What is a certified financial statement?
A certified financial statement is a financial document, such as an income statement, cash flow statement, or balance sheet that has been audited and signed by an accountant. Once an auditor has reviewed the details of a financial statement in accordance with GAAP guidelines and is satisfied that the numbers are correct, he certifies the documents.
Certified financial statements are an important part of the checks and balances of financial reporting. Financial statement certification increases analysts’ confidence that they are getting good information on which to draw their assessments.
Key points to remember
- Certified financial statements are financial statements audited and certified by independent external accountants.
- The three most common financial statements are the balance sheet, the income statement and the statement of cash flows.
- Listed companies are required to have certified financial statements.
- The Sarbanes-Oxley Act of 2002 sets standards for external and independent auditors and requires them to submit an internal control report with certified financial statements.
Understanding Certified Financial Statements
A certified financial statement is a financial document audited and signed by a certified and independent auditor and is issued with an audit report, which is the auditor’s written opinion on the financial statements. The audit report can highlight the main discrepancies and detail suspicions of fraud.
Certified financial statements are required for listed companies as they play an important role in financial markets. Companies can employ internal auditors to review financial statements, but they can only be certified by an external auditor, who is usually a chartered accountant (CPA).
Investors demand assurance that the documents on which they rely in making investment decisions are accurate and have not been subject to material errors or omissions on the part of the company that made them. compiled. Therefore, the certified financial statement must be clear and provide an accurate account of a company’s financial performance.
In the past, big problems have been caused by dishonest companies working with dishonest auditors to “cook the books” resulting in overestimated profits and therefore overestimated reviews. Dishonest record keeping deceives investors and distorts the markets. The Enron and Arthur Andersen scandal is a prime example of how dishonest accounting led to market disruption and the end of two industry giants.
Enron’s share price when it filed for bankruptcy on December 2, 2001.
The Sarbanes-Oxley Act of 2002 was enacted by Congress in response to numerous business and accounting scandals, primarily the Enron scandal mentioned above. The law created the Public Company Accounting Oversight Board, which provides independent oversight of public accounting firms that perform audits, stipulates that external and independent auditors perform audits, sets standards for external and independent auditors, and has established other requirements and standards.
As an additional measure, this law requires auditors to submit an internal control report with the financial statements. The report shows that the data is accurate with a deviation of 5% and that safeguards are used to protect the financial data.
Examples of certified financial statements
The three most common certified financial statements are the balance sheet, the income statement and the cash flow statement. The balance sheet, also known as the statement of financial position, provides a snapshot of a company’s financial position as of a specific date, usually December 31. It presents the assets, liabilities and equity of a business.
The income statement, also known as the income statement, provides a summary of a company’s income and expenses for a reference period. Expenses are deducted from income to determine operating income and net income: net income. The result is either a profit or a loss, hence the other name of “income statement”.
The cash flow statement reports the cash flow in and out of the business during a specific period. The statement classifies activities into three main categories: operating activities, investing activities and financing activities. The cash flow statement connects the dots between the balance sheet and the income statement. It adds context by showing How? ‘Or’ What money was flowing in and out.