The objective of the reporting phase of a financial audit is to present an informed opinion about a business's financial statements, including whether they conform to generally accepted accounting principles. Even though the report contains only three sections, the impact it can have on the future of a business makes being able to read and understand its contents crucial.
Audit Report Basics
A financial audit report is the final step of an external financial audit. After planning the audit and gathering necessary information, an auditor then must interpret results. Although the information an auditor collects through inquiry, observation, inspection, calculations, comparisons and analysis is “fact,” the report itself expresses the opinion of the auditor. The weight the U.S. Securities and Exchange Commission puts on an audit opinion and the way in which the commission reacts to it, however, underscores the need to conduct business in a legal and proper way.
The introductory section identifies the responsibilities of the company director and the independent auditor. First up is the company director. Regardless of how large the company or financial accounting department, the auditor holds the company director responsible for accounting policies, the preparation of financial documents, internal business controls designed to ensure the financial documents are honest and correct and the presentation of financial statements to the auditor. The auditor takes responsibility for expressing an opinion based only on the facts and for complying with ethical and legal auditing guidelines during the planning and information-gathering stages of the financial audit.
Defining the scope of the audit -- the area it covers -- is the second and shortest section. It provides a description of what the auditor has done and includes a blanket statement -- a statement common to and for the most part identical in every audit report -- that specifically states the auditor has examined the financial statements of the business in accordance with generally accepted auditing standards and has performed appropriate tests to make a reasonable assessment of the business’s financial processes, internal controls and documents.
The auditor's opinion is the most important section of the audit report. Here the auditor sums up findings by expressing one of three generally accepted opinions or includes a disclaimer, which means the auditor refuses to give an opinion, most often because the business either can’t or won’t produce the appropriate documents or information. The most favorable opinion is an unqualified opinion, meaning the company director provided all the necessary financial documents and everything was in order and met all auditing requirements. A qualified opinion means that while the majority of documents were in order, the auditor did find one or two exceptions. An adverse opinion is an opinion no business wants; this negative opinion says the business financial records are inaccurate, incomplete or not in compliance with generally accepted accounting principles.
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