Question

what is the main objective of the audit of entity's financial statement?

2. Given the CPA firm is auditing financial statements, why would they need to understand anything about the client's business?

3. What does the auditor do in an audit other than verify the mathematical accuracy of the numbers in the financial statements?

4. The audit represents the CPA firm's guarantee about the accuracy of the financial statements, right?

Answer 1

1. The main objective of Audit of financial statements is to report on the true and fair view of the financial statements. To report on how the business is performing and for any frauds or errors.

2. Without understanding the nature of business a CPA firm cannot proceed with the audit of financial statements. The main reason behind that is that to draft a plan of action we should have a basic knowledge on how an entity business is carried on and without that basics audit program cannot be made effectively.

3. Verification of mathematical accuracy is a small aspect of an audit. The auditor will verify the internal controls under which the entity is carrying on the business. Not only the mathematical accuracy the background of the figures in the financial statements will be verified like for any erros or frauds in the background to show a better position to the people. Hence auditing is not just a limited scope.

4. The audit doesn't give a guarantee but it can just provide an assurance on the functioning of the entity. Audit has many limitations which constraints it from giving a guarantee. Time is one of the main constraint.