In the accounting profession, there is an area of professional services which are demanded by businesses and required a specialized knowledge and skills of accountants. In this video, I shall introduce two mainstream practices of accounting, being financial reporting and auditing. Financial reporting refers to the preparation of financial statements in accordance with accounting standards. It also provides essential contents of company's annual report, which is regarded as the most common and regular form of communication from companies to stakeholders. They are both qualitative and quantitative information, based on which stakeholders can form their opinions about the company as they would need to. An annual report, typically contains management report, discussion and analysis of businesses, financial statements and notes to financial statements, report of management and auditors on internal control, and other corporate information. As much as companies want to, design and content of annual reports are of high quality, because they may reflect the accountability and reliability of companies owed to their stakeholders. Soft copies of any reports are very often uploaded to companies websites for public viewing. As an illustration, please see the next few pages of extracts from the annual report of the Mass Transit Railway, a public transport company listed in Hong Kong. You can see from the content page that the chairman's and CEO's report are shown in pages 14-37. Discussions and analysis of business are shown in pages 38-114. Independent auditor's report is shown in pages 198-200 followed by financial statements with notes in pages 201-294. Other related topics are covered in pages 115-196. Specifically for the financial statements, the statements take up only five pages, while the related notes take up more than 90 pages. Why is that so? Remember that financial statements provides summaries of the financial aspects of companies, they cannot include all details in the statements. When the details are considered useful and relevant to the readers, they are instead shown as notes to the financial statements for readers to refer to. That explains why the notes to financial statements are very much extensive than the statements themselves. That would also mean that when reading the financial statement, one must not ignore the notes because very often, that's where the readers can paint pictures behind the scene. Another example can be found in the annual report filed by Apple in cooperation to the Securities and Exchange Commission, the regulator of the US securities market. You can see that this report by Apple is a pro forma labeled form 10-K instead of a nice-looking, bounded annual report STM house. It is a requirement of the US SEC, that all listed companies must file with them the form 10-K as an annual report, but irrespective of the formats, the contents of Apple's form 10-K are by and large are similar to those of the annual report of MTR as refilled from the table of contents. If you care to look at the content of financial statements and the related notes of the two companies, you will also find that, for certain similar business transactions, the accounting treatments are different. This is because the financial statements of MTR are prepared in accordance with the Hong Kong Financial Reporting Standards, which are identical with the IFRSs. Whereas, those of Apple's are prepared in accordance with the US GAAPs. Readers of the two statement should therefore reconcile the differences if they intend to make comparisons of the two companies. It is the requirement of company laws that financial statements of limited liability companies must be revealed by qualified accountants independent and outside of the company's before they can be released for public use. This is referred as the external auditing process, which is another mainstream practice of professional accountants. Accountants performing external auditing function are more specifically called external auditors. For simplicity, in the following presentation, which I'll just call external auditing as auditing and external auditor as auditor. When acting as auditors, accountants must follow the Auditing Standards applicable to the situation of the audited companies. Very often, and like the case of accounting standards, Auditing Standards in different countries are developed by making reference to the International Auditing Standards issued by the International Auditing and Assurance Standards Board, IAASB. The most important duty of auditors is to examine the data and accounting processes used in preparing the financial statements and to attest to the credibility of information reported in the statements. Upon completion of the tasks, auditors are required to issue their independent opinions on the financial statements, as to whether an unqualified opinion can be issued on the basis that the financial statements provide a true and fair view of affairs of the company or that they have been prepared in compliance with company laws. Where there are discrepancies found in the auditing process, a qualified opinion maybe issued by the auditors to alert users of financial statements to the limitations in the reported information. Other than preparing financial statements and auditing, accountants may practice in other specialized areas of professional accounting, such as management accounting for the purpose of business planning, internal auditing for the purpose of business control, or tax accounting as part of the financial planning of businesses.