Although related party transactions aren’t necessarily bad, they do raise some concerns about the risk of misstatement or omission in financial reporting.
Audit opinions differ depending on the information available, financial viability, errors discovered during audit procedures and other limiting factors. The type of opinion your auditor issues tells stakeholders whether you’re in compliance with accounting rules and likely to continue operating as a going concern.
When accountants conduct an audit or review, they can’t test every transaction. Instead, they set a “materiality” threshold. This benchmark is used to obtain reasonable assurance in an audit — or limited assurance in a review — of detecting misstatements that could be large enough, individually or in the aggregate, to be material to the financial statements.
Today’s auditors spend significant time determining whether amounts claimed on the income statement capture the company’s financial performance during the reporting period. Here are some income statement categories that auditors focus on.
Auditors assess their clients’ risk factors when planning for next year’s financial statement audit. Likewise, proactive managers assess risks at year end. A so-called “SWOT” analysis can help frame that assessment.