summarize and paraphrase
please summarize the following to 100 words and paraphrase them
External auditors play a critical role in validating company financial information. Potential lenders and investors often require externally audited financial statements before doing business with a company. If a party discovers that an auditor failed to detect material misstatements, it reflects poorly on the firm and the profession in general. For that reason, various accounting bodies release auditing standards and expectations to define the role of external audit firms.
Providing an Opinion on Financial Statements
Some managers assume external audit firms will create their financial statements, when that actually is the job of company managers. External audit firms are responsible for providing reasonable assurance that the financial statements are free from material misstatements and prepared according to an accounting framework. External auditors are not there to fix the problems, although many will issue recommendations to management. External audit firms also are not responsible for providing absolute assurance of perfect financial statements; they only test enough data to provide reasonable assurance.
Understanding the Entity and Its Environment
Although accounting is typically seen as number crunching, auditors recognize that financial statements don’t exist in a vacuum. External auditors are charged with obtaining a through understanding of their client’s environment, operations and internal controls. To do this, auditors will perform an initial risk assessment of the company. External auditors will often examine the electronic accounting information system to ensure that the data aren’t being compromised. They’ll compare the company to others in the industry to identify any irregularities that could stem from incorrect financial reporting.
Obtaining Sufficient Evidence to Form an Opinion
External auditors base a huge portion of their opinion on the evidence they examine during the audit. To ensure they’ve collected the sufficient amount of evidence, auditors should rate the riskiness of the client. The higher risk the client is, the more evidence they should collect before issuing an opinion. The quality of the evidence is also crucial. Some evidence must be obtained from reliable third-party sources, such as banks and lenders, to corroborate the client’s financial information.
Independence
The audit firm is responsible for maintaining an independent attitude and an appearance of independence from the client. A lack of independence means that the auditor might fail to address audit problems, which lowers the credibility and assurance of an external audit. The auditor should not serve as an officer for the client or participate in management of the client’s company. Audit firms also shouldn’t have any sort of financial interest in the client. Audit firm partners should ensure that none of their auditors have joint ventures or significant investments in the client before auditing the client.
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