INTERPRETATION OF PROFESSIONAL REPORTS 1. Criticism due to improper interpretation.— Much of the unjust criticism that has been directed against accountants and appraisers in the past is due to the fact that reports prepared by them have not been properly interpreted by the business man. On the other hand, just criticism must be given to those professional men who issue reports that are so ob scurely phrased or vaguely worded as to make it al most impossible to determine the conclusions of the writer. Moreover, business men and the general pub lic need to be informed of the technical meaning of certain terms and phrases which, thru long continued custom, have acquired a definite meaning or special significance in the business profession.
2. Interpretation of an auditor's certificate.—In the Text on "Accounting Practice and Auditing" the reader will have noted two common forms of certifi cates attached to the reports of auditors. A certifi cate may vary from the simple phrase, "Audited and found correct" to the very elaborate form of certifi cate which states minutely the responsibility which the auditor assumes for the valuation and verification of the principal classes of assets. Therefore, in read ing a report submitted by an auditor, attention should first be directed to the form of certificate attached. Qualifications, if any, should be particularly noted.
Thus, the certificate of an auditor which states that the books have been audited and that amounts shown in the balance sheet are in agreement with the values stated in the ledger, means that the auditor certifies to the fact that the balance sheet agrees mathemati cally with the figures found in the ledger of the busi ness whose accounts have been audited.
From the business man's viewpoint, such a cer tificate has little value for the reason that no re sponsibility is assumed by the professional auditor except as to mathematical agreement. Assets may be grossly overvalued and liabilities may be under stated in the books without disclosure. A creditor or an investor, noting that the certificate was signed by a licensed auditor, seeing also that the books have been "audited" and that the statement put forth by the firm agrees with its books, might be deceived to his detriment into believing that such a certificate guaranteed the financial condition of the firm.
3. Certification as to values of real property and fixed reader has already learned that an auditor is not a valuer or an insurer. With what measure of confidence can we regard the certificate of the auditor as to the value assigned to fixed assets in a certified balance sheet? It is to be presumed that, if an unqualified certificate has been given in re spect of the fixed assets, the auditor has either sup ported the valuation by having an appraisal prepared by competent appraisers or is satisfied in some other way as to the valuation. There is no doubt but that an experienced auditor is able to certify satisfactorily to the approximate value of fixed propery in many cases. At least, he is competent to express an opinion as to the adequacy of the provision for depreciation. But, on the other hand, his limited ability in the field must be clearly recognized by the reader of his cer tificate.
If the certificate states that the values assigned to the fixed assets appear to be conservative and no mention is made of an appraisal, the reader must un derstand that the auditor has merely exercised his best judgment and discretion in agreeing to the valu ation. Whatever weight is to be given to his opinion in the matter the reader, having regard to the quali fication and experience of the auditor, must determine.
It should be noted that an expression of opinion relative to the adequacy or inefficiency of the pro vision for depreciation is tantamount to a certification of the valuation of the property.
4. Certifying to the valuation of inventories.—One who reads a professional report should pay particular attention to the certificate of the auditor in respect of the inventories of raw material, work in progress and finished goods.