There are many areas of audit negligence, but one of the most damaging is the signing off on financial statements that overstate the company’s financial position. This includes inflating revenue, incorrectly accounting for profits from contracts, bringing future profits into the current period, not impairing intangible assets, and failing to ascertain going-concern risk where intangibles exceed tangible assets.
Overstatement of a company’s financial position can result in financial loss for those who have relied on the figures, such as shareholders and creditors. Falsely creating the impression that a company is doing well, and overstating its financial position, allows bonuses to be paid to executives and dividends to shareholders.
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