The attest function in accounting refers to the process of providing an independent, objective opinion on the reliability, accuracy, and fairness of a company’s financial statements or other information. This function is usually performed by external auditors, who are certified public accountants (CPAs) or chartered accountants (CAs) with the necessary qualifications and experience.
The attest function is an essential part of the assurance services provided by accounting firms. It aims to enhance the credibility and reliability of the financial information presented by a company, thereby increasing the confidence of its stakeholders, such as investors, creditors, regulators, and other interested parties.
The primary steps involved in the attest function include:
- Planning and risk assessment: Auditors assess the client’s business environment, industry, internal controls, and risks associated with the financial reporting process to develop a tailored audit plan.
- Gathering evidence: Auditors collect and analyze evidence through various procedures, such as inquiries, inspections, confirmations, analytical procedures, and tests of controls and substantive tests.
- Evaluating the evidence: Auditors evaluate the evidence gathered to determine whether it is sufficient and appropriate to support their opinion on the financial statements. They also assess whether the financial statements are prepared according to the applicable accounting framework and are free from material misstatements.
- Forming an opinion: Based on the evaluation of the evidence, auditors form an opinion on the financial statements’ reliability, accuracy, and fairness. This opinion is expressed in an audit report, which accompanies the financial statements.
- Reporting: The audit report, containing the auditor’s opinion, is presented to the company’s stakeholders, such as its board of directors, shareholders, or regulatory bodies.
By performing the attest function, auditors help ensure that a company’s financial statements are accurate, reliable, and in compliance with relevant accounting standards and regulations. This, in turn, contributes to the overall integrity and transparency of the financial reporting process.
Example of the Attest Function
Let’s consider a hypothetical example of a company named XYZ Corp. The company prepares its annual financial statements, which include the balance sheet, income statement, and statement of cash flows, according to the Generally Accepted Accounting Principles (GAAP). XYZ Corp’s management is responsible for preparing the financial statements, while the external auditors are hired to perform the attest function.
- Planning and risk assessment: The external auditors analyze XYZ Corp’s business environment, its industry, the company’s internal controls, and identify potential risks that could impact the financial reporting process. They then develop an audit plan to address those risks.
- Gathering evidence: The auditors perform various procedures to collect evidence related to the company’s financial transactions and account balances. For instance, they inspect invoices and contracts, confirm balances with banks and customers, and test the effectiveness of the company’s internal controls.
- Evaluating the evidence: The auditors assess the evidence collected to determine whether it supports the account balances and financial statement disclosures. They also check whether the financial statements are prepared according to GAAP and are free from material misstatements.
- Forming an opinion: Based on their evaluation, the auditors form an opinion on XYZ Corp’s financial statements. Suppose they find that the financial statements present a fair and accurate picture of the company’s financial position and performance. In that case, they issue an unqualified (or “clean”) audit opinion.
- Reporting: The auditors prepare an audit report containing their opinion on XYZ Corp’s financial statements. This report is presented to the company’s board of directors and shareholders and may also be submitted to regulatory bodies, as required.
In this example, the external auditors have successfully carried out the attest function by providing an independent, objective opinion on XYZ Corp’s financial statements, enhancing the credibility and reliability of the financial information for the company’s stakeholders.