Final answer:
An auditor must communicate significant audit adjustments and consultations with other accountants to those charged with governance in a publicly traded company. This ensures that the corporate governance has an accurate picture of the company's financial state. If there are no significant audit adjustments or consultations, this generally indicates no significant financial misstatements.
Step-by-step explanation:
An auditor should communicate certain items to those charged with governance in a publicly traded company, particularly in areas where corporate governance plays a crucial role in ensuring the accuracy and reliability of financial information. According to auditing standards, an auditor is responsible for communicating significant findings from the audit, which may include significant audit adjustments and whether management has consulted with other accountants about significant accounting matters. This communication is vital since various institutions within corporate governance, such as the board of directors, auditing firms, and outside investors, rely on accurate financial records to make informed decisions.
The collapse of Lehman Brothers is a historical example where corporate governance failed to provide accurate information, highlighting the importance of thorough communication between auditors and governance bodies. However, if there are neither significant audit adjustments recorded by the company nor management's consultation with other accountants on significant accounting matters, the auditor may determine that there is nothing of that nature to communicate.
Audit adjustments, whether recorded by the company or unrecorded but communicated to those charged with governance, typically reflect the differences identified by the auditor between the reported amounts and the amounts that should have been reported. If no such adjustments or consultations exist, it might indicate that the financial statements presented by management do not contain significant misstatements, or that consultations with other accountants have not raised concerns that would impact the financial statements significantly.