Audit
Categories: Accounting, Regulations, Banking, Stocks
Turn your head and cough...financially. That's what an audit is, more or less. It is a true-ing mechanism or a Good Housekeeping Seal (arf arf)...or a stamp of honesty and credibility.
Once an audit has been performed, and cleared by a respected agency, then pretty much all of the world actually believes your numbers. That is, what you say you earned, you actually earned. What you say you sold, you actually sold. What you say you said, you actually um...said.
Auditors make a small fortune and have immense power at times. So if you find any of this gargantuan glossary even remotely interesting, look it up for a career. If you love it, it'll almost certainly love you back.
How about the other side of an audit? The part when it goes bad...where the auditor decides that you didn't earn what you earned or sell what you sold. That can result in a adverse audit opinion, AKA a deficiency letter.
What is an adverse audit opinion/deficiency letter?
Okay, people this is NOT good. You THOUGHT you had good grades…but when you got your report card, your teachers had opinions ADVERSE to yours. They sent your parents a deficiency letter. You know, the one with all those "D"s on it.
Well, when it's a company's AUDIT that has similarly gone, uh…awry…then it means that they didn't count the beans properly when they gave their financial reports to their investors, or whoever the auditors are serving.
Usually, this implies that companies overstated how profitable they really were...or how well they were really doing. So tens of thousands of investors may have overpaid for the company's stock, if the company was public when the auditing fiasco happened. Say someone paid $27.32 a share, when with the REAL numbers imply a stock worth more like $14.27 a share.
Basically, an auditor is saying that yours are not bread-and-butter misstatements. No "oops." It's more of a "dude, there were material, i.e. important, mistakes, and they were pervasive. Like…everywhere. Math, Science, English, History; your failure is no mystery."
Then there are massive losses to massive numbers of people who hire massive numbers of lawyers who sue the company…massively. In the world of finance, an adverse audit opinion is a bit like running over everyone's favorite dog. Several times. Only the company is the one who is likely dead meat…
Related or Semi-related Video
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]