What can an auditor see that an appraiser will never see? Commentary from Larisa Kosholkin in Estimatica.info

When analyzing the financial condition of a company, an appraiser calculates financial indices using certain formulas, and takes initial data from the information provided by a customer. Thus, reliability of the results depends on the correctness of the source information. That is why an auditor can be involved during business valuation.

Larisa Kosholkina

FinExpertiza’s expert

- Financial statements imply different users who, on the basis of these data, make calculations and various kinds of decisions. However, reports do not always reflect the real financial situation and financial condition of organizations. And, as a consequence, the use of such unreliable reports can lead to a misstatement of the organization's performance for both the past period and the forecasted indicators. There can be many reasons for this, for example, low qualification of the accounting department staff or methods of accounting policies that do not contribute to a real presentation of the financial situation of the organization.

I can mention at least three frequent groups of reporting misstatements:

In the practice, auditors often identify "hidden" losses in the balance sheet. They are identified as unaccrued reserves for doubtful or bad debts, balances of work in progress where it is known in advance that products will not be released or the work will not be completed, as well as illiquid inventories, etc.

2. Often an organization incorrectly qualifies its assets and liabilities as short-term and long-term ones. Auditors observe the presentation of, for example, financial investments and loan obligations as long-term ones in the balance sheet, while their maturity is less than a year.

3. Often expenses of the current period are kept as expenses of future periods, which are not such, and included in the assets in the balance sheet. The appraiser does not analyze organization's reports for the purpose of identifying misstatements or "hidden" losses. Therefore, when evaluating a business, the tandem of the appraiser and the auditor is not only useful, but also necessary.