Definition of Audit Report
Audit Report is an important document that delivers the Auditors opinion about the company. The Report comprises end key deliverables of the company and certifies that the financial statements and affairs of the company are conducted in a genuine investor-friendly manner. The opinion of auditor on audit report is critical and closely read and interpreted by various stakeholders including banks and financial institutions and as such needs to be unbiased and objective.
Explanation
Audit Report is a written document which comprise of the opinion of the auditor on the financial statements reviewed by them and whether they present a true and fair view of the business. There are different types of opinion being provided by the auditor based on their professional judgment and interaction during the scope of audit work. Also, the audit report 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 at Dec 31, 2019 and 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 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 procedure 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 opinion on these financial statements based on our audit.
- Opinion: We believe the audit evidence obtained by us is sufficient to provide basis for our opinion which is as under:
In the case of balance sheet, to provide a true and fair view of the state of affairs of the company as at Dec 31, 2019. In the case of profit and loss account as on Dec 31, 2019.
Place: London Auditor Name and Signature
Date: 02nd Feb 2020
Types of Audit Report
Majorly there are four types of Audit Report:
- Clean Audit report
- Qualified Audit Report
- Adverse Audit Report
- Disclaimer Audit Report
Contents of the Audit Report
Audit report 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 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 auditors 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 audit report.
- Duly certified. This part involves proper signature by the auditor with mention of date and place on which the Audit Report is signed.
Opinion in Audit Report
Broadly there are two opinions normally found in audit report 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 which 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 problem 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 report and used sparingly and in cases where it is unavoidable.
- Adverse opinion which is again a very rare case opinion used in audit report but given when the auditor believes that the financial statement is misleading and grossly underscores the accounting standards in totality.
Importance of Audit Report
Audit Report is very important. Its usage and utility are enumerated below:
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- Provides credibility to the financial statements of business as auditors are independent and unbiased.
- Compliance of law requirement as the appointment of auditor and obtaining audit report is a requirement for all companies above a standard threshold.
- It helps in highlighting matters which are material and should be brought into the notice of all stakeholders.
Conclusion
Audit report adds credibility to the financial statements submitted by the company. The auditors responsible for audit report are appointed by the shareholders and their fees are also approved by them to bring in objectivity, independence, and transparency in the audit report to serve the purpose it is intended to serve.
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