Question

Most auditors believe that financial statements are "presented fairly" when the statements are in accordance with GAAP, and that it is also necessary to?

1) determine that they are not in violation of FASB statements.
2) examine the substance of transactions and balances for possible misinformation.
3) review the statements using the accounting principles promulgated by the SEC.
4) assure investors that net income reported this year will be exceeded in the future.

Answer 1

The Correct option is 2). Auditors affirm financial statements as "presented fairly" if they are in line with GAAP and they also scrutinize transactions to prevent misinformation. The Sarbanes-Oxley Act emphasizes the importance of accurate reporting to protect investors. Auditors focus on the current integrity of statements, not future earnings predictions.

Step-by-step explanation:

Most auditors believe that financial statements are "presented fairly" when the statements are in accordance with GAAP (Generally Accepted Accounting Principles). In addition to following GAAP, auditors must examine the substance of transactions and balances to detect any possible misinformation. This thorough examination is necessary to ensure the integrity and transparency of the financial information being presented by a company to its stakeholders, including outside investors such as those who invest in mutual funds or pension funds. The series of corporate scandals that led to the enactment of the Sarbanes-Oxley Act in 2002 highlighted the importance of accurate financial reporting and reinforced the auditor's role in safeguarding against accounting fraud. It is not the auditor's responsibility to confirm that past net income will be exceeded in the future or to assure investors of future financial performance; such assurances would go beyond the scope of their role.