Audit report is the written report that auditors issue to express their opinion on financial statements. Likewise, the audit report that auditor issue at the end of the audit work shows the users whether the financial statements present fairly in all material respects.
Auditors have the responsibility to obtain sufficient appropriate audit evidence in order to form a basis for opinion on financial statements. In this case, auditors need to evaluate the audit evidence obtained and express opinion based on their findings in the audit report, or state that they do not express an opinion in a rare circumstance that they decide to give a disclaimer of opinion in the audit report.
Audit report is usually intended for the benefit of the shareholders; however other users that have a business relationship with the company also benefit from the report. This is due to the audit report can enhance the degree of confidence that users place in the company’s financial statements.
Audit report usually contains a number of contents following the standard format so that users know the audit work has been performed in accordance with the recognized standards.
Contents of Audit Report
Audit report usually follows the standard format which has the contents as in the table below:
|Contents of Audit Report|
|Title||Title usually states as “Independent Auditor’s Report” to state the fact that auditor is external from client and independent.|
|Addressee||This is where the audit report addresses the user of the report which is usually the shareholders.|
|Introduction||Introduction paragraph is a brief introduction on the areas the report covers.|
|Opinion||This is the main part of the report, where auditors expression their opinion on financial statements.The opinion auditors give here is usually an unqualified opinion. However, sometimes auditors also give a modified opinion instead based on the result of their work.|
|Basis of opinion||This paragraph gives a brief of audit process and how auditors form their opinion.|
|Other information||This where auditors are required to report that fact if the other information such as annual report is not consistent with the audited financial statements.This section of the audit report includes:
|Management’s responsibilities||This is where the report details the responsibilities of management in the preparation of financial statements.|
|Auditor’s responsibilities||This is where the report details the responsibilities of auditors in performing the audit work.|
|Signature and Name of Auditor||This is where the engagement partner signs and gives the name to show the clarity and ultimate responsibility of the audit opinion.|
|Auditor’s address||This is the address of the auditor’s office.|
|Date of report||This is where the date in which the report is signed.|
Importance of Audit Report
Audit report is very important for both the shareholders and other stakeholders as it not only provides confidence in the company’s financial statements but many other benefits as listed below.
Importance of audit report include:
- Give assurance on the company’s financial statements. As the audit report is usually issued by the professional audit firm, users can feel more assured about the company’s financial statements.
- Give proof of the management’s integrity to the company’s shareholders. As the report is issued by the independent auditor, it can serve as evidence whether management have fulfilled their duty to the shareholders.
- Comply with laws and regulations. As in many jurisdictions, the certain types of companies, e.g. listed companies and public interest entities, are required to have their financial statements audited by professional independent auditor, audit report can serve as evidence that they comply with laws and regulations.
- Assure shareholders that the figures reported in financial statements are correct. This is usually the main reason where shareholders require the company’s financial statements audited by the external auditors.
- Audit report tells shareholders if there is a problem with the company. For example, if there are uncertainties about the company’s going concern, it is usually stated in the audit report so that users, especially shareholders, can be aware of such matters.
- Audit report shows what accounting standards the company follows. This helps users when they want to compare the company’s financial statements to other financial statements.
- Audit report is written in language and format that is easy to understand. This helps users to easily understand the report and make a proper judgment on the company’s business.
- Audit report describes clearly the auditors’ responsibilities as well as management’s responsibilities. This helps the users to understand what auditors do when they perform their audit work. Also, it helps to distinguish between auditors’ responsibilities and management’s responsibilities as many people tend to confuse between the two.