AFM201 Study Guide - Midterm Guide: Trial Balance, Profit Margin, Cash Flow

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM201
• Professor: Gary Baker

Document Summary

Without effective audits modern capital markets cannot fulfill their roles , if you don"t control earnings management ( manipulation of financial info ) by auditing then the market has no real value. Auditing is the verification of information by someone else not providing it. Auditors help minimize information risk and help provide assurance to stakeholders. Auditors are key to the investment decision making process. Auditors are an independent party three party accountability - auditors are the first party, seller is the second party ( management) and investors ( shareholders) are the third party. This accountability is not determined by who pays the fee, the client is ultimately always the shareholders even if management pays the fees for the engagement. Management is accountable to users to be fair and provide services, while auditors are accountable to users to audit and verify the info provided by management.