Question

Auditor as Guarantor / insurance provider?

Scenario:

Your neighbor Jim invited you to lunch yesterday. He knew previously that you are taking Auditing and Assurance course at De Anza College. Sure enough, it was no "free lunch" because Jim wanted to discuss the annual report of Foothill Corporation. He owns Foothill stock and just received the annual report. Jim says, "our auditors prepared the audited financial statements and gave an Unqualified opinion, so my investment must be safe."

Required discussion question:

What misconceptions does Jim seem to have about the auditor's role with respect to Foothill Corporation?

Answer 1

Auditor work is to check about financial statements and other financial data, accounting entries are genuine or not also check about the information with supporting evidences. They are only responsible knowing whether financial data and information are genuine or not. Also his responsibility to check any frauds or mispresentation of financial data. According to Jim, He wants that auditor should guide him whether his investments are safe or not. But actually this is not a auditors work about financial guidance. Financial consultants are the right persons for guiding about right investments and to know about any risks of investments. Jim is treating an auditors in wrong way as financial advisors.

Thus, Jim should think about an auditor is like guarantor not financial consultant.