I CERTIFY that the above balance sheet is, in my opin ion, a true statement of the financial condition of the Blank Manufacturing Company at December 31, 1916, and that the accompanying profit-and-loss account is correct.
(Signed) JOHN DoE, Certified Public Accountant.
An analysis of the above certificate will show that the auditor has given his unqualified approval to the accounts of the ,company, as disclosed by its books. No reservation or qualification has been made.
.An auditor will furnish a qualified certificate when he has been limited in the scope of his investigation, or when for other reasons he has accepted the valuations placed upon assets by others, or has not actually veri fied the existence of, or satisfied himself as to the value of, certain assets. A common form in practice fol lows: I have audited the accounts of the Blank Manufacturing Company for the year ended December 31, 1916. The in ventories of raw materials and supplies, work in progress and finished products, were accepted at the. valuations placed thereon by the factory manager. I have verified the exten sions and footings of the inventory.
It will be noted in this form of certificate, that the auditor has qualified it to the extent of mentioning that the quantity and value of the inventories are mat ters for which he does not assume responsibility. He has described specifically the responsibility which he assumes in connection with the inventory, that is, that extensions and footings only have been verified. Evi
dently, in this case, the accounts receivable have been tested, and the reserve provided for doubtful debts is based upon the past experience of the business, or upon some other basis which the auditor believes to be correct.
15. Importance of the auditor's method of interpreting professional reports will be discussed in Volume 22. The reader will probably fully appreciate the economic function of the audi tor in the business world of today. The require ments of the profession are exacting, and the business executive is demanding more and more of his audi tor. The wide-awake executive no longer regards the payment which he makes his auditor's fee as a useless or as an unnecessary expense. It is his own fault if he does not receive in return value equivalent to that which he pays out. If the right type of man is employed as an auditor by the executive, and if the executive is willing to pay for the reasonable value of the services received, the investment will prove profitable. The employment of others than qualified auditors is a pure waste of money. Business men should therefore support any legislation that will tend to improve the profession, or that will tend to in crease the responsibilities of those who practise it.