external auditor

Examples of external auditor in the following topics:

• Sarbanes–Oxley Act of 2002

  • Also, SOX increased the oversight role of boards of directors while also increasing the independence of outside auditors who review the accuracy of corporate financial statements.
  • It also creates a central oversight board tasked with registering auditors, defining the specific processes for compliance audits, inspecting conduct and quality control, and enforcing compliance.
  • Title II consists of nine sections and establishes standards for external auditor independence.
  • It also addresses new auditor approval requirements, audit partner rotation and auditor reporting requirements.
  • It defines the interaction of external auditors and corporate audit committees, and specifies the responsibility of corporate officers for the accuracy and validity of corporate financial reports.

• Sarbanes–Oxley Act of 2002

  • SOX also increased the independence of the outside auditors who review the accuracy of corporate financial statements, and increased the oversight role of boards of directors.
  • Title I provides independent oversight of public accounting firms providing audit services (auditors).
  • It also creates a central oversight board tasked with registering auditors, defining the specific processes and procedures for compliance audits, inspecting and policing conduct and quality control, and enforcing compliance with the specific mandates of SOX.
  • Title II consists of nine sections and establishes standards for external auditor independence, to limit conflicts of interest.
  • It also addresses new auditor approval requirements, audit partner rotation, and auditor reporting requirements.

• Externalities

  • The cost of an externality is a negative externality , or external cost, while the benefit of an externality is a positive externality, or external benefit.
  • Those who suffer from external costs do so involuntarily, while those who enjoy external benefits do so at no cost.
  • A voluntary exchange may reduce total economic benefit if external costs exist.
  • If there exist external costs such as pollution, the good will be overproduced by a competitive market, as the producer does not take into account the external costs when producing the good.
  • Positive externalities are often associated with the free rider problem.

• Limitations of the Income Statement

  • While it is relatively easy for an auditor to detect error, part of the difficulty in determining whether an error was intentional or accidental lies in the accepted recognition that calculations are estimates.

• Corporate Fraud

  • Almost everyone in the financial world overlooked the SPEs, including Enron's auditor, Arthur Anderson, Enron's law firm, and the regulators from the Securities and Exchange Commission (SEC).Then the U.S. government passed the Sarbanes-Oxley Act in 2002, which required CFOs and CEOs to sign their company's financial statements.Law's goal was to increase transparency.Transparency means outsiders can look at an organization, and know therules and can accurately assess a firm's true finances.Unfortunately, Enron was "a black box,"and only a few insiders knew Enron's genuine financial picture.On the other hand, a nontransparent government tends to be corrupt.For example, if government officials do not write down the laws and rules, or the laws and rules are vague, subsequently, the bureaucrats have wide discretion whether to approve a business license or activity, fueling corruption.

• Reporting of Financial Statement Analysis

  • Its mission is "to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information. " To achieve this, FASB has five goals:

• Factors External to the Firm

  • Factors such as corporate tax rate, interest rate fluctuation, and conditions of the economy and markets are external factors of the WACC.
  • Corporate taxes cannot be controlled by a company, outside of lobbying governing bodies, and is therefore an external factor .
  • Another external factor in determining WACC is changing interest rates.
  • Identify which factors that influence the calculation of WACC is external to the firm

• Types of Financial Decisions: Investment and Financing

  • There are two ways to finance an investment: using a company's own money or by raising money from external funders.
  • There are two ways to raise money from external funders: by taking on debt or selling equity.
  • Every investment can be financed through company money or from external funders.

• Using Financial Statements to Understand a Business

  • Internal and external users rely on a company's financial statements to get an in-depth understanding of the company's financial position.
  • Internal and external users rely on a company's financial statements to get an in-depth understanding of the company's financial position.

• Financing Life Cycle of the Firm

  • Its external financing needs (EFN) are high, since it needs money to develop but lacks retained earnings.
  • After the firm is able to acquire external funding and develop its product/service, it enters the growth phase.
  • They may choose to retire debt or repurchase stock, as significant external financing is no longer necessary.