Audit

Turn your head and cough...financially. That's what an audit is, more or less. It is a true-ing mechanism or a Good Housekeeping Seal (arf arf)...or a stamp of honesty and credibility.

Once an audit has been performed, and cleared by a respected agency, then pretty much all of the world actually believes your numbers. That is, what you say you earned, you actually earned. What you say you sold, you actually sold. What you say you said, you actually um...said.

Auditors make a small fortune and have immense power at times. So if you find any of this gargantuan glossary even remotely interesting, look it up for a career. If you love it, it'll almost certainly love you back.

How about the other side of an audit? The part when it goes bad...where the auditor decides that you didn't earn what you earned or sell what you sold. That can result in a adverse audit opinion, AKA a deficiency letter.

What is an adverse audit opinion/deficiency letter?

Okay, people this is NOT good. You THOUGHT you had good grades…but when you got your report card, your teachers had opinions ADVERSE to yours. They sent your parents a deficiency letter. You know, the one with all those "D"s on it.

Well, when it's a company's AUDIT that has similarly gone, uh…awry…then it means that they didn't count the beans properly when they gave their financial reports to their investors, or whoever the auditors are serving.

Usually, this implies that companies overstated how profitable they really were...or how well they were really doing. So tens of thousands of investors may have overpaid for the company's stock, if the company was public when the auditing fiasco happened. Say someone paid $27.32 a share, when with the REAL numbers imply a stock worth more like $14.27 a share.

Basically, an auditor is saying that yours are not bread-and-butter misstatements. No "oops." It's more of a "dude, there were material, i.e. important, mistakes, and they were pervasive. Like…everywhere. Math, Science, English, History; your failure is no mystery."

Then there are massive losses to massive numbers of people who hire massive numbers of lawyers who sue the company…massively. In the world of finance, an adverse audit opinion is a bit like running over everyone's favorite dog. Several times. Only the company is the one who is likely dead meat…