Large companies are overseen by what's called a board of directors. This is a group of people who have ultimate authority over what happens at the company. A company's CEO will run the organization, but he or she ultimately answers to the board, which can fire the chief executive and hire a new one if they deem it necessary.
Within the board, there might be several sub-committees. One of the most common of these is the audit committee, which has oversight over the routine audits conducted for the company's financial results.
These audits are supposed to be run by outside accountants, independent of the firm's management (remember, the firm's management created the financial statements that are getting audited in the first place).
The audit committee, usually made up of at least three board members (but often more, depending on the overall size of the company), will communicate with the auditors, helping to keep them clear of management influence and helping them maintain their independence. This allows the board to get a clearer picture of the financials and provide a check against what management is reporting. This may seem paranoid, but its considered routine and part of normal corporate governance.
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Finance: What is Adverse Audit Opinion?27 Views
Finance a la shmoop. What is an adverse audit opinion and you know deficiency
letter. Okay people this is not good you thought you had good grades but when [Report card is thrown onto the desk]
you got your report card your teachers had opinions adverse to yours... [Report card has bad grades in it]
They sent your parents a deficiency letter you know the one with all those [Mom looks shocked]
D's on it well when it's a company's audit that has similarly gone awry it's [Boss looks angry and employee looks shocked]
the nice way to say it well then it means they didn't count the beans
properly when they gave their financial reports to their investors or whoever
the auditors were serving usually this implies that companies overstated how [Employee counting coffee beans]
profitable they really were or how well they were really doing so tens of
thousands of investors if you know the company was public when this all [Big line of people waiting to invest]
happened paid twenty seven dollars and 32 cents a share when with the real
numbers the stock probably should have been trading more at like you know
fourteen dollars and 27 cents a share big difference well basically an auditor
is saying that yours are not bread-and-butter misstatements no oops [Bean report with the numbers crossed out]
it's more of a dude there were material ie important
mistakes and they were pervasive like everywhere math, science, english, history
your failure it's no mystery that's how auditors talk really
all right well then there are massive losses to massive numbers of people who hire [Protesters on a street]
massive numbers of lawyers who sue you.. massively.. in the world of finance an
adverse audit opinion is a bit like running over everyone's favorite dog [Car goes over a bump]
several times only you're the one who is likely dead meat [Guy reverses and runs the dog over again and the owner comes to fight]
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