The importance of auditing can be overstated. A professional auditor not just clears all your issues, but also helps in improving your organisation. An auditor’s statement provides an opinion on the reliability and validity of a company’s financial statements.
What is an Auditor’s Report?
An auditor’s report is a written letter from the auditor containing the opinion of whether the firm’s financial statements comply with Generally Accepted Accounting Principles (GAAP). The independent and external audit report is typically published with the company’s annual report. The auditor’s report is issued based on the result of auditor’s professional examination against the measurement conditions or standards.
For example, auditors conduct their audit on the client’s financial statements against the accounting standard that used to prepare the financial report.
Types of Audit Report
There are four main types of an audit report. They are-
- Unqualified audit report – It is issued by the auditor to financial statements when auditor finds no substantial misstatements after their testing. This report encloses the unqualified opinion from an independent auditor.
- Qualified audit report – This report is issued by the auditor to the financial statements that have material misstatements on them. But those material misstatements are not pervasive
- Adverse Audit report – This type of audit report is issued to the financial statements when auditors find that there are material misstatements in the financial report. The errors found here are different from the material misstatements found in qualified audit report
- Disclaimer Audit report - The disclaimer audit report is the report that concerns to the financial statements where there is matter to auditor’s freedom and those mater cause auditor not be able to obtain adequate audit evidence to support their opinion.
Constituents of an Audit Report
It is necessary for any firm to know what contains in an audit report. It is also essential for the auditor to examine the financial statements of the business before issuing the audit report. Besides the letterhead of the firm, the key elements included in an audit report are –
- A title suggestive of the term “independent”,
- That the financial statement, which is the topic of the report, was audited,
- A declaration stating that the financial reports are the responsibility of the organisation and the auditor is just giving his estimation,
- The audit was conducted in line with the commonly accepted auditing standards,
- A statement that the auditor planned and completed the audit
Apart from this, an audit report must include a declaration that the auditor believes that there is a reasonable basis for this opinion. Also, it should state a conclusion that the financial statements are presented fairly in all substantial aspects. Furthermore, in the closing part, the report should necessarily contain the signature of the auditor’s company, either physically or printed form, and the date on which the audit report was created.
Importance of an Audit Report
Here’s why professional audit is important for an organization.
- Get a Detailed Overview – one the auditors conclude their findings, the company will have the final report in their hands. They can get a complete picture of how the business is working. Even though a company makes sure that there are no mistakes from there end, small mistakes are bound to happen, and that must be corrected.
- Receive an Additional Perspective – One can be complacent sometimes. This can create a significant problem shortly, which is why it is essential to conduct an audit to take preventive measures before the problem occurs. A good auditor will give you explicit remarks on whether you are demonstrating full compliance and if there are any severe flaws in your company.
- Improve Credit Rating – if you have a profitable expanding business, then it is best for the bank, investors and shareholders to know everything about it. Conducting regular audit report will be advantageous for strengthening your relationship with the shareholders. Your business investors want to see the success your company is experiencing, and want to make sure that you are trustworthy.
- Become More Reliable – If you own a big firm that has upper management or investors, the regular audit can provide reliability in your statements and inspire assurance that everything in your business is going as planned.
Hence, conducting a regular audit is not just mandatory but an essential factor for your company’s growth. Should you decide to conduct an audit for your business, then we at JAXA Auditors can help you with it. Contact us today to know more.