CHAPTER-6
AUDIT REPORT
Introduction
An audit report is a written opinion of an auditor
regarding an entity's financial statements.
The report is written in a standard format, as
mandated by generally accepted auditing standards
(GAAS).
GAAS requires or allows certain variations in the
report, depending upon the circumstances of the
audit work in which the auditor engages
The audit report is usually the only channel
of communication between the
shareholders of the company whose
financial statements have been subject to
audit and the auditors.
As such the report acts as a bridge taking
the large volume of information possessed
by auditors and conveying it to the
shareholders in a much abbreviated form.
6.1 Types of Audit Reports
There are four types of audit reports:
1.Unqualified Opinion: Auditors most often
give this type of report.
• It contains no adverse comments or
disclaimers about the audit process.
• A clean report indicates that the auditor
is satisfied with the findings.
2. Qualified Opinion: Auditors use this type of report
when they lack confidence in a specific process or
transaction uncovered in their findings.
•In the report, they state the reasons that they cannot
present an unqualified opinion.
•The auditors’ reports should have a separate
reservation paragraph disclosing the reasons for the
qualification.
3. Adverse Opinion: When auditors are dissatisfied with
their findings, they issue this type of report.
Adverse opinions raise a red flag that there is potential
for fraud.
4. Denial (Disclaimer) Opinion: Auditors make
disclaimer reports when they feel that a company
limited their ability to conduct the audit or did not
answer questions satisfactorily. In such cases, auditors
distance themselves from providing any opinions on
financial statements.
6.2 Basic Contents of a Standard Audit Report
The audit report is the auditor’s formal means of
communicating to interested parties a conclusion
about the audited financial statements.
In issuing an audit report, the auditor must meet the
four generally accepted auditing standard of
reporting.
A standard report is the most common report issued.
It contains an unqualified opinion stating that the
financial statements present fairly in all material
respects, the financial position, results of operations
and cash flows of the entity in conformity with
generally accepted accounting principles.
An opinion on the basis of an audit performed in
accordance with GAAS is called the standard report.
Elements of audit report:
Because of its importance in a financial statement audit, a
basic understanding of the form and, the content of the
standard report essential.
1. Title: The title indicates the nature of the report. The title
should be like “Auditor’s report or Branch auditor Report”.
2. Addressee: The auditor’s report should address the
person to whom it is meant to be followed. Generally, the
audit report is submitted to the board of directors or
stockholders of an entity.
3. Opening or Introductory Paragraph:
the introductory paragraph should identify
types of service performed, financial
statements audited, dates of statements,
management‘s responsibility for
statements, auditor’s responsibility for an
opinion.
4. Scope Paragraph: the scope paragraph
specifies the work performed by an auditor.
The scope paragraph should indicate that
the auditor had planned and performed the
audit to obtain reasonable assurance
whether financial statements are free from
material misstatement.
Specifically, the scope paragraph describes
the audit as including – assessing accounting
principles used and significant estimates
made by management, evaluating overall
financial statements presentation.
5. Opinion Paragraph: the opinion paragraph of
the report should state the auditor’s opinion as to
whether the financial statements give a true and fair
view in conformity with financial reporting
framework and comply with the statutory disclosure
requirements.
6. Signature: The report should be signed the
personal name of the auditor or in the name of the
audit firm or both.
8. Date: The date of the report should be the date
when the auditor has obtained sufficient
appropriate evidence to support the opinion. It
should not be earlier than the date when
management approves the financial statements.
END OF
CHAPTER
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