When an auditor becomes aware of a possible act of noncompliance with laws or regulations, the auditor should obtain an understanding of the nature of the act to evaluate the effect on the financial statements.
The balance sheet, income statement, and cash flow statement are the three primary forms of financial statements. These three statements reflect a company's assets and liabilities, revenues and costs, and cash flows from operating, noncompliance, and financing operations. Financial statements are a picture of a company's financial health, providing information about its performance, operations, and cash flow. Financial statements are essential since they detail a company's revenue, expenses, profitability, and debt.
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