Everything You Need to Know About the Audit Report
In one of our previous blogs, we have discussed the importance of financial statements in running your business, especially their transparency and accuracy. The question now is, how can you verify them? This is where an auditor’s report comes in – a documentation evaluating and stating the validity and reliability of your financial statements.
How is an auditor’s report prepared? What are its elements? Read on to learn the ropes to small business auditing.
Who should audit your financial statements?
An auditor, also called a comptroller, is the person who can vouch for the accuracy of your financial reports. This is why small business auditing is vital for your business. Auditors can be either internal or external; the former being employees or contractors working for the company they are auditing, and the latter mainly working for government agencies. It is advisable that auditors state their connection with the company (internal or external) so that the report would not be compromised.
What does an auditor’s report contain?
Same as all financial and accounting documents, an auditor’s report should adhere to the established standards of a local governing body. It could be based on the standards of the Generally Accepted Accounting Principles (GAAP), for example, to ensure that the auditor’s evaluation of accuracy is based on standard accounting practices.
In audit reports, there are also rules on the order of elements:
- The name of the audited company and the accounting method used
- Summary of the auditor’s responsibility and their report/findings
- The auditor’s provisions/reservations (if any)
- Additional information (if any)
- Company’s management report (if any)
- Date of the report and the auditor’s signature
What kinds of findings can one see in an auditor’s report?
An auditor’s report is also known as an opinion. It has different natures depending on findings. There are four types of opinions expected when seeking professional corporate auditor support, such as:
- An Unqualified/Clean Opinion is given when the financial reports are accurate. This is issued when the company’s position, operations, disclosures, and financial condition are fairly represented in the financial statement. It also states that the report has been made in accordance with the GAAP and adheres to relevant statutory requirements and regulations.
- A Qualified Opinion, despite its name, is not entirely the opposite of an unqualified opinion. This type of opinion is given if the financial statement accurately reflects the company’s financial condition, but is not fully compliant with the GAAP. The style of the report is the same as that of an unqualified one, with the exception of an additional paragraph stating the reason/s why it didn’t pass for an unqualified opinion.
- Disclaimer of Opinion is given when the auditor is unable to make a complete and accurate report, and could therefore refuse to give any opinion. This may be the result of the following: 1) a conflict of interest for the auditor (e.g. the auditor not being independent), 2) imposed limitations by the client, resulting in insufficient auditing, and 3) the absence of mandatory financial records.
- An Adverse Opinion simply means that the auditor has discovered discrepancies in the company’s financial statements. Avoid this result as much as possible as it would require you to redo your books. Moreover, it would also affect your company’s compliance reputation.
For you to have a good or unqualified opinion, you need to present credible financial statements, which in turn can give assurance to bankers, creditors, stockholders, government agencies, and other interested parties. Aim for the unqualified opinion and be on your way to being a reliable and responsible business owner.