconsistencies.(October 10)
Auditors of public companies must follow the auditing standards of the Public Company Accounting Oversight Board.(October 3)
A comprehensive, quality financial reporting framework, overseen by the audit committee, helps promote continuous improvement to the audit process that will enable audits to remain effective even in the face of a rapidly changing business environment.(September 26)
If the independent auditor has substantial doubt about a company’s ability to continue as a “going concern” generally for a period of at least twelve months past the balance sheet date, the audit report will include an explanatory paragraph to reflect the decision.(September 19)
If the external auditor declines to express an opinion because of an inability to access enough information to form an opinion or because the scope of the audit was restricted by the company, a “disclaimer opinion” is issued.(September 12)
An “adverse opinion” issued by an independent auditor states that a company’s financial statements do not present fairly the financial position, results of operations, and cash flows of the company in conformity with GAAP.(September 6)
A “qualified opinion” modifies the auditor’s standard opinion by stating that the financial statements are a “fair presentation” except for the effects of certain matters, such as the auditor’s inability to obtain particular audit evidence or the company’s departure from GAAP in a particular instance.(August 29)
Financial statements with a qualified, adverse or disclaimer opinion represent a substantial deficiency in the reporting requirements for a company’s filings, in which case the company would be required by the SEC to take corrective measures.(August 22)
If the independent auditor concludes that the financial statements, taken as a whole, “present fairly, in all material respects,” the financial position of the company, the auditor issues what is known as a “standard unqualified opinion.”(August 15)
There are five types of auditor’s opinions on the financial statements as a whole: Standard Unqualified Opinion, Explanatory Language Needed, Qualified Opinion, Adverse Opinion, and Disclaimer Opinion.(August 8)
The audit report identifies the financial statements that were audited; explains the division of responsibility between the independent auditor and management; details the scope of the engagement; and contains the auditor’s opinion on the financial statements.(August 1)
Based on a risk assessment, the independent auditor uses professional judgment to determine the scope of the audit, the nature and amount of evidence required to support the audit opinion and to interpret the audit evidence.(July 25)
The audit process includes quality control procedures, among them an audit firm’s review of audit procedures (engagement quality review) that is performed by another qualified professional prior to issuance of the audit report.(July 19)
Company management is responsible for implementing and maintaining internal control over financial reporting and for attesting to its operating effectiveness.(July 11)
Company management bears the primary responsibility for the preparation of the company’s financial statements, annual reports and other financial disclosures.(July 5)
Professional auditing standards call for auditors of public companies to exercise professional skepticism, which is defined as “an attitude that includes a questioning mind and a critical assessment of audit evidence.”(June 28)
The audit of a complex global business may require hundreds of professionals with in-depth knowledge of a client’s business and other skills to match the specific requirements of the audit.(June 20)
In planning an audit of a public company, PCAOB auditing standards require members of the audit engagement team to discuss the potential for material misstatement due to fraud.(June 13)
Audit committees, made up of board members independent of company management, are responsible for hiring and overseeing the work of the independent auditor.(June 6)
Any accounting firm that prepares or issues an audit report for a public company, or that plays a substantial role in the preparation of such a report, must register with the Public Company Accounting Oversight Board (PCAOB) and is subject to regular inspections by the PCAOB.(May 30)
In examining a public company’s internal control over financial reporting, auditors seek to determine whether the company has established effective procedures to reduce the chances of error or fraud. (May 23)
For companies with market capitalization of greater than $75 million, in addition to auditing financial statements, public company auditors assess the effectiveness of the public company’s internal controls over financial reporting. (May 16)
Members of an audit team are selected based on their individual skills to match the specific requirements of the audit. (May 9)
The independent auditor's goal is to provide “reasonable assurance” – not absolute assurance – that a company’s financial statements are fairly stated and comply with U.S. GAAP.(May 2)
Independent auditors provide a written report that contains an opinion whether the public company’s financial statements are fairly presented and in conformity with U.S. Generally Accepted Accounting Principles.(April 25)
Any accounting firm that prepares or issues an audit report for a public company must register with the Public Company Accounting Oversight Board (PCAOB) and is subject to regular inspections by the PCAOB. (April 18)
By law, a public company must have its financial statements examined annually by an independent auditing firm for conformity with U.S. Generally Accepted Accounting Principles. (April 11)
Investor Education Resources
A number of prominent organizations sponsor financial literacy campaigns to promote investor awareness of the importance of our capital markets, explain the roles and responsibilities of market participants, and to help individuals make wise investment decisions. More information and links to these campaigns can be found below.
Securities and Exchange Commission
The SEC's Office of Investor Education and Advocacy is dedicated to serving the needs of individual investors. It provides unbiased information on investment choices and on protecting investors from securities fraud or abuse. Investor.gov is the SEC’s website devoted exclusively to investor education, providing investors with in-depth information and "top tips" on how to invest wisely, plan for the future, and avoid being scammed.
Federal Reserve Education
The Federal Reserve, which serves as the nation's central bank, consists of a seven member Board of Governors and twelve Reserve Banks located in major cities throughout the United States. The Fed offers resources to investors, teachers and students on consumer finance, investor protection and the U.S. banking system.
Public Company Accounting Oversight Board
The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports. The PCAOB also oversees the audits of broker-dealers, including compliance reports filed pursuant to federal securities laws, to promote investor protection.
Financial Industry Regulatory Authority
FINRA is the largest independent regulator for all securities firms doing business in the United States. FINRA’s mission is to protect investors by maintaining the fairness of the U.S. capital markets. FINRA offers articles, interactive tools, alerts and other resources that help investors learn more about investing, how to build their financial knowledge and protect themselves.
