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Auditable means the ability of an auditor to produce correct results when reviewing a company’s financial statements. Thus, auditability is the act of being auditable.
Auditability is determined by the firm’s financial recording processes, the transparency of its operational reporting, and the sincerity with which company executives engage with and provide information to their auditors.
Auditable meaning is to be able to be accurately audited. Auditability is described as an auditor’s ability to obtain correct results when reviewing financial records for a corporation.
- A good audit is dependent on the auditor’s abilities and the company’s well-kept records, the transparency of its operational reporting, and whether or not managers present substantial paperwork to the auditor.
- Access to all information required for auditing is essential for auditability.
- An auditor’s independence from the entity being audited might also have an impact on auditability.
Understanding Audits, Auditors and Auditable Meaning
Audits are objective inspections designed to determine whether a company’s financial records are fair and accurate. In other words, they help to prevent fraud and give investors confidence that the financial statements on which they base their buying and selling decisions depict an accurate image of financial performance.
It is not always easy to prepare an efficient audit. Auditors are often impeded from doing their duties properly. This is usually because they do not have timely access to a company’s correct and comprehensive financial information.
The more difficulties an auditor has in obtaining the records for which it is accountable, the less likely it is to file a full and accurate review of the company’s financials, thereby The Enron and WorldCom corporate scandals are just two examples of auditors failing to conduct their jobs properly. Unfortunately, accounting firms gave clean, unqualified views on these corporations in their audit reports rather than identifying them as unauditable. This inability of auditors to conduct their jobs properly undermines auditable meaning.
Requirements for Auditability
The auditability of a company is dependent on being able to access the information needed to conduct an audit, as well as having records requested that are well-organized, complete, and adhere to accounting standards.
The two major areas addressed within the scope of an audit are ‘accessing quality controls’ and ‘risk management’. However, suppose a company’s management team is unable or unwilling to provide auditors with the information they want in these two areas. In that case, auditors may choose to issue a qualified rather than a clean audit opinion on its financial statements.
Alternatively, it may determine that a company’s records are unauditable and end its partnership with it.
The reputation of audit quality has come under scrutiny after large worldwide accounting firms were found guilty of ignoring several high-profile cases of fraud.
Inadequate company records and cases of suspected or detected fraud are all major issues that affect auditability and what being auditable means.
The Advantages of Auditability
It’s usually a good idea to work as closely as possible with auditors. Any organization regarded to be difficult to audit may face several negative effects.
To begin, as part of their debt covenants, lenders frequently request the results of an annual external audit. Unfortunately, this means that organizations at fault for failing to conduct proper audits are vulnerable to legal action and can no longer borrow capital at reasonable rates to expand or maintain their company.
In addition, a lack of independent, external audits tends to weaken stock sentiment. If investors have cause to doubt a company’s financial reporting accuracy and believe it has anything to hide, they will likely sell their holdings and maybe short-sell the shares.
Regulatory agencies may be involved as well. When companies break the rules, word spreads quickly. Investigations could be opened and heavy fines imposed if credible excuses are not presented quickly enough.
Audit quality issues have also drawn the notice and scrutiny of auditors. For example, the Public Company Accounting Oversight Board (PCAOB), a non-profit agency formed by Congress to monitor the audit process for publicly traded businesses, has investigated major global accounting firms.
These firms include KPMG, Arthur Andersen, and Ernst & Young, who the PCAOB has repeatedly chastised for failing to detect fraud.
The Enron and WorldCom corporate scandals are just two examples of auditors failing to conduct their jobs properly. Unfortunately, accounting firms gave clean, unqualified views on these corporations in their audit reports rather than identifying them as unauditable. This inability of auditors to conduct their jobs properly undermines auditable meaning and auditable definition.
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