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The Value of Reliable Financial Statements

18/09/2014


​This article was originally published in the August-September 2014 issue of Premières en affaires magazine

Financial statements serve many purposes. They are used for internal management or to demonstrate to an external party the financial position of a company. In either case, they are designed to provide useful information to businesses.


Proper preparation of financial statements is critical. There are several steps in preparing financial statements that need to work together cohesively in order to deliver reliable financial information.

First, is the process of capturing transactional data. If the system is not user-friendly or is difficult to use, there is a higher risk that the data will be incomplete or erroneous.

Second is codification of the transactional data. For example: is it being presented in the right place? If not, misinformation can lead to poor decision making.

Then there is the competence of the person reviewing the data and ensuring that all is accounted for correctly and nothing is missed. If this person has no professional training or lacks experience, they can hinder the process of gathering accurate information.

And finally, there is the involvement (or lack thereof) of an external professional accountant. This step is key to ensuring that the entire process was properly performed, as it is the last check and balance to ensure that all the steps that came before were properly completed.

How useful is a set of financial statements when their preparation does not involve a qualified accountant? A chartered professional accountant (CPA) must go through several years of technical education and have a minimum amount of practical experience prior to obtaining their license to practice public accounting. As such, they are trained both from a theoretical perspective and have experience with practical applications to be in a position to add credible value to the accuracy and reliability of financial statements. Furthermore, CPAs are required to attend a minimum number of education hours annually in order to ensure they are always up to date in their knowledge and have kept abreast of technical developments in the industry.

A CPA’s contribution to the financial reporting process allows users, such as a businessperson interested in buying a company, or an investor considering owning a stake in a company, to gain comfort that the numbers they are analyzing or information they are absorbing is reliable. How can anyone imagine making significant investment or lending decisions without such assurance?

A CPA can provide comfort to financial statements by being involved internally at the company during the information gathering and review process, or by providing an opinion on the financial statements as an external party.

Reports will describe the degree of assurance being provided on the financial statements that follow. An auditor’s report will provide positive assurance based on the audit procedures performed on the financial information, whereas in a review engagement report, the accountant will provide negative assurance. The difference between these two opinions lies mainly in the degree of comfort. Where an auditor positively states compliance with a framework, an accountant in a review engagement states that nothing has come to their attention to lead them to believe the statements are not in compliance with a specific framework. Therefore, an audit report provides a greater degree of comfort. The involvement of the CPA is critical in ensuring reliable financial information, no matter the use of the financial statements.