Audited and unaudited financial statements differ in one aspect that creates a fundamental consequence. The main difference spans from the role of the auditor in auditing. In other words, the difference is primarily the fact that audited financial statements have been subjected to auditing by auditors while unaudited financial statements have not been subjected to any form of auditing. The paper shall examine the auditing functions that consequently demarcate the differences between audited and unaudited financial statements.
Audited financial statements are subjected to tests and certification by independent and competent auditors. By this, the auditor conducting the audit needs to first satisfy that he is competent and trained. The qualifications for auditing vary from jurisdiction to jurisdiction. However, the main qualification often is a sound knowledge and training in auditing and accounting. The auditor subjects the accounts and statements to verification, validation and scrutiny. The statements and accounts are examined in the context of their preparation in compliance to the general accounting standards, any special accounting and legal standards and provisions in consonance with the operating law. For instance, the audited financial statements of a company need to be in compliance with the general accounting standards, the Company Act and any other residual law such as the provisions of the Public Accounting Oversight Board for public companies. Auditing entails the process of verification and satisfaction that all the requirements of the laws and principles of accounting were conformed to and that the statements reflect a true and fair view of the organizational state of affairs. In other words, audited financial statements have in them an opinion expressed by the auditor as to the state of affairs of the company, the true and fair view and the general going concern of the company.
On the other hand, unaudited financial statements lack the input of the external auditor. Unaudited financial statements are merely the internal financial statements that have been generated by the accountants in the organization but have not been subjected to verification, validation and or scrutiny. The unaudited financial statements are in many cases for the consumption of the internal management or in respect of private entities not subject to public statutory requirements of auditing. It should be noted that the unaudited financial statements are often the same as the audited financial statements save for the input of the auditor. For that reason, the former lacks any opinion expressed by the auditor and does not have a going concern assumption statement. The unaudited statements may also lack a statement as to compliance with accounting standards and any notes and assumptions that the accountants preparing the statements relied upon. In addition, the unaudited statements lack the often more important element of procedural verification by external and independent audit.
For that reason, it is advisable and professionally prudent to rely on audited financial statements rather than unaudited financial statements. This can be explained in the absence or presence of the auditor’s liability on the two sets of statements. The difference in the auditor’s input as to verification, validation and certification brings forth the absence or presence of the auditor’s liability. For the audited financial statements, the auditor is liable in negligence for statements which occasions a loss to a client who relies on them for decision making and other businesses. On the other hand, unaudited financial statements do not come with any liability in negligence for the auditor’s input is dispensed with.
References
Dicksee, L. R. (2009). Auditing: A Practical Manual for Auditors. New York: BiblioBazaar.
