Investor Bulletin: Why Audits Matter

Mar. 26, 2025

This document represents the views of the Public Company Accounting Oversight Board (PCAOB) Office of the Investor Advocate and not necessarily those of other PCAOB staff or the Board. It is not a rule, policy, or statement of the Board.

For more than 90 years, companies listed on U.S. stock exchanges have been required by federal law to disclose financial reports audited by independent certified public accountants. The audit requirement exists to build trust – to help investors make decisions whether to buy, hold, or sell a company’s securities based on financial information that reflects the company’s actual performance and financial health.

This bulletin provides a high-level look at the financial statement audit, how it can build trust, and how investors can better inform themselves about the audit process.

What Is an Audit?

An audit is an examination of a company’s financial statements and related information by an independent public accounting firm to express an opinion on the financial statements. The purpose of the financial statement audit is to confidently assess with a high level of certainty as to whether the financial statements are free of material misstatements – whether due to error or fraud.

In short, audits help evaluate whether the financial statements are a fair representation of the company’s financial position presented in accordance with United States Generally Accepted Accounting Principles or international accounting standards, depending on the location of the company.

Auditors, who are certified public accountants, follow prescribed standards to evaluate a company’s financial records, internal controls, and other relevant data. In the United States, auditing standards that are set by the PCAOB apply to audits of public companies listed on U.S. exchanges and certain other entities (for example, some classes of employee benefit plans), as well as certain broker-dealers registered with the U.S. Securities and Exchange Commission (SEC).

How Do Audits Build Trust?

Audits help build trust by:

  1. Enhancing Financial Statement Accuracy: The auditor’s examination of financial records may identify inconsistencies, errors, or signs of material misstatement, due to error or fraud. By detecting these types of issues so that they may be addressed by the company before the financial statements are issued, audits help promote the reliability of financial statements.
  2. Increasing Reliability of the Financial Statements: Auditors state their opinion on whether a company’s financial statements are presented fairly through the issuance of the audit report. The audit report is written by the audit firm and tells the reader whether the financial statements can be relied upon.
  3. Providing Information to Investors: Audited financial statements are available to the investing public. They can give investors a clearer and more accurate view of a company’s financial health. The fair and consistent presentation of this information helps investors to make informed decisions based on reliable data.

The PCAOB’s Role in Ensuring Trustworthy Audits

The PCAOB was established by Congress to oversee the audits of public companies, certain other entities required to file audited financial statements with the SEC, and certain broker-dealers registered with the SEC.

The PCAOB’s mission is to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB’s oversight ensures that auditors adhere to the highest standards, enabling investors to make decisions with greater certainty and trust.

The PCAOB pursues its mission primarily by:

  • Setting auditing and professional standards.
  • Registering and inspecting audit firms. (Any firm that audits a company within the PCAOB’s jurisdiction must first register with the PCAOB.)
  • Enforcing rules and taking disciplinary action against auditors who fail to comply with applicable rules and standards.

These activities promote audit quality and protect investors.

How Can Investors Stay Informed?

Investors can inform themselves by:

  • Reviewing Audit Reports: Public companies include audit reports in their annual filings. These reports provide the auditor’s opinion on the information presented in the financial statements, including matters the auditor considered to be critical to the audit.
  • Utilize the PCAOB Website: Inspecting registered public accounting firms’ audits and quality control systems for compliance with applicable laws, rules, and standards is one of the most important tools the PCAOB has to protect investors. The results of PCAOB inspections are included in publicly available inspection reports by firm on the PCAOB’s website. The PCAOB also publishes charts on its website that contain data from inspection reports of the largest audit firms. Investors can also use PCAOB’s AuditorSearch tool to obtain information on auditors.
  • Engaging With Companies: Investors can ask questions at shareholder meetings or through investor relations channels to deepen their understanding of a company’s financial health.

Other Resources