The audited financial statement is important in business because in most cases, the managers in the business enterprises are less skilled or dishonest in recording and accounting and therefore all-important facts on financial transactions are hardly recorded in an accurate manner. Thus, audited financial statements are meant to offer an opinion concerning verification of financial statements and their statement are aligned to specific criteria. The normal criteria are determined by international accounting standards. However, the auditors are also at liberty to perform their audits on cash basis or any other accounting basis as may be determined s appropriate in an organization. It is prudent for the auditor to offer their opinion concerning the fair statement of financial statement based on the accounting standards. This is achieved through collection of crucial evidence that will prove if the statements have material errors as well s misstatements or not.
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The need for the audited financial statements is usually occasioned by human nature and in business, transparency and accountability plays a crucial role in the success of the business. The existence of the society depends on availability of financial information that is dependable. The decision of granting credit to business by a credit professional, the decision of an investor to purchase or sell securities in a business, the approval of loan by a bank and the ability of the government to charge taxes to business depend on the information that is supplied through audited financial statements in a business. The provider of the information hs a goal that is directly in contrast with the goals of the user of the information and therefore, it is commonly recommended that audited financial statements be conducted by an independent auditor. The reliability of independent auditor is based on their reliability as well as professional competence and thus, the information they give is a real reflection on the real situation in the business.
The independent auditor must be conducted accurately because the society needs this information for the purpose of resource allocation. The capital resources are in most cases limited and thus must be allocated to meet the goal of production of the highly demanded goods as well as services. Resource allocation on economists’ perspective leads to the achievement of the greatest advantage due to the application of accounting measurements. On the other hand, inaccurate reporting associated with inadequate accounting is a good cause to concealed wastages as well as inefficiency, thus translating to irrational allocation of economic resources.
The audited financial statements also helps in adding credit to the assertions that have been implied by the management of a business organization that the financial statements that have been presented are fair representation of the position as well as performance of the organization and that the stakeholders must have faith in the information given. The credibility of the audited financial statements in an organization is given by the independent auditor. This has the implication that, the audited financial statements are reliable to outsiders including traders, bankers, the government, stockholders and any other third parties with vested interests in the business. The audited financial statements are conventionally approved tools for reporting the financial position of a business. The financial statements must be audited meaning that, an audit report must come with the statement, which is an expression of professional opinion concerning the fairness of the financial statements of the organization.
Works Cited
Financial audit available at http://en.m.wikipedia.org/wiki/financial_audit
Understanding the Auditor’s Report available at http://www.crfonline.org/orc/cro/cro-11.html
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