Accounting and Finance Foundations

Unit 13

Accounting and Finance Foundations Unit 13: Auditing 1001

Auditing

Chapter 30

Following GAAP

Remember that in addition to verifying that a company’s financial records are accurate and free from fraud,

auditors look for evidence that the company is following Generally Accepted Accounting Principles (GAAP).

GAAP, you’ll recall, are accounting principles used to prepare, present, and report financial statements—in

other words, rules that businesses must follow when recording and sharing their financial data. When

auditing a company’s financial records, an auditor looks for evidence that:

n    The business’s accounting records are kept separate from those of the

business’s owners and managers.

n    The business is expected to remain in operation indefinitely.

n    A stable currency such as the U.S. dollar is used.

n    The financial statements are prepared for a specific accounting period.

n    Assets are entered into the records at the prices paid to purchase them.

n    Revenues and related expenses are recorded in the same accounting period.

n    Revenues are recognized when they are earned or realized.

n    The business has fully disclosed everything that people need to know to develop an accurate

picture of the business’s finances.

n    The business only records events that are significant enough to justify the usefulness of the

information.

n    The financial information that the business provided is beneficial enough to justify preparing it.

n    The business uses consistent reporting practices.

n    The business has chosen the accounting method that is least likely to overstate its assets or

understate its liabilities.

Lesson 30.4 The Audit Process—

Conducting Analytical Procedures (cont’d)

Student Guide