In conducting financial statement analysis, the presumption is that a firm adheres to its designated accounting standards in preparing and presenting its financial statements, which permits the analyst to use the reported amounts to assess each type of risk. In some cases, however, firms intentionally manipulate the financial statements in an effort to portray a more profitable or less risky profile than is appropriate. If the financial statements are manipulated, they are not useful or worse, are misleading as the basis for analyzing various risks. Thus, assessing financial reporting manipulation risk is an integral part of using financial statement data as the basis of risk analysis.

Required:

(a) A clean audit opinion does not necessarily mean that the financial results are accurate. Discuss

(b) How can audited and unaudited financial statements affect financial statement analysis?