Audited Financial Statement
Audited financial statement is a financial statement that has been examined and checked by an independent third party for any material uncertainties and misstatements (either due to fraud or errors). An audited financial statement has five major components which are listed below:
- Statement of Financial Position
- Statement of Comprehensive Income
- Statement of Cash Flow
- Statement of Changes in Equity
- Notes to the Financial Statement
Statement of Financial Position: The statement of financial position, also known as the balance sheet, is a financial statement component that reports an entity’s assets, equity and liabilities on any specific day. In other words, it can be said that it lists an entity’s resources, ownership details and obligations on any given date. It is basically a snapshot of an entity’s financial position at a specific date in a financial period.
Investors and financial analysts use the financial information presented in an entity’s financial statements especially the balance sheet for not only analyzing the financial position of that entity but also to make predictions about its future as well.
Statement of Comprehensive Income: The statement of comprehensive income, also known as income statement, is a financial statement component that summarizes an entity’s financial performance for a specific financial period. It usually lists an entity’s revenue, direct costs, gross profit, administrative expenses, other operating expenses and income, net profit and other comprehensive income (OCI) if any.. This component of the financial statement helps a business in analyzing its financial performance over the course of a specific financial period.
In other words, it can be said that this statement reports the changes in net equity of a business over a given period of time. The statement of retained earnings presented on the statement of financial position includes two important elements: net profit, and other comprehensive income, which are obtained from the income statement.
Statement of Cash Flows: The Statement of Cash Flows (also known as the cash flow statement) is one of the five components of the audited financials that report on the cash spent and generated by the entity during the course of a specific financial period. This statement acts as a bridge between the statement of financial position and the statement of comprehensive income by showing how money moved in and out of the business. The statement of cash flows has three main sections which are as follows:
- Operating Activities
- Investing Activities
- Financing Activities
Statement of Changes in Equity: This statement can be defined as the reconciliation between the beginning and closing balance of the owner’s equity. It is that component of the financial statements which provides information about the changes in an entity’s equity over the course of an accounting period. Changes in share capital as well as the movement in retained earnings and other reserves are reported in this component of the audited financial statements.
Notes to the Financial Statement: Notes to the financial statements provide information about the detailed assumptions made by the entity when preparing its financial statements. The notes are essential for fully understanding an entity’s financials.
Usually, the first few notes explain the “basis for accounting”- if accrual or cash accounting were used to prepare the financial statements and the methods used for determining amortization/ depreciation expenses.
The rest of the notes explain, in greater detail, how the figures have been calculated. This gives the reader the information needed to do deeper analysis.
The outcome of this examination is an audit report that is issued by the auditor, in which the auditor expresses opinion on whether the financials of the entity present a true and fair view and are prepared in accordance with the international financial reporting standards (IFRS). The auditor’s report accompanies the financial statements when they are issued to the intended recipients.