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Purpose of audit of financial statements

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posted Dec 27, 2016 by anonymous

3 Answers

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The purpose of an audit is to provide an objective independent examination of the financial statements, which increases the value and credibility of the financial statements produced by management, thus increase user confidence in the financial statement, reduce investor risk and consequently reduce the cost of capital of the preparer of the financial statements.

answered Dec 27, 2016 by Shubhangi Jain
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An audit is conducted to provide an opinion whether "financial statements" (or the information being verified) are stated in accordance with specified criteria. Normally, the criteria are international accounting standard ( indas and SAs).

answered Jan 10 by Mayank Kumar Gupta
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The objective of external audit is for the auditor to express an opinion on the truth and fairness of financial statements.
The main necessity for conducting the audit of financial statements stems from the fact that the persons responsible for the preparation of financial statements are often different from the owners of large corporations. Whereas in small owner managed companies, the owners have first hand knowledge of the affairs of their business, management and ownership is normally separate in the case of large companies that often have thousands of shareholders. In large corporations, shareholders appoint directors to run the enterprise on their behalf. This separation of ownership and control creates the need for external audit. Financial statements are the main source of accountability of management performance by the shareholders. However, as the management is responsible for the preparation of financial statements, shareholders have to rely on external verification by auditors in order to gain reasonable assurance that the accounts are free from material misstatements and can therefore be relied upon to be presenting true and fair view of the affairs of the company.

answered Jan 17 by Lochan