Final answer:
The incorrect statement regarding independent external audits is that auditors are required to check every transaction. Instead, auditors test a sample of transactions to provide reasonable assurance that the financial statements are free from material misstatements.
Step-by-step explanation:
The statement 'D. The auditors are required to check every transaction in order to provide assurance to financial statement users' is NOT true concerning the independent external audit. External auditors review a company's financial statements to provide reasonable assurance that they are free of material misstatements. They do so by examining a sample of transactions and events, not every single one, which would be impractical and cost-prohibitive. The goal of the audit is, indeed, to detect material misstatements, as stated in option C.
Publicly traded companies are required by the SEC to have their internal controls audited by external auditors. This is to promote transparency and protect investors, as was highlighted by the implementation of the Sarbanes-Oxley Act in 2002, in response to major accounting scandals such as those involving Enron and WorldCom. Privately owned companies may also undergo external audits, often at the request of lenders who are seeking assurance on the accuracy of financial statements before extending credit.
Corporate governance structures such as the board of directors, external auditing firms, and large investors play critical roles in overseeing and verifying the financial health and reporting of a company. The Lehman Brothers case demonstrated what can happen when these governance mechanisms fail, leading to a loss of investor trust and potentially catastrophic outcomes for the company.