Auditor
The Institute of Chartered Accountants in Australia
Addressing Unit 3BACF Accounting & Finance The role and function of external auditors
charteredaccountants.com.au
The Institute of Chartered Accountants in Australia
Government and the community The role and influence of governments and other bodies The role and function of external auditors Financial statements are used for a variety of purposes and decisions. For example, financial statements are used by owners to evaluate management’s stewardship, by investors for making decisions about whether to buy or sell securities, by credit rating services for making decisions about credit worthiness of entities, and by bankers for making decisions about whether to lend money. Effective use of financial statements requires that the reader understand the roles of those responsible for preparing and auditing financial statements. Financial statements are the representations of management. When using management’s statements, the reader must recognize that the preparation of these statements requires management to make significant accounting estimates and judgments, as well as to determine from among several alternative accounting principles and methods those that are most appropriate within the framework of generally accepted accounting standards. In contrast, the auditor’s responsibility is to express an opinion on whether management has fairly presented the information in the financial statements. In an audit, the financial statements are evaluated by the auditor, who is objective and knowledgeable about auditing, accounting, and financial reporting matters. During the audit, the auditor collects evidence to obtain reasonable assurance that the amounts and disclosures in the financial statements are free of material misstatement. However, the characteristics of evaluating evidence on a test basis, the fact that accounting estimates are inherently imprecise, and the difficulties associated with detecting
Addressing Unit 3BACF Accounting & Finance The role and function of external auditors
charteredaccountants.com.au
The Institute of Chartered Accountants in Australia
Government and the community The role and influence of governments and other bodies The role and function of external auditors Financial statements are used for a variety of purposes and decisions. For example, financial statements are used by owners to evaluate management’s stewardship, by investors for making decisions about whether to buy or sell securities, by credit rating services for making decisions about credit worthiness of entities, and by bankers for making decisions about whether to lend money. Effective use of financial statements requires that the reader understand the roles of those responsible for preparing and auditing financial statements. Financial statements are the representations of management. When using management’s statements, the reader must recognize that the preparation of these statements requires management to make significant accounting estimates and judgments, as well as to determine from among several alternative accounting principles and methods those that are most appropriate within the framework of generally accepted accounting standards. In contrast, the auditor’s responsibility is to express an opinion on whether management has fairly presented the information in the financial statements. In an audit, the financial statements are evaluated by the auditor, who is objective and knowledgeable about auditing, accounting, and financial reporting matters. During the audit, the auditor collects evidence to obtain reasonable assurance that the amounts and disclosures in the financial statements are free of material misstatement. However, the characteristics of evaluating evidence on a test basis, the fact that accounting estimates are inherently imprecise, and the difficulties associated with detecting