GLOSSARY

Internal 1.____ is the coolest profession in the world. Tom Peters, management consultant

People usually have mixed feelings about audits and auditors. In the process of establishing whether the information in a company’s financial statements is true and in 2._ with the GAAP (Generally Accepted Accounting Principles), auditors are 3._ to make a thorough investigation of all account 4._ to ensure that they match the original sales and purchase invoices and other documents. This means that an auditor’s job description includes being 5._ and asking a lot of annoying questions. Therefore it is no wonder that they do not usually win popularity 6._ and their role seems to be to disclose facts someone has 7._ hidden or misrepresented to achieve financial benefits. If an auditor’s report states that financial statements are free of material 8._, the company can breathe a sigh of relief, because that means that there is no false or missing information, caused by 9._ (deliberate action) or error. The word “material” implies having a significant influence on 10.____ decisions.

On the other hand, the more cynical among us could describe the work performed by auditors in a joke which says that 2+2 to an auditor equals whatever the company that engaged them would like it to be. According to such 11._ views accountants have changed from watchdogs into salespeople. Independence is a 12._ of proper auditing. However, companies often engage in practices known as opinion shopping, i.e. looking for auditing companies that will grant them favourable opinions known as 13._ opinions. Since auditors are paid by companies and need future engagements it is only understandable that they will be 14._ to issue unfavourable opinions. It comes as no surprise that in a study carried out a couple of years ago nearly half of the companies which later faced bankruptcy did not reveal ‘a going concern disclosure’ in previous auditor’s reports. This paragraph would have warned all interested parties that the company was facing serious financial difficulties.

In real life it could be argued that auditors are sometimes hired on the basis of their creativity when it comes to cooking the books, or managing earnings, as they sometimes call it. It is simply a way of making things look better than they are to keep 15._ happy and attract investors. Auditors engaged in such practices can 16._ their professional guilty consciences by stating that by making revenues appear larger than they actually are, a struggling company could stay 17._ with investors’ money until it can turn a true profit. Benefits that can be obtained from a properly 18._ audit are numerous. Among others, it is a firm 19._ for a company’s management and all its stakeholders that its financial statements are trustworthy for making important decisions. Every home should appreciate the presence of a fair and reliable watchdog who will demonstrate his loyalty by keeping a sharp eye on possible 20._ rather than cover them up.