AUDIT REPORT
1.Unqualified Opinion (Clean Audit Report)
Often called a clean opinion, an unqualified opinion is an audit report that is issued when an auditor determines that each of the financial records provided by the small business is free of any misrepresentations. In addition, an unqualified opinion indicates that the financial records have been maintained in accordance with the standards known as Generally Accepted Accounting Principles (GAAP). This is the best type of report a business can receive.
Typically, an unqualified report consists of a title that includes the word “independent.” This is done to illustrate that it was prepared by an unbiased third party. The title is followed by the main body. Made up of three paragraphs, the main body highlights the responsibilities of the auditor, the purpose of the audit and the auditor’s findings. The auditor signs and dates the document, including his address.
2.Qualified Opinion
In situations when a company’s financial records have not been maintained in accordance with GAAP but no misrepresentations are identified, an auditor will issue a qualified opinion. The writing of a qualified opinion is extremely similar to that of an unqualified opinion. A qualified opinion, however, will include an additional paragraph that highlights the reason why the audit report is not unqualified.
3.Adverse Opinion
The worst type of financial report that can be issued to a business is an adverse opinion. This indicates that the firm’s financial records do not conform to GAAP. In addition, the financial records provided by the business have been grossly misrepresented. Although this may occur by error, it is often an indication of fraud. When this type of report is issued, a company must correct its financial statement and have it re-audited, as investors, lenders and other requesting parties will generally not accept it.
4.Disclaimer of Opinion
On some occasions, an auditor is unable to complete an accurate audit report. This may occur for a variety of reasons, such as an absence of appropriate financial records. When this happens, the auditor issues a disclaimer of opinion, stating that an opinion of the firm’s financial status could not be determined.
Advantages of Audit Reports:
· Provide assurance on Financial Statements. Audit reports issued by a professional and independence auditor which is operational independence from the management of the entity. The report issued from them could help the users of the financial statement to assure that financial information is correct or not.
· Prove management integrity on their shareholders. As auditor is independence from management, the report could prove whether managements are honest to their shareholders or not. This is related to principle and agency theory.
· It is the requirement of law and regulation. Most of the countries required the entities which have the specific criteria to have their financial statements audited by independent auditors. Those criteria like annual turnover, the value of assets, and the number of employees. The auditor is the evidence that could prove to the government that the entity is complying with the law.
· It is the requirement of shareholders. Most of the corporate shareholders want their entity’s financial statements to be audited. This report is examined by the experts and express into the easy words that could be understood by most of the shareholders who do not have financial or audit background.
· Parent company’s requirement. Many parent companies that have subsidiaries operating in other countries or even in the same country normally required their subsidiaries’ financial statements to be audited. This report could help them manage the subsidiary even more effectively.
· Help stakeholders to understand about entity’s financial and operational situation. This is probably the most important point. The auditor is required to state the auditor report whether the entity has any going concern problem or not. This includes financial and non-financial problems that could lead the entity to face bankruptcy in the next foreseeable period from the audit report date.
Limitation of Audit Reports:
· The scope of the audit might be limited by management. This is a popular discussion about audit’ issues. In the audit standard, auditors should have the full right to access any kind of information that could help them to obtain audit evidence to express their opinion. However, in practice, management might try their best to prevent auditors to obtain some sensitive information. These are probably the management don’t fully trust auditors ethic related to confidentiality or management themselves have integrity problems. These problems might prevent auditors to provide the best quality of audit opinion that it should be.
· Time too constraints for auditors. In practice, auditor normally faces time constraints which do not provide them enough time to perform their testing as they should be.
· Auditors’ Independence. The code of ethics required auditors to stay independence from their audit clients. This is to make sure that auditors do not bias when they perform their works as well as when they issue audit opinion.
· Risks that might not detect by auditors: Inherent Risks and Fraud Risks. Audit standard requires auditors to have proper audit planning as well as risks assessment. This is to make sure that the auditing quality is maintained, and audit risks are identified and minimize. However, these things could not auditor to eliminate all kind of risks of material misstatement from financial statements. For example, inherent risks and fraud risks.
· Auditors Qualification and Competency. This is also an important point. We all know that in order to run an audit firm, someone who represents the firm needs to hold CPA qualification. But the thing is because of the competition, and because of the number of works, the quality of the audit report might have some problems. As you may know
