A financial report audit is an independent examination of the financial reports prepared by a company or organization.
The Basic objective of auditing is to prove true and fairness of results presented by profit and loss account and financial position presented by financial reports.
The result of this examination is a report by the auditor, attesting to the fairness of presentation of the financial statements and related disclosures.
The objective of external audit is for the auditor to express an opinion on the truth and fairness of financial statements.
The main necessity for conducting the audit of financial statements stems from the fact that the persons responsible for the preparation of financial statements are often different from the owners of large corporations.
Financial statements are the main source of accountability of management performance by the shareholders. However, as the management is responsible for the preparation of financial statements, shareholders have to rely on external verification by auditors in order to gain reasonable assurance that the accounts are free from material misstatements and can therefore be relied upon to be presenting true and fair view of the affairs of the company.
Apart from the needs of owners, other users of financial statements may need to place reliance on the financial statements. External audit is a means of providing a reasonable basis for the users to place reliance on financial statements.
Share and Stake holders rely on audited financial statements and that enable them to take investment decisions both short term and long term benefits.
Tax authorities rely on audited financial statements to determine the accuracy of tax returns filed by the companies.
Banks & Financial institutions require audited accounts of prospective borrowers for assessing the credit risk by analyzing their liquidity and financial position.