AUDIT REPORT

AUDIT REPORT

• It provides an opinion on the validity and reliability of a company’s financial

statements.
• an appraisal of a business’s complete financial status.
• this document covers a company’s assets and liabilities, and presents the
auditor’s educated assessment of the firm’s financial position and future.
• written opinion of an auditor regarding an entity's financial statements. 
• The goal of an auditor's report is to document reasonable assurance that a
company’s financial statements are free from error.
 TOPICS IN AN AUDIT REPORT

• The responsibilities of the auditor and the management of the entity.

• The scope of the audit.
• The auditor's opinion of the entity's financial statements.
 COMPONENTS OF AUDIT REPORT

• Introductory Section
• Financial Section
• Required Supplemental Section
• Findings and Recommendation Section
 COMPONENTS OF AUDIT REPORT
• Introductory Section
• Identifies whom the audit report was prepared for.
• It states why the audit was conducted and names the person who conducted the audit.
• It confirms the representations you made about the accuracy of your financial statements and
business information.
• It gives an overview of your business operations, the long-term financial planning and your
cash management policies and practices.
• It assesses your insurance policies as part of your risk management planning.
• It contains an organizational chart identifying the employees and their responsibilities in
your business
 COMPONENTS OF AUDIT REPORT

• Financial Section
• an assessment of your financial statements based on the auditor’s testing.
• The auditor identified which financial statements were tested and confirmed that the audit was
conducted in accordance with generally accepted auditing standards.
• The income statement and balance sheet are normally examined during the audit.
• The financial section discloses the test sample scope and includes the auditor’s opinion of whether
your financial statements conform to GAAP.
 COMPONENTS OF AUDIT REPORT

• Required Supplemental Section

• Documents that are needed to clarify information contained in the financial statements.
• These documents are not part of your financial statements but are additional stand-alone
documents.
• For example, a required supplemental document would compare your budgeted inventory
projection with the actual inventory consumed.
• The auditor is responsible for examining and test sampling the supplemental information.
• The auditor must disclose if the supplemental documents are inadequate or if you decided
not to provide them.
 COMPONENTS OF AUDIT REPORT

• Findings and Recommendation Section

• The audit report winds up with a list of findings that identifies where your accounting
system could be improved.
• The auditors provide specific recommendations that you may decide to implement.
• For example, the auditor may recommend that you set up a system to investigate the reasons for a
large divergence between the estimated merchandise sales and the actual amount sold.
• The auditor will also include information about the benefits associated with implementing
the suggested recommendations.
 AUDIT PROCESS

• Planning
• the auditor notifies the client of the audit, discusses the scope and objectives of
the examination in a formal meeting with organization management, gathers
information on important processes, evaluates existing controls, and plans the
remaining audit steps.
• Announcement Letter
• -the client is informed of the audit through an announcement or engagement letter
from the Internal Audit Director.
 AUDIT PROCESS

• Initial Meeting
• the client describes the unit or system to be reviewed, the organization, available resources
and other relevant information.
 AUDIT PROCESS

• Preliminary Survey
• the auditor gathers relevant information about the unit in order to obtain a general overview
of operations.

• Internal Control Review

• the auditor will review the unit's internal control structure, a process which is usually time-
consuming.
 AUDIT PROCESS

• Audit Program
• preparation of the audit program concludes the preliminary review phase. This program outlines the
fieldwork necessary to achieve the audit objectives.
• Fieldwork
• the fieldwork concentrates on transaction testing and informal communications.
• Transaction testing
• after completing the preliminary review, the auditor performs the procedures in the audit program. These
procedures usually test the major internal controls and the accuracy and propriety of the transactions.
 AUDIT PROCESS

• Advice and Informal Communication

• the auditor discusses any significant findings with the client. the client can offer insights and
work with the auditor to determine the best method of resolving the finding.
• Audit Summary
• Working papers
• Working papers documentation
 AUDIT PROCESS

• Discussion draft
• the auditor drafts the report, audit management thoroughly reviews the audit working papers
and the discussion draft before it is presented to the client for comment.
• Exit Conference
• when audit management has approved the discussion draft, Internal Audit meets with the unit's
management team to discuss the findings, recommendations, and text of the draft.
 AUDIT PROCESS

• Formal Draft
• the auditor then prepares a formal draft, taking into account any revisions resulting from the
exit conference and other discussions

• Final Report
• Internal Audit prints and distributes the final report to the unit's operating management, the
unit's reporting supervisor.
 TYPES OF AUDIT REPORT

• Unqualified Opinion
• Qualified Opinion
• Adverse Opinion
• Disclaimer Opinion
 TYPES OF AUDIT REPORT

• Unqualified Opinion
• Often called “clean opinion”
• This report indicates the auditor’s opinion that all documents provided for the evaluation
indicate that the company’s financial activities and records are correct and acceptable .
• This report shows that a business has followed the necessary practices and adhered to conditions set
about by the GAAP. This is the best type of report a company can receive.
• if the financial statements are a fair representation of an entity's financial position.
 UNQUALIFIED OPINION

• An Unqualified Opinion indicates the following –

• (1) The Financial Statements have been prepared using the Generally Accepted Accounting
Principles which have been consistently applied;
• (2) The Financial Statements comply with relevant statutory requirements and regulations;
• (3) There is adequate disclosure of all material matters relevant to the proper presentation of the
financial information subject to statutory requirements, where applicable;
• (4) Any changes in the accounting principles or in the method of their application and the effects
thereof have been properly determined and disclosed in the Financial Statements.
 TYPES OF AUDIT REPORT

• Qualified Opinion
• This report is generally positive because it indicates that the auditor has found nothing wrong in the
financial documentation. However, a qualified opinion means that the company audited has not
adhered to the standards set by GAAP.
• This report will include an extra section addressing why it could not be considered an unqualified
opinion.
•  if there were any scope limitations that were imposed upon the auditor's work.
• Qualified report is given by the auditor in either of these two cases:
• When the financial statements are materially misstated due to misstatement in one particular account
balance, class of transaction or disclosure that does not have pervasive effect on the financial
statements.
• When the auditor is unable to obtain audit evidence regarding particular account balance, class of
transaction or disclosure that does not have pervasive effect on the financial statements.
• The two types of situations which would cause an auditor to issue this opinion over the
Unqualified opinion are:
• Single deviation from GAAP – this type of qualification occurs when one or more areas of the
financial statements do not conform with GAAP (e.g. are misstated), but do not affect the rest of the
financial statements from being fairly presented when taken as a whole.
• Examples of this include a company dedicated to a retail business that did not correctly calculate the
depreciation expense of its building.

• Limitation of scope – this type of qualification occurs when the auditor could not audit one or more
areas of the financial statements, and although they could not be verified, the rest of the financial
statements were audited and they conform to GAAP.
• Examples of this include an auditor not being able to observe and test a company's inventory of goods.
 TYPES OF AUDIT REPORT

• Adverse Opinion
• A “worst” type of report to receive following an audit.
• An adverse opinion means that the company has not adhered to the standards set by the GAAP and
that auditor has discovered discrepancies in the company’s financial statements.
• While this can result from a mistake in the auditing process, it can also be an indication of fraud within
the company. An adverse opinion means the company must go through their documentation before
being audited a second time.
• if the financial statements were materially misstated.
 TYPES OF AUDIT REPORT

• Disclaimer Opinion
• This simply means that the auditor wasn’t able to complete the audit due to a particular reason.

• A Disclaimer of Opinion is issued in either of the following cases:

• When the auditor is not independent or when there is conflict of interest.
• When the limitation on scope is imposed by client, as a result the auditor is unable to obtain sufficient
appropriate audit evidence.
• When there are significant uncertainties in the business of client.