Solutions to End-of-Chapter Questions
Chapter 14: Financial Statement Analysis
Questions for Discussion
14-1. The CPA issues an opinion letter, providing expert opinion about whether the financial
statements provide a fair representation of the organization’s financial position and the
results of its operations in accordance with GAAP. As an outsider, the auditor provides an
independent re
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Solutions to End-of-Chapter Questions
Chapter 14: Financial Statement Analysis
Questions for Discussion
14-1. The CPA issues an opinion letter, providing expert opinion about whether the financial
statements provide a fair representation of the organization’s financial position and the
results of its operations in accordance with GAAP. As an outsider, the auditor provides an
independent review of the financial statements. The discovery of fraud is an occasional
by-product, but is not the primary focus of the audit.
One of the major functions of an audit is to review systems. It is too expensive to
review every single transaction and find every error that has been made. Instead, auditors
use sampling of transactions to determine how often errors are occurring and how large
they tend to be. If an unacceptable level of errors is occurring, the auditor works with the
organization to improve its internal control systems to try to prevent errors and fraud.
14-2. The first paragraph of the audit letter points out that although the auditor can provide an
expert opinion, management holds primary responsibility for the contents of the financial
statements. In some organizations, the auditors, in practice, provide a substantial amount
of help in compiling the financial statements. It is important for managers to bear in mind
that if there are later problems with the information contained in the financial statements,
it is the organization’s management, rather than the auditors, who bear the primary
responsibility for their content.
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