The 4 Types of Audit Reports: A Quick Guide
An audit report allows you to determine the integrity of your organization’s reported financial information.
It contains the auditor’s opinion — a formal conclusion from an auditor that affirms whether your financial statements adhere with the applicable financial reporting framework (e.g., GAAP and IFRS) and are free from any materials misstatement.
The 4 Types of Audit Reports
Audit reports are classified into four (4) main types: clean report, qualified report, disclaimer report and adverse report.
Here’s what each report means.
1. Clean Report
Auditor’s opinion: Unqualified opinion
(A green flag for investors)
A clean report indicates that your organization prepares and presents true and fair financial statements based on the guidelines outlined in Generally Accepted Accounting Principles (GAAP) or (International Financial Reporting Standards (IFRS).
Most investors want to see a clean audit report before they invest in the business because it serves as proof of an organization’s good financial standing.
2. Qualified Report
Auditor’s opinion: Qualified opinion
(Unacceptable for most investors)
A qualified report signifies that your organization failed to follow all standards set by GAAP/IFRS. For example, the auditor may have found an underreporting of provisions or incorrect treatment of business inventory. It does not mean, however, that you’re conducting business in an illegal or misrepresenting way.
Auditors usually specify in the written qualified report the issues you need to address.
Unless you follow those recommended fixes, investors may stay away from your organization due to the auditor’s lack of confidence in your financial statements or financial reporting practices.
3. Disclaimer Report
Auditor’s opinion: Disclaimer of opinion
(Questionable for investors)
Auditors issue a disclaimer report if they cannot express a definite opinion about your organization’s financial statements.
Several reasons may have caused the auditor to issue this report.
For instance, an auditor is unable to fulfill tasks that are crucial to completing the audit process due to lack of access to financial statements or the company’s operational procedures.
4. Adverse report
Auditor's opinion: Adverse opinion
(A huge red flag for investors)
An adverse report means the auditor has found gross misstatement in the preparation of your organization’s financial records. The possibility of fraud and dishonest practices within the company is also high — making it a huge red flag for investors.
Getting an auditor’s unqualified opinion through a clean report is the best way to show your company’s ethical financial practices and good financial position.
And it all begins with how your finance and accounting department processes your company’s financial data.
If you need help in preparing for an upcoming audit, be it internal or external, our skilled auditors are at your service.
Our audit professionals have extensive experience working with the Big 4, which gives them sufficient knowledge and experience in covering the 3 phases of audit — Planning, Execution, and Conclusion.