Analysis of Financial Statements, Auditing, and Investments

This report examines the key differences between financial and managerial accounting, highlighting the focus on external reporting versus internal management. It outlines the responsibilities of an auditor, including the assessment of financial statements and internal controls. The report also provides insights into the information investors should consider before investing in a company, such as financial statements, market data, and corporate governance. The analysis includes a discussion of the importance of understanding the business objectives, growth prospects, and ethical considerations. The report concludes with a bibliography of the sources used to support the analysis, providing a comprehensive overview of accounting, auditing, and investment principles for students and finance professionals. The report covers the key aspects of financial reporting, auditing, and investment strategies, making it a valuable resource for students and professionals seeking to enhance their understanding of financial analysis and decision-making processes.

INTRODUCTION TO BUSINESS

Difference between the financial accounting and managerial
accounting
The financial accounting refers to the practice of aggregation of accounting information into
financial statements. In contrast to this the management accounting is centered on the
revenues and expenses of the business (Drury). While the former accounting practice reports
the result in respect of the whole business, the latter is concerned more on the details such as
profits by geographic region, product, product line, and the customers. Financial accounting
is required to be complied with the accounting standards and focusses on the historic data as
opposed to the managerial accounting that addresses budgets and forecasts and is not required
to abide by any standards. The financial statements prepared under the financial accounting
are distributed both within and outside the company, the operational reports resulting out of
the management accounting are chiefly meant to be distributed to be within the company to
enhance the internal controls and the production efficiencies.
Description of the job role of an auditor
An independent outside auditor is engaged in the rendering of the opinion on whether an
entity has presented the financial statements fairly or not, in accordance with the financial
reporting framework that applies to the entity. The job includes the gathering of the
evidences, observation of the tests, comparing and confirming the results to obtain the
reasonable assurance that the books of accounts are free from material misstatements and in
accordance with the statutory requirements ("What An Auditor Does And Doesn't Do |
Gelman, Rosenberg & Freedman, Cpas"). In addition, the auditor must conduct discussions
with the management regarding the efficiency of the internal controls, develop an
understanding of the business environment, and perform the analytical procedures to identify
and evaluate the material variances and offer advice on the improvement of the financial
reporting and internal controls of the entity. Thus, the auditor bridges the gap between the
entity and the stakeholders through expression of opinion on the various aspects of the
financial statements and overall corporate governance.
Information to be looked before investing in a company
The foremost information to be looked by the investors are the financial statements of the
entity that is the balance sheet, income statement, and cash-flow statement to evaluate the

business objectives and activities, growth prospects, prospective projects, plans for the
repayment of the debts, market conditions and the customers of the entity (Brown). Apart
from this, the market vitals such as the trends of share price, market capitalization, relative
cost of the stock that is the price to earnings ratio, and the risk coefficient must also be
evaluated and compared with the similar industry participants. Apart from the financial
aspect, yet another crucial information to be looked upon is the leadership of the company,
stability in the management, and an overall structure of the corporate governance. Further the
investors must also evaluate the sustainable and ethical business principles and initiative of
the entity.

Bibliography
Brown, Craig O. "Corporate Market Investments: Risk And Governance". SSRN Electronic
Journal, 2012. Elsevier BV, doi:10.2139/ssrn.2023586. Accessed 27 July 2019.
Drury, Colin M. Management And Cost Accounting. Springer, 2013, p. 17.
"What An Auditor Does And Doesn't Do | Gelman, Rosenberg & Freedman, Cpas". Gelman,
Rosenberg & Freedman, Cpas, 2019, https://www.grfcpa.com/resource/auditor-
responsibilities/. Accessed 27 July 2019.