How Do Some Individuals That Rely On Financial Statement Trust That They Are Materially Accurate?

A company’s financial statements describes how well a company is performing. It consists of the income statement, balance sheet and cash flow statement. It presents past, current and projected performance of a company. Investors, potential, investors, and creditors rely heavily on these statements to make determinations. Potential investors want to know the performance of a company before they make any investments. Current investors obviously need to know their return on investment. Best indicator, are financial statements. Creditors also need to know how well the company is performing. Typically, when banks lend money through a term loan or line of credit, the company must be certain covenants. It all ties back to the financial statements. How do the individuals that rely on financial statements trust that they are materially accurate? Publicly traded companies and to an extent most mid-sized to large private companies, must obtain an annual audit from an outside accounting firm.
An accounting audit is a thorough review of the financial statements and the company’s internal processes used to prepare, record, and present financial data to the

Enron was a publicly traded company. By law, an audit was required. The audit is only as good as the auditors and accounting firm. Enron used a major accounting firm called Arthur Anderson. Prior to the Enron scandal, the largest accounting firms in the world were known as the “Big 5.” They were Arthur Anderson, PriceWaterHouseCoopers, Deloitte, KPMG, and Ernst & Young. Arthur Anderson had plenty of resources to catch such fraud. Every audit must be supervised by a partner. The partner that supervised the Enron account was David Duncan. Arthur Anderson and its partners, had a reputation for high standards, detecting fraud, finding material errors and was an expert in risk