6: Why Should Decision Makers Trust Financial Statements?
- Page ID
- 24739
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)- 6.1: The Need for the Securities and Exchange Commission
- This page highlights the importance of understanding financial statement inaccuracies and the SEC's mission for fair reporting, including the role of the EDGAR system and state laws in corporate securities. It explains the SEC's oversight of accounting standards through FASB and mentions the transition from U.S. GAAP to IFRS, with GASB standards for governments.
- 6.2: The Role of the Independent Auditor in Financial Reporting
- This page emphasizes the significance of independent audits in ensuring compliance with U.S. GAAP and improving the credibility of financial statements. It details the roles of auditing firms governed by the PCAOB and ASB, and the SEC's regulatory enforcement to protect investors. Additionally, it covers the pathways to becoming a Certified Public Accountant (CPA) and the various services provided by accounting firms.
- 6.3: Performing an Audit
- This page discusses the role of independent auditors in reviewing financial statements, emphasizing their goal of providing reasonable assurance of fair presentation in compliance with U.S. GAAP. Auditors perform tests, like verifying customer receivables, to gather evidence but cannot guarantee absolute assurance due to estimations, transaction volume, and potential management concealment.
- 6.4: The Need for Internal Control
- This page highlights the significance of internal control in companies, detailing how it involves procedures to ensure proper system function and minimize financial statement misstatements. It underscores management's role in establishing effective internal controls, which can decrease audit testing by lowering fraud or error risks. Additionally, it notes that independent auditors evaluate the quality of these controls during audits to identify necessary testing.
- 6.5: The Purpose and Content of an Independent Auditor’s Report
- This page discusses the objectives and structure of an independent auditor's report, highlighting its significance for external stakeholders and noting the implications of qualifications in the report due to insufficient evidence or misstatements. Additionally, it emphasizes the necessity of independent audits to enhance transparency and trust in the wake of recent financial scandals, underlining their role in reassuring investors amid skepticism and the unreliability of internal audits.
- 6.6: End-of-Chapter Exercises
- This page covers questions about trust in financial reporting, the SEC, CPA responsibilities, and the auditing process, including true/false and multiple-choice questions on auditing standards and the FASB. It features a matching exercise for organizations and their functions, research on PricewaterhouseCoopers' services, and an examination of state-specific CPA requirements via the NASBA website.