Question

ch.1 Discussion Auditor as Guarantor / insurance provider? Scenario: Your neighbor Jim invited you to lunch yesterday. He knew previously that you are taking Auditing and Assurance course at De Anza College. Sure enough, it was no "free lunch" because Jim wanted to discuss the annual report of Foothill Corporation. He owns Foothill stock and just received the annual report. Jim says, "our auditors prepared the audited financial statements and gave an Unqualified opinion, so my investment must be safe." Required discussion question: What misconceptions does Jim seem to have about the auditor's role with respect to Foothill Corporation?

Answer 1

The misconceptions about the auditor’s role that Jim seem to have are:

a) If an auditor authorized an audited financial statement does not mean he/ she has checked 100% accounting records but the auditor has made his/her mind through a sample check of the whole accounting record.

b) The unqualified opinion on the financials does not mean auditor has confirmed each and every accounting record of the company. The auditor has only released an unqualified opinion to those records which are shown to him/her and that too on sample test basis.

c) The auditor has confirmed the past year’s financial statements and not the future financials. The investment made in the company get hurt more by future period’s activities.

d) The auditor has only given his/her opinion only, there could exists a wrong or fraud activity in the accounting data or business activity which had escaped the auditors eyes.

e) The confirmation of the financial statements and the investment in the company are the two different conceptions.

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