An audit report is the record of a business’s complete financial status issued by accounting professionals (Moeller, 2016; Basu, 2010). There are four types of audit reports which are as follows:
Unqualified
Qualified
Adverse
Disclaimer of opinion
Unqualified
An unqualified audit report is a company’s financial record that is appropriately and fairly presented by an independent auditor in accordance with the accounting standards known as Generally Accepted Accounting Principles (GAAP). It is the best type of report a business can receive, and it is done to illustrate that it was prepared by a third party. The unqualified audit report is composed of three paragraphs of the main body. The responsibilities and finding of the auditor along with the purpose of doing the audit is described in the audit report. The auditor dates and signs the document with his address to finish it off .
Qualified
If the company’s financial records are not maintained in accordance with GAAP, then the auditor issues a qualified report. There is no such difference in the unqualified and qualified audit report as the first three parts are same. The unqualified report comprises of an additional paragraph which explains the reason audit report is not unqualified audit report .
Adverse
It is a type of audit report used only when the auditor believes that the financial statement of the company is materially misstated or are misleading and are not in accordance with GAAP. Adverse is the worst type of report that can be issued to a business or company. If an auditor issues an adverse report then the company must correct its financial records. Moreover, re-audit of the financial records must be done because the requesting parties and investors of the company do not accept an adverse audit report .
Disclaimer of Opinion
The non-completion of an accurate audit report by an auditor results in disclaimer of opinion. The reason behind non-completion of an accurate audit report is absence of proper financial records. In this report, the statement of the auditor reflects that the financial records of the company are not determined .
Components of Audit Report
There are several components of the audit report which also include auditor’s opinion which they form while conducting the audit.
Introductory Section
The introductory section includes a table of contents and identifies for whom the audit report is prepared. It also identifies why the audit was conducted and the name of the person who conducted it .Financial Section
The financial section includes auditor’s independent report in which the auditor identifies basic financial statements conducted according to GAAP. The financial section also includes management’s discussion and analysis. Moreover, the auditor’s opinion of whether the financial statements conform to GAAP is also a part of financial section .
Findings and recommendation sections
The audit report completes here with a list of findings that where the accounting system could be improved. The auditor also provides specific recommendations that may be implemented. Finding and recommending section includes a schedule of prior audit findings, findings, and questioned costs .
Non-Audit Reports
Other audit reports are referred as permissible non-audit service. They may include professional advice, tax, and broader advisory service. Diligence services and comfort letters are also inclusive. The other non-audit reports are as follows:
Compliance Report
A report that conforms to a policy or a standard is termed as compliance report.
Long form Report
The long-form report has several aspects like audit scope, evaluation of financial status, and number of changes in an account which are required to complete it. In addition to it, performance of the client, opinion of the auditors, and recommendations for improvement are also important for the completion of long-form report.
Control Report
It is a process of assuring achievement of an organization's objectives in operational effectiveness and efficiency, compliance with laws, regulations and policies, and reliable financial reporting.
HR Report
HR reporting is referred to all the reports which show the update data related to the employees of the company.
Consequences
Typically accepted accounting principles require that the financial statements should be free from material misstatements. Auditors have a responsibility to detect different types of material misstatements including, irregularities, errors, and those caused by illegal acts. The occurrence of errors and irregularities causes mistakes in the financial records of the client and therefore, for the purpose of evaluating the risks, auditors are hired .
References
Basu. (2010). Fundamentals of Auditing. Delhi: Pearson Education India.
Moeller, R. R. (2016). Brink's Modern Internal Auditing: A Common Body of Knowledge. hoboken: John Wiley & Sons.
