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The Need for Independent Audits
By Michael C. Dennis, MBA, CBF

The independence and autonomy of CPA firms was called into question recently after financial irregularities at Enron Corporation became public - and the corporation was forced to file for bankruptcy protection. However, the U.S. economy still needs independent auditors. CPAs play a vital role by ensuring that most financial statements do not contain significant irregularities.

If all the facts concerning financial transactions were properly recorded by the company, and if the owners or managers of businesses were knowledgeable and completely trustworthy, there would be little need for independent auditors. But since most business owners are not trained as accountants, and those that are rarely keep up with all of the latest accounting rule changes, and since a few are dishonest there will always be a need for independent auditors.

Reliable financial information is essential to the following groups:

  • Credit professionals making decisions about credit granting,

  • Investors or potential investors considering whether to invest in the stocks or bonds issued by a corporation

  • Bankers considering whether or not to sign off on a loan request

We must recognize that in some cases the goals of the customer [the provider of information] do not match the goals of the users of the information. For example, a company trying to get a loan or a line of credit may try to make its financial statements look as strong as possible - and this is where the need for independent auditors becomes obvious - to turn fantasy into reality.

The goal of having audited financial statements independently certified is to try to ensure the financial information provided is an accurate, complete, and unbiased representation of the financial condition of the company under review.

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