Question

How does auditing contribute to better financial reporting?

Answer 1

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Question;

Answer:

Financial Reporting;

Financial reporting is the discloser of financial information and other information of a company of firm in well designed or in general and legal acceptable formate to the management and other stakeholders periodically. There are four type of financial reporting: balance sheet, profit and loss account, cash flow statement and statements of shareholders' equity. Company discloses it publicly and assessable for everyone.

Auditing:

Auditing is conducting an official financial inspection of a company or its accounts. There are three main types of audits: external audits, internal audits, and Internal Revenue Service audits.

How does auditing contribute to better financial reporting?

A financial reporting is vital for the management, stakeholders and other investors. Financial reporting reflect the current financial position, future planning and intrinsic value of a business or company. Management, stakeholders and investors take the relevant decisions on the basis of financial reporting. Companies disclose it on quarterly and yearly basis. Because it is very very important so, maintaining accuracy of information, transparency, standardized formate, right information, required information as per the GAAP etc are very very important for the better financial reporting . A wrong information in financial reporting or improper formate of financial reporting can misguide the government, stakeholders, management and other investors and it leads to the wrong decision making that becomes the reason of losses.

Third party auditing insure the reliability and accuracy of the financial reporting and it is legally compulsory also. Third party auditor checks the following things:

1. Accuracy of data: Auditor ensure that the all the information of financial reporting is accurate or have some misrepresentation.

2. Error checking: Auditor checks errors by cross checking of all the record transactions and invoices used to prepare financial statements by the company.

3. Used words: Auditor check the words that is used in financial information. is it a standard word or company has used some fancy words to confuse the management, government, stakeholders and investors to get the benefits.

Because financial report is audited by the independent third party auditor which has no any monetary or non-monetary interest in the company and does own work honestly so, it is reliable for management, government, stakeholders and investors. So, It is vital and  contribute to better financial reporting.

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