Company in doubt? Don't blame auditor

April 20, 2009

Three recent articles in the IBJ or IBJ Daily, including a story about Irwin Financial Corp. on April 1, have implied that auditors are casting doubt over a company’s ability to stay in business. That, however, is not the auditor’s role.

While such an uncertainty disclosure may have been included as a footnote in the client’s financial statements, it is not a result of the auditor raising that doubt. The doubt is either there or it is not. If there is doubt, such as recurring losses, lack of capital, dependence on additional financing, etc., the reporting entity must disclose this uncertainty in their financial statements under generally accepted accounting principles (GAAP). It is the auditor’s job to ensure those disclosures are present in accordance with GAAP, if the doubt exists. Where this doubt exists, the auditor has a duty to mention it in their report. He or she [is] only doing so to bring attention to a footnote the company has already included [in] its financial statements.

Keep in mind, the auditor doesn’t run the business—the business’ management does. The financial information that is [the] basis for the audit report is prepared by the company’s management. The auditor’s role is to provide assurance that the financial statements are fairly presented and materially free of errors and fraud.

The audit is important for any business and the users of its financial information, and certified public accountants are the only financial professionals licensed to provide this service. Their qualifications as objective experts give them the authority to express a professional opinion on the fairness of a company’s financial statements. But the job of raising concerns over a company’s financial well-being by including footnotes in its financial statements are the responsibility of the business management. The ultimateconclusions as to how that information is to be interpreted lie with the users of it.

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Gary Bolinger
President and CEO, Indiana CPA Society

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