Updated July 17, 2023
What is an Audit Report?
Audit Report is an important document that delivers the Auditors opinion about the company. The Report comprises the end key deliverables of the company and certifies that the financial statements and affairs are conducted in a genuine investor-friendly manner.
The auditor’s opinion is critical and closely read and interpreted by various stakeholders, including banks and financial institutions, and needs to be unbiased and objective.
Explanation
Audit Report is a written document comprising the auditor’s opinion on the financial statements reviewed by them and whether they present an accurate and fair view of the business. There are different types of opinions being provided by the auditor based on their professional judgment and interaction during the scope of audit work. Also, it is a regulatory requirement and needs to be prepared and submitted by companies in compliance with the statutory requirements of various jurisdictions.
Example of Audit Report
Here is an excerpt from an Audit Report. Independent auditors’ report to the shareholders of ABC limited
- Report on the Financial Statements: We have audited the Financial Statements of ABC Limited, which comprise the Balance Sheet as of Dec 31, 2019,, and the Income Statement for the year ended, a summary of significant accounting policies. As well as explanatory information provided by the management.
- Management’s Responsibility for the Financial Statements: It is the responsibility of management to prepare financial statements that provide a true and fair view of the financial position, cash flow,, and financial performance of the company, which includes the design, implementation, as well as maintenance of internal control which is relevant to the preparation of financial statement and provides a true and fair view with no material misstatement caused on account of fraud or error.
- Auditors’ Responsibility: Our audit scope involves performing procedures to collect audit evidence to judge the accuracy of financial statements and ensure that the same is in accordance with relevant provisions of the applicable laws. Our responsibility is to express an opinion on these financial statements based on our audit.
- Opinion: We believe the audit evidence obtained by us is sufficient to provide the basis for our opinion, which is as under:
In the case of the balance sheet, to provide a true and fair view of the state of affairs of the company as of Dec 31, 2019. In the case of profit and loss account as of Dec 31, 2019.
Place: London Auditor Name and Signature
Date: 02nd Feb 2020
Types of Audit Report
Majorly there are four types :
- Clean Audit report
- Qualified Audit Report
- Adverse Audit Report
- Disclaimer Audit Report
Contents of the Audit Report
It usually has a predefined format as mentioned below:
- Title: This part states that it is an independent auditors report.
- Audience: This part states the prospective users to whom the report is placed. Normally it mentions like this “To the Members of XYZ Limited (Name of company).
- Report on the Financial Statement: This part states the statement from the auditor about the statements audited by them and a summary of significant accounting policies and other explanatory information.
- Management’s Responsibility for The Financial Statements: This part highlights the responsibility of company management to prepare financial statements that provide a true and fair view of the financial position.
- Auditors’ Responsibility: This part states the responsibility of the Auditor and its team, the process they applied to conduct the audit, and the sufficiency of Audit evidence obtained by them to provide a basis for an audit opinion.
- Opinion and Basis of Opinion: This part comprises the auditor’s opinion on the financial statements based on the meeting, discussion, evaluation, and other audit evidence obtained from the company.
- Report on other Legal and Regulatory Requirements: This step involves certification by the auditor that they have complied with the relevant acts governing such audit activity and any material information (compliance or penalty) they wish to furnish as part of the audit report.
- Duly certified. This part involves proper signature by the auditor with mention of the date and place on which the Audit Report is signed.
Opinion on Audit Report
Broadly there are two opinions normally found in audit reports namely:
- Unqualified Opinion: Under this, the auditor is satisfied with the audit of financial statements and expresses an unqualified opinion that the statements give a true and fair view.
- Qualified Opinion: It happens in those cases when there are certain uncertainties involved which debars the Auditor to provide an unqualified opinion. various degrees of qualification than can be provided in this category are:
- Emphasizing paragraphs that are having a material impact.
- Qualified Opinion by clearly stating in the audit report that the financial statements give a true and fair view except for problems in certain aspects which are described in the body of the audit report.
- disclaimer of opinion which is a very rare case of opinion used in audit reports and used sparingly and in cases where it is unavoidable.
- Adverse opinion is again a very rare case opinion used in audit reports but given when the auditor believes that the financial statement is misleading and grossly underscores the accounting standards in totality.
Importance of Audit Report
It is very important its usage and utility are enumerated below:
- Provides credibility to the financial statements of businesses as auditors are independent and unbiased.
- Compliance with law requirements as the appointment of an auditor and obtaining an audit report is a requirement for all companies above a standard threshold.
- It helps in highlighting matters which are material and should be brought to the notice of all stakeholders.
Conclusion
Audit report adds credibility to the financial statements submitted by the company. The auditors responsible for this are appointed by the shareholders and their fees are also approved by them to bring objectivity, independence, and transparency to the audit report to serve the purpose it is intended to serve.
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This is a guide to Audit Report. Here we also discuss the definition and types of audit reports along with their importance and example. You may also have a look at the following articles to learn more –
