Question

In: Finance

Answer the following questions with a 200 word response. Why is it important to look at...

Answer the following questions with a 200 word response.

Why is it important to look at the independent auditor's opinion of a company's financial statements?

How did the Sarbanes-Oxley Act change the audit process?

What does it mean when an auditor renders a qualified opinion?

Solutions

Expert Solution

Independent auditors will have no conflict of interest with the firm. The internal auditors that the firm may appoint will have conflict of interest and may not be upright in giving the correct picture in the auditing process and the financial statements may not reflecting the correct financial picture of the business. There may have been some mark-ups than the actual to paint a very rosy picture. Therefore, an external auditor is required to make sure that there are no errors or omissions and the public are fully aware of the exact financial position.

The Sarbanes and Oxley act was introduced in 2002 in response to the Enron Scam. In the Enron scam, the company ”Enron" along with its internal hired auditor Price-water house Coopers cheated the general public by giving excellent financial statements when the company "Enron" was not doing well. This ultimately led to the shutting down of Enron and new policies were introduced with the SOX act of 2002.

When an auditor renders a qualified opinion, this means that the auditor (an independent auditor) with no conflict of interest gives his or her opinion on the financial statements by signing them off and the same would be approved by the board of directors of the business and made available to the public.


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