What Is an Audited Financial Statement?

By simple definition, an audited financial statement is a business document that is audited by a certified public accountant. When a financial statement is being audited by a certified public accountant, the financial statement is being checked to make sure that it conforms to the accounting principles and the standards that are set by auditing. An audited financial statement also guarantees the lenders and/or investors that everything presented in the statement is accurate.

What Are the Stages of an Auditing Process?

There are three stages of an auditing process, all of which are discussed down below:

Components of an Audited Financial Statement

Expanding on the third stage of the auditing process, here are the processes that can be found in a fully audited financial statement:

Cash. In this process, the auditor sends confirmations to banks concerning the balances of the company. The auditor also reviews previous bank agreements, checks the validity of the authorized signatures, and performs a count of all the cash on hand.Accounts Receivable. In this process, the auditor sends letters to confirm outstanding balances with the customers, analyzes collection procedures to track the flow of cash and checks, and tests annual sales figures and their respective procedures for cutoff.Inventory. The auditors will then do and monitor a physical inventory count, verify paid supplier invoices, analyze production costs and compute allotted overhead, and follow inventory cost posts to the general ledger.Marketable Securities. The auditors will then verify if there are any marketable securities that are present and they will also perform a review of the transactions.Accrued Expenses. In this process, the auditors proceed to study the cost postings and their payments, perform a review of accrual techniques and make a comparison of year-to-year balances for the sake of consistency.Revenues. This process entails reviewing sales invoices and tracking posts to the general ledger, validating the validity of sales with customers, reviewing cash flow of collections, and analyzing the history of returned sales, discounts, and allowances.Expenses. This process usually involves the auditor examining purchase documents for the expenses that it has cost, and the auditor also performs a verification that the payments traveled to the intended people. Any unusual factors that may show up here are also checked.Debt. A confirmation of debt balances will be sent by the auditor to the lenders. Payment terms of lease agreements are also verified to make sure that they are still on track.

Types of Audited Financial Statements

Listed below are the different types of audited financial statements:

Income Statement. Also known as a profit and loss statement, an income statement depicts your company’s revenue after all expenditures and losses have been deducted. An income statement differs from a balance sheet in that it records a company’s success over a longer period of time rather than a short period of time. Gross profits, net earnings, sales, costs, cost of goods sold, taxes, and pre-tax earnings are common measures.Balance Sheet. The balance sheet summarizes the company’s financial status at the conclusion of a fiscal year or at some other time a balance sheet is generated. It indicates the worth of a company’s assets, liabilities, and equity. The entries in the assets and liabilities columns are shown in descending order of liquidity, with the most liquid ones appearing first. The auditor has the authority to confirm the presence of assets and liabilities, as well as the correctness of the statistics given.Cash Flow Statement. This can also be classified under an audited financial statement. A cash flow statement is a financial statement that shows the inflows and outflows of cash during the fiscal year. It reveals the company’s capacity to satisfy its short-term obligations and continue operations in the near future. The auditor may compare the cash flow statement entries to the bank statement, as well as the correctness of the footnotes.Shareholder Equity Statement. While it is frequently included as part of the balance sheet, a statement of shareholder equity can also be prepared separately. It summarizes all changes in your company’s worth to shareholders over the course of an accounting period. Increasing equity suggests effective company practices, but declining equity may imply the inverse.

What Are the Different Types of Audits?

Here are the different types of audits which may vary depending on the type of business:

Steps in the Audit Process

The auditing process can help uncover many inconsistencies in your financial reports and iron them out, identify weaknesses in your controls, and help increase confidence during your financial reporting process. With that being said, here are the steps of an auditing process:

  • 1. Engagement Process

    This is usually what happens first in the audit process. In this step, an engagement letter is signed by the company once an auditing firm has been selected. The auditor will next put together your audit team, create a timetable, and describe the extent of the audit queries and onsite fieldwork. Following that, the auditor will normally request documents from a preliminary audit checklist. A copy of the prior audit report, as well as actual bank statements, receipts, and ledgers, may be included in these papers. Furthermore, the auditor may obtain organizational charts, as well as files of the board and committee minutes, bylaws, and standing rules.

  • 2. Risk Assessment

    After signing an engagement letter and preparing the necessary documents, the risk assessment then follows. The main goal of conducting an audit is to determine whether the financial statements of a company are free from any substantial misrepresentations. The management, as well as third-party stakeholders that rely on your financial statements, will certainly want the statements to be accurate and in accordance with established accounting standards. Auditing standards require auditors to evaluate both general business risks and industry- and company-specific hazards. The evaluation assists auditors in determining which accounts to focus audit processes on, as well as developing audit methods to reduce potential risks.

  • 3. Planning Phase

    After conducting a risk assessment, the planning phase of the audit process then follows suit. In this step, The audit firm produces a comprehensive audit plan based on the risk assessment to evaluate the internal control environment and probe the correctness of individual line items in the financial statements. The auditors then assign members of the audit team to concentrate on each component of the plan.

  • 4. Fieldwork/Gathering of Evidence

    After the planning phase of the audit process, this step then follows. What happens in this step? Well, the auditors examine and assess internal controls while on the job. The auditor then uses the information acquired during the risk assessment to finalize the audit plan. Following that, fieldwork is carried out by chatting with staff members and evaluating procedures and processes. The auditor verifies that policies and procedures are followed. Internal controls are audited to ensure that they are adequate. The auditor may raise issues as they occur in order to provide the organization with a chance to respond. Auditors may also call third parties, such as your company’s suppliers or customers, during this phase to check transaction data or account balances.

  • 5. End of the Process

    This is the last step of the auditing process. In this step, the auditors will set up a meeting and communicate their findings. The auditor creates some sort of opinion about the accuracy and integrity of the company’s financial statements at the end of the audit procedure. To do so, they depend on quantitative data, such as testing results, as well as qualitative data, such as remarks supplied by the company’s workers and management. Afterwards, the auditors then make a report on the financial statements, judging them if they present an accurate representation of the performance of the company and if they conform to the applicable standards.


What is an Audit?

An audit is defined as the process of a thorough study of the financial records of a particular company along with their subsequent internal control systems by an independent auditor who attests to the fairness and correctness of the financial statements’ content. This process may be performed internally by the employees of the particular company or they can use the services of a certified public accountant to conduct this process externally. A complete audit is the most thorough and reliable review that an accountant can provide.

What is an Auditor’s Opinion?

An auditor’s opinion refers to a type of certificate that is issued in conjunction with financial statements. An auditor’s opinion is based on an audit of the methods and records used to prepare the financial statements and provides an opinion on whether there are any serious misstatements in the financial statements. It is usually known as an accountant’s opinion. It is typically presented in an auditor’s report, which includes multiple sections, such as an introductory section, a section identifying the financial statements in question, another section outlining the auditor’s opinion on those financial statements, and an optional fourth section that may supplement additional relevant information.

Who is qualified/Who should prepare an audited financial statement?

Any type of business, whether big or small, that intends to submit its financial records to investors or lenders should prepare audited financial statements. The great majority of potential financiers for your business will require audited financial statements rather than unaudited financial accounts since the latter offers significantly less space for error. Furthermore, if your firm is publicly listed, you must provide yearly copies of your audited financial statements.

An audit should be frequently conducted inside your business so that a proper understanding of its different aspects is reached. It is also important that an audit process should happen because it lets you detect mistakes as they happen before they get even worse. Without this process being done, who knows how accurate the financial statements of your company are?