A balance sheet audit requires looking at more than the financial statement itself. The auditor must also confirm that the balance sheet follows proper accounting standards as well as confirm the assets and liabilities on the balance sheet really exist.
How It Works
Auditing a balance sheet means checking every item on it to confirm both the item and its value. For example, suppose a company claims to own a tool-manufacturing plant. The auditor must confirm the plant exists and that it is worth what the balance sheet says. To do this, he might have to physically see the plant and the proof that the company owns the plant. He'll then want evidence proving the value of the property. The auditor doesn't have to appraise the building, just decide if the company's estimate of the value is reasonable.
The End Game
The balance sheet and other financial statements are what investors use to make decisions about the company. Having an auditor sign off on the statements confirms the material is trustworthy. If an auditor finds problems with items or values on the balance sheet, the company can address these discrepancies and resolve the differences. If the company disagrees with the auditor's conclusions, the auditor publishes what's called a modified opinion, noting the disagreement.
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.