Public companies have to present financial results to their shareholders. These numbers get reviewed by a theoretically neutral third party. The process of reviewing the finances is known as an audit and the person doing the audit is known as (no prize for getting this one)...the auditor.
Typically an auditor isn't a single person (that would be one overworked schlub). Instead, it's usually an accounting firm hired by the company.
As we noted before, these auditing firms are supposed to be neutral observers. Kind of like a referee in a sport. But the auditors get hired by the company being audited, receive a check from the company being audited and want to stay employed by the company being audited. Conflict of interest issues sometimes come to the surface.
For the most part, though, auditors provide shareholders with improved security. An auditor's stamp of approval lets investors know that the company's publicly released results accurately describes what's going on at the company.
Related or Semi-related Video
Finance: What Does it Mean to Churn an A...14 Views
Finance allah shmoop What does it mean to churn an
account All right Well back in colonial times before america
was the good old u s a You know what
That i po and seventeen seventy six colonists would churn
cream into butter back then churning involved moving a plunger
in a wood bucket over and over and over again
Really good for the traps and lattes there Not exciting
but well that's What happens when there's No better technology
today churning is something illegal that stock brokers dio and
remember normally brokers pay their own rent by getting paid
a commission off of each trade they do for customers
So churning in the financial sense here means that stockbrokers
are making tons of trades they really don't need to
be making in a client's account in order to generate
mohr commission for themselves they're churning the account to generate
dough for themselves Illegal very bad And sometimes it can
be difficult to detect or stop You know think about
little old ladies not really paying attention to our account
or ah cardiologists who really has no idea how wall
street works They have no idea of the brokers churning
Or not Well if you fall prey to a broker
who's involved in churning you'll end up overpaying them in
commissions And you might even have to pay extra taxes
because they realized gains from all those trades they didn't
need to make But if that brokered does get caught 00:01:26.979 --> [endTime] yeah he's toast
Up Next
What is AICPA? The AICPA is the American Institute of Certified Public Accountants, or CPAs. It is the group of accountants that basically make all...
What is Adverse Audit Opinion? An adverse audit opinion signals that an auditor has found flaws in a company’s financial statements. Adverse audi...
What is Acting Against Recommendations? In the financial world, if an investor is acting against recommendations, they are not listening to a recom...
What is insider trading and the Securities Fraud Enforcement Act of 1988? It's nothing too complicated, if this minute long video is any indication.