Question

The purpose of an audit is to _______.

A) Provide financial statement users with an opinion by an independent auditor on whether the financial statements are presented fairly in accordance with an applicable financial reporting framework
B) Provide internal auditors with an opinion by the external auditor on whether the financial statements are presented fairly in accordance with an applicable financial reporting framework
C) Provide absolute assurance that the financial statements conform to Generally Accepted Accounting Principles (GAAP)
D) Help management ensure yearly bonuses will be received.

Answer 1

The purpose of an audit is to ensure the company's financial statements are accurate and fairly presented, which maintains investor confidence and supports corporate governance. It helps protect stakeholders from potential fraud or mismanagement, as illustrated by the Lehman Brothers case where these systems failed.

Step-by-step explanation:

The purpose of an audit is to provide assurance that the company's financial statements are accurate, complete, and fairly presented. This is crucial for maintaining investor confidence and the proper functioning of capital markets. An audit involves a thorough examination of financial records, transactions, and controls within an organization by an independent auditing firm.

Auditing plays a key role in corporate governance. First, it helps ensure that the management's report to the shareholders accurately reflects the company's financial position. Second, an audit can uncover discrepancies and potential areas of risk before they become significant issues. Third, it serves as a check to protect the interests of various stakeholders, such as shareholders, creditors, and the general public, from potential fraud or mismanagement.

The goal is not necessarily to help management secure yearly bonuses but rather to contribute to a system of checks and balances that maintains the integrity of financial reporting. The case of Lehman Brothers serves as an example of what can happen when corporate governance and auditing fail to provide accurate and transparent information to investors and the market.