Independent Audit

1. Understand the purpose of an independent audit.

2. List the two primary components of an independent audit.

3. Explain the function of an independent audit firm.

4. Describe the steps required to become a Certified Public Accountant (CPA).

5. List the various services provided by many public accounting firms.

6. Discuss the necessity for the creation of the Public Company Accounting Oversight Board (PCAOB) and describe its function.

Question: The SEC allows FASB to set U.S. GAAP. Does the SEC physically visit each company that issues

securities to the public to ensure that periodic financial statements properly follow the rules and guidelines of

U.S. GAAP?

Answer: A detailed examination of the financial statements produced by thousands of publicly traded companies

around the world would require a massive work force with an enormous cost. Therefore, this very essential role

in the financial reporting process has been left by the SEC to auditing (also known as public accounting) firms

that operate both inside and outside the United States. Before submitting their statements to the SEC and then

to the public, reporting companies such as IBM and Wells Fargo must hire one of these independent auditing

organizations to

• perform an audit (examination) of the financial statements,

• report on whether sufficient supporting evidence was gathered to enable the auditor to provide reasonable

assurance that the statements are presented fairly because they contain no material misstatements according to U.S. GAAP.