Mention the purpose of financial audits.
Explanation of Solution
Financial audit: The audit which focusses on the evaluation of the faithful and fair representation (of financial statements of government entities, educational institutions, health care organizations, and not-for-profit organizations), and the reliability of the financial information, in conformity with the generally accepted accounting standards (GAAS) established by Accounting Standards Board (ASB) of American Institute of Certified Public Accountants (AICPA), by a certified public accountant (CPA) is referred to as financial audit.
Purposes of financial audit:
- Provide assurance to the external users that the financial statements are prepared in conformity with GAAS, established by ASB of AICPA.
- Report that the material facts have been disclosed.
- Enhance the credibility of the financial information from the opinion declared by the CPA out of his objectivity in the audit engagement.
Indicate the bodies that are responsible for setting standards for the financial audits of government and not-for-profit organizations.
Explanation of Solution
Governing or authorized bodies: Government entities, educational institutions, health care organizations, and not-for-profit organizations should use generally accepted accounting standards (GAAS) that are established by Accounting Standards Board (ASB) of American Institute of Certified Public Accountants (AICPA). A broader scope is provided by generally accepted government accounting standards (GAGAS) that are established by Government Accountability Office (GAO). The final level of audit is Single Audit Act which incorporates GAGAS. The Single Audit Act is the complex level of audit.
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Chapter 11 Solutions
Loose-leaf For Accounting For Governmental & Nonprofit Entities
- Which of the following is the federal, independent agency that provides oversight of public companies to maintain fair representation of company financial activities for investors to make informed decisions? A. IRS (Internal Revenue Service) B. SEC (Securities and Exchange Commission) C. FASB (Financial Accounting Standards Board) D. FDIC (Federal Deposit Insurance Corporation)arrow_forwardWhat is involved in the legal requirements of financial governance? Select an answer: having a process in place for internal and external auditing of financial records collecting, managing, monitoring, and controlling financial information holding accountants legally responsible for the accuracy of financial reportsarrow_forwardHow does the Single Audit Act work?What effect has this legislation had on governmental organization auditing?What formats do auditors' reports and opinions take?arrow_forward
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