Financial statements

Sample Solution

  Yes, investors need to worry about the validity of financial statements. Financial statements are one of the most important tools investors use when evaluating a company and its potential for investment. While companies must follow generally accepted accounting principles (GAAP) in preparing their statements, there is still potential for errors or misstatements due to human error or intentional manipulation. Therefore, it is important for investors to ensure that the financial statements they review have been audited by an independent certified public accountant (CPA).

The auditor's report provides assurance that the financial statement has been prepared consistent with GAAP and gives investors greater confidence that the numbers being reported can be relied upon. An audit ensures that any material misstatement identified was addressed by management and incorporates appropriate disclosure under GAAP guidelines. Auditors also examine internal controls related to revenue recognition, accounts receivable, inventory, investments and other relevant areas which are essential elements of a company’s business operations.. Additionally, an auditor may identify issues unrelated to GAAP but significant enough to warrant disclosure such as operating losses incurred over multiple years due to inadequate cost control or a lack of strategic direction throughout management which could indicate future risk even if not currently disclosed on the face of the financial statement. It is this level of detail into specific risks faced by those investing in a company which makes an audit more than just checking off boxes; rather it provides additional insight into how well managed and profitable a company really is. In today’s global markets where bad news travels quickly across borders and seas at lightning speed – now more than ever – investors should pay attention when looking at audited financial statements as these reports provide key insights into possible pitfalls before investing in a company. Not all companies are subject to audits; however many larger publicly traded companies have extensive reporting obligations including providing audited annual reports for stakeholders such as shareholders who rely heavily on external validation from CPAs before investing in them. Investors would be wise to look beyond simply reviewing historical performance metrics contained within financial statements alone -- making sure they understand how much reliance can be placed on them -- especially considering so much depends upon accurate information when it comes time to make decisions around buying or selling shares in publically traded companies.