Certified audit;Comment;

              10 H A S K I N S & SELLS February
THE importance of having financial
statements audited by Certified Public
Accountants is being recognized more and
more each year by both business men and
bankers. An intelligent audit should be
of direct benefit in the operation of a com­pany's
business through the detection of
inordinate expense, waste, errors and fraud,
and the introduction of speedier and more
economical methods. The management
should look upon the audit as a productive
investment. Furthermore, a balance
sheet certified to without qualification by
accountants of ability and high standing is
a strong confirmation of good credit stand­ing,
particularly when the management is
not personally known. Many note-buying
banks refuse to purchase the obligations of
companies whose statements are not
audited.
The value of an audit depends upon the
quality and scope of the examination made
by the accountants. Care should be used
in the choice of accountants. There are a
number of firms whose work and reputa­tions
are known generally to banks
throughout the country; there are also
many small firms and individuals highly
regarded in their own localities who are
capable of doing good work. There are
other accountants whose certificates, be­cause
of careless and incomplete methods,
weaken rather than strengthen the value of
a report when used for credit purposes.
The standing of accounting firms can easily
be ascertained through interested bankers.
The work of accountants should not be
unduly restricted. The scope of their ex­amination
should be such that they can
give an unqualified certification. This is
especially true in regard to the certification
of and responsibility for. inventories. The
business man may well discuss with the
accountant the proper verification of in­ventories
before the audit is undertaken.
A qualified certificate indicating that the
accountant has not had free scope in his
examination may do injustice to the
borrower out of all proportion to the addi­tional
expense necessary to prepare a
complete report.
An audit limited to an examination of
cash, receivables and payables, and a
checking of the footings and postings of the
books may have a certain value to the
management. A statement, however, in
which a major item has not been sub­stantiated
can hardly be accepted unre­servedly
by those on the outside who are
entitled to an independent expert opinion
regarding the fairness of the balance sheet
as a whole. Some accountants are reluct­ant
to undertake a restricted audit, which
can end only in a qualified certificate, be­lieving
that such service cannot in the long
run be beneficial to borrowers.
In order to certify a balance sheet with­out
reservations as to inventory, the ac­countant
has to satisfy himself that the
quantities on hand and the basis of valua­tion,
as well as computations, are substan­tially
accurate and reasonable. The ac­countant
will not insist upon taking stock
or even supervising the stocktaking if the
company has a well organized system and
adequate accounting records from which he
The Certified Audit
(A special editorial appearing in the December, 1928, Monthly Bulletin of the Robert Morris Associates.)