Definition
An auditors’ report (or audit report) is a formal opinion or disclaimer issued by either an external or internal auditor as a result of an audit. The report is addressed to the proprietors or members of the organization and accompanies the financial statements. Its primary function is to provide assurance that the company’s financial statements give a true and fair view of its financial performance and are prepared in accordance with the applicable regulatory requirements, particularly the Companies Act. Auditors’ reports come in various forms, depending on the audit’s scope and the appointing authority.
Key Components of an Auditors’ Report
- Opinion on Financial Statements: A statement on whether the financial statements present a true and fair view of the company’s financial position and performance.
- Compliance with Laws: Confirmation that the financial statements are prepared according to relevant laws and regulations, such as the Companies Act.
- Consistency with Directors’ Report: A check on whether the directors’ report is consistent with the financial statements.
- Basis for Opinion: Summary of the audit’s scope, standards followed, and core audit procedures performed.
- Auditors’ Responsibility: An outline of the auditing guidelines and framework used by the auditors.
Examples
External Audit Report
A multinational corporation’s auditors’ report might state that the financial statements provide a true and fair view of its financial position in conformity with International Financial Reporting Standards (IFRS) and the local Companies Act regulations.
Internal Audit Report
An internal audit report for a government agency may offer recommendations for improving internal controls but would not provide a certification on financial statements similar to that in an external audit report.
Statutory Audit Report
An audit mandated by the law, such as for nonprofit organizations, might be required to ensure compliance with specific statutory reporting requirements.
Frequently Asked Questions (FAQs)
What is the primary purpose of an auditors’ report?
The primary purpose of an auditors’ report is to deliver an independent opinion on whether an organization’s financial statements present a true and fair view of its financial position and comply with relevant laws and regulations.
Who is responsible for preparing the auditors’ report?
Auditors appointed either internally by the organization or externally by shareholders or regulatory authorities are responsible for preparing the auditors’ report.
Does the auditors’ report cover both financial statements and directors’ reports?
Yes, the auditors’ report must express an opinion on the financial statements and verify the consistency of the directors’ report with those statements.
What are the implications of a qualified auditors’ report?
A qualified auditors’ report indicates that the auditors found departures from accounting standards or inconsistencies that are significant but not pervasive to the financial statements.
What happens if auditors provide a negative opinion or disclaimer of opinion?
A negative opinion or disclaimer of opinion suggests significant inaccuracies or limitations in the financial statements. It often results in regulatory scrutiny and loss of investor confidence.
Are auditors legally accountable for errors in their report?
Under the Companies Act 2006, auditors can be held criminally liable for knowingly or recklessly providing false or misleading information in their report.
Related Terms
- Internal Audit: An internal examination of a company’s operations and controls, primarily aimed at assessing risk management effectiveness.
- External Audit: An independent examination of financial statements conducted by auditors outside of the organization to provide credibility to the information.
- True and Fair View: A fundamental concept that financial statements must present an accurate and unbiased picture of an entity’s financial situation and performance.
- Statutory Audit: An audit required by law to ensure that an entity’s financial statements comply with regulatory standards.
- Compliance Audit: An audit confirming that an organization adheres to external laws and regulations or internal directives and policies.
References
Suggested Books for Further Studies
- “Auditing and Assurance Services” by Alvin Arens, Randal Elder, and Mark Beasley
- “Principles of Auditing & Other Assurance Services” by Ray Whittington and Kurt Pany
- “Auditing and Assurance Services: An Integrated Approach” by T. E. Carson
- “Internal Auditing: Assurance & Consulting Services” by Kurt F. Reding and Paul J. Sobel
Accounting Basics: “Auditors’ Report” Fundamentals Quiz
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