Definition: Audit Report is the formal written opinion about the entity’s financial statements. The auditor conveys the report to the management at the end of the audit. Apart from the opinion on the statements, it also includes factual information.
It is a medium of communication of the views of the auditor to the company’s management. Hence, he submits the report created to the client. The report explains the information contained in it with clarity and brevity.
The audit report is the final product of the audit work performed by the auditor and his staff.
Noting that, the facts listed in the audit report are not available elsewhere. Once the auditor submits the report, his duty is over, as per the respective acts and laws.
Types of Audit Report
There are four major types of audit report:
The clean report is an alternative term for the unqualified report. It shows that the company’s financial statements present a true and fair view. It does not contain any reservations.
Here, the auditor doesn’t give a clean report. Rather, he expresses his opinion on the truth and fairness, with some reservations.
In this, the auditor generates a report based on an examination conducted. He/She is not in agreement with the affirmations given on the financial statements.
Here, the auditor is unable to give any opinion on the financial statement. He/She denies passing any statement, after the audit.
Essential of an Ideal Audit Report
- Simplicity: A good audit report has to be simple and clear as understandable. It should be free from any ambiguous terms and facts.
- Clarity: Clarity is about cleanness in the audit report. It should contain all the relevant information. The information is necessary for evaluating and appraising the performance of the business.
- Brevity: Brevity implies the conciseness of the audit report. The auditor must avoid repetitive use of facts and figures. This will result in keeping the length of the report in control.
- Firmness: The audit report must demonstrate the scope of work performed. Along with that, it shows whether the company’s account books show a true and fair view.
- Objectivity: Objective evidence should form the basis of the audit report. He should give his opinion based on obtained information and evidence. But it must contain monetary information only.
- Consistency: A good report must be consistent in the presentation of accounting details. It should take into account the consistency in the method of inventory valuation. The auditor should also check invariability in the method of depreciation.
- Accepted Principles: Fact and figures in the report have to be in accordance with GAAPs. These facts and figures often form the basis of an audit report.
- Disclosure Principles: The audit report must be unbiased. It should contain all the relevant facts and truth.
Contents of Audit Report
- Title: An appropriate title facilitates the reader to identify the report. It also differentiates this report from others.
- Address: It has to be properly addressed. For instance, in a statutory audit, the audit report is addressed to the shareholders. Whereas the same is addressed to the government in case of special audit.
- Identification of financial statements: It should display the name and address of the enterprise.
- Reference to auditing standards and practices: It ensures conformity of the resolution of ICAI. Plus, it guarantees that the accounting and auditing standards are duly complied with.
- Opinion on the financial statements: It expresses the auditor’s opinion on the company’s financial position.
- Signature: The auditor should sign the audit report. Further, in case the audit firm is an auditor, then the representative can sign the report on behalf of the firm.
- Date: The report must display the date of audit.
Signing of the Audit Report
Referring to section 229 of the Companies Act, 2013, the auditor must sign an audit report. If the audit firm is an auditor, then any partner who is practising in India has the authority to sign the report.
As per section 230, the auditor must read the report presented in front of the shareholders. This reading takes place in the annual general meeting of the company. Besides, any member of the company can inspect the report, as they keep it open for the members.
A word from Business Jargons
A company’s statutory auditor has to give his professional opinion. The auditor gives his opinion on the true and fair view as reflected by the financial statements.
It is of significant value, not only for the members of the company but also for all the interested parties. These are the ones who deal with the enterprise. The interested parties include creditors, investors, employees, government, banks, etc.