Do Future Financial Reports Require Audits After a Company Audits Its Past Reports? Understanding Compliance on Stock Exchanges
In the intricate world of corporate finance, the requirement for financial reports to be audited plays a critical role in maintaining investor confidence and regulatory compliance. A common question among business owners and financial professionals is whether auditing past financial reports affects the auditing requirements for future reports. This article uncovers the details and provides insights into this crucial aspect of corporate governance.
Independent Audits: A Matter of Trust and Independence
In most places, companies are not allowed to audit their own financial reports due to perceived and actual weaknesses in independence. Instead, they engage independent auditors to conduct these reviews, ensuring objective and unbiased assessments. This is consistent across major markets, including the United States and numerous international stock exchanges. The reason for this is twofold: to maintain trust among stakeholders and to meet legal and regulatory requirements.
Implications for Future Reporting
No, auditing one financial report does not automatically mean that subsequent reports will be audited as well. Auditors, driven by the need to be paid for their work, avoid auditing situations that may not bring in revenue consistently. This is particularly true in times of financial strain, where finding a willing and generous auditor can exacerbate financial issues.
Stock Exchange Requirements and Penalties
On major stock exchanges like the New York Stock Exchange (NYSE), NASDAQ, and others, there are strict requirements for publicly traded companies. These companies are mandated to submit audited financial statements on a regular basis. For example, Kohl’s Stores, a publicly traded company, publishes a report from an independent accounting firm called Ernst Young, confirming the effectiveness of its internal controls over financial reporting.
A failure to meet these deadlines can result in severe consequences. For instance, on October 1 each year, the Australian Securities Exchange (ASX) announces a list of suspended companies that missed the 30 September deadline. These companies are required to provide audited accounts for continued trading. This highlights the importance of maintaining consistent and accurate financial reporting, free of audits, to avoid being penalized by stock exchanges.
Corporate Compliance and Internal Controls
While audited financial statements are a necessity, many companies, especially those listed on major stock exchanges, have internal corporate auditing committees. These committees regularly review accounting practices and identify any changes made by the company during the reporting period. While these reports are not audited by an independent accountant, they are essential for maintaining internal control procedures.
Management plays a key role in verifying financial controls, a process that is overseen by the CEO and CFO. These executives must sign off on the accuracy and completeness of the financial statements, ensuring that the company maintains high standards of accountability and transparency.
Conclusion
The requirement for audited financial reports is a fundamental aspect of corporate governance and investor protection. Despite the myths about the continuity of auditing after a past report is audited, the importance of regular, independent audits remains unchallenged. Companies listed on major stock exchanges must adhere to strict reporting requirements to avoid penalties and maintain their status as public entities.