The audit is the highest level of assurance service that a CPA performs and is intended to
provide a user comfort on the accuracy of financial statements. The CPA performs
procedures in order to obtain “reasonable assurance” (defined as a high but not absolute
level of assurance) about whether the financial statements are free
from material misstatement.
In an audit, a CPA is required to obtain an understanding of a business’s internal control and
assess fraud risk. The CPA is also required to corroborate the amounts
and disclosures included in the financial statements by obtaining audit
evidence through inquiry, physical inspection, observation, third-party confirmations,
examination, analytical procedures, and other procedures.
When performing an audit engagement, the CPA is required to determine whether his or
her independence has been impaired. If the CPA’s independence has been impaired,
the CPA cannot perform the audit engagement.
The CPA will issue a formal report that expresses an opinion on whether the financial
statements are presented fairly, in all material aspects, in accordance with the
applicable financial reporting framework. In addition, the CPA is required to report any
significant or material weaknesses in the organization’s system of internal control that
are identified during the audit. By becoming aware of internal control weaknesses and
discussing these with the CPA, an organization might be able to improve the way it does
business.
As the highest level of assurance, an audit typically is appropriate – and often required – when
a client is seeking complex or high levels of financing and credit. An audit also is appropriate
if the client is seeking outside investors or preparing to sell or merge with another business.