Important of Audit Report
The audit report is a formal document that contains the auditor’s opinion on a company’s financial statements. The report is intended to provide shareholders and other interested parties with an objective assessment of the financial health of the company.
The auditor will carefully review the financial statements and accompanying documentation to ensure that they accurately reflect the company’s financial position and financial performance. The audit report will also identify any areas where there may be potential for improvement.
An audit report is a valuable tool for investors, creditors, and other interested parties. It helps them to make informed decisions about whether to invest in or lend to a company.
The auditor’s opinion stated in the audit report can be either unqualified or qualified. An unqualified opinion means that the financial statements give a true and fair view, and there are no material misstatements. On the other hand, a qualified opinion indicates that there are some limitations in the financial statements which may have impacted the true and fair view.
The financial statements of most entities are prepared in accordance with governing accounting standards. In the United States, generally accepted accounting principles (GAAP) provide the guidelines for financial statement preparation. Other countries have similar systems of accounting standards. For example, the International Financial Reporting Standards (IFRS) are used in more than 110 countries. Auditors have to ensure the company’s financial statements are prepared in accordance with the applicable accounting standards.
Content of Audit Report
- Report Title: It states the “independent audit report” to represent the independent report from external auditors. It prevents any confusion from the internal audit report.
- Introductory Paragraph: The paragraph includes the scope and basis of auditing.
- Opinion Paragraph: It is the auditors’ opinion of the company’s financial statement.
- Responsibility of auditor and management: It mentions the auditor and management’s responsibility for the financial statement. Management is responsible for preparing financial statement while the auditor issue opinion on the report.
- Auditor’s Name
- Auditor’s Signature
Important of Audit Report
- Reliable financial statement
The audit report will provide an additional level of confidence for the users. When the financial statements are audited by professional auditors, it helps to ensure that the reports are free from material misstatement. They ensure that the reports present a true and fair view before issuing a clean opinion.
The auditors have to understand the company’s business, internal control, and industry. Moreover, they also inspect the supporting document and much more detailed work before issuing the opinion. Based on these factors, the public can trust the audited report. It is more reliable than the unaudited financial statement.
- Compliance with Law and Regulation
The financial statements are required to comply with any law and regulation which depend on the nature of business and local laws. The reports need to comply with accounting standards such as GAAP or IFRS.
Auditors are the qualified people who have enough knowledge, skill, and understanding of those requirements. They are able to check if the financial statement complies with all the laws and regulations.
- Getting Detail review
It is hard for the company to self-review its own financial statements. The people will not be able to find the error by looking at the report that they produce. They still have the same mindset and knowledge.
On the other hand, it is more effective to get someone independent with a technical expert to review the report. Auditors are the people who can perform such kinds of reviews. They are able to provide a detailed and proper review of the financial statement.
- Improve the internal Control
Besides the opinion on the financial statements, auditors also provide the management letter which consists of the internal control weakness. These are the weakness that can have an impact on the financial statements and operational risk.
The auditors will raise the concern related to the internal control weakness and provide the recommendation.
- Improve Credit Rating
Most companies are trying to get a loan from banks or creditors. They are trying to show that the company is doing great with good financial health.
Due to the conflict of interest, it is hard for the bank or creditors to believe everything on the financial statements. They know that company is trying to make them look good. So they are highly likely to place reliance on the audited financial statement. It also is able to increase the credit rating.