There are many types of audit reports a company can receive. Each type of report is based on an audit opinion, which is formed after evaluating a company’s financial statements and operations. A good audit report example would be a report that is simple, direct, and uses figures, tables, and other visuals to convey information.
What is an Audit Report?
An audit report offers an objective assessment of a company’s financial performance. Auditors evaluate financial records to determine whether a business is compliant with the regulations and act as a reassurance to the hiring entity (usually external parties) that the company is of good financial health and free of malpractice.
There are two types of audits:
Internal Audits
Internal audits are conducted by a company’s own team and are generally aimed at identifying risk and areas of improvement. Internal audits aren’t compulsory, but they are considered to be best practice to maintain the operational efficiency of an organization.
External Audits
External audits are conducted by an independent auditor, usually hired by investors or interested parties. The company being audited has an obligation to provide all necessary documents to the auditors.
External audit reports have to follow a specific format and must follow the International Standards on Auditing (ISA) or the Generally Accepted Auditing Standards (GAAS). In UAE’s case, auditors abide by the ISA. The ISA is set by the International Auditing and Assurance Standards Board (IAASB).
Purpose of Audit Reports
Audit reports primarily offer an unbiased view of a company’s financial standing. It can also:
- Act as a guide for shareholders to inform their investment decisions
- Boost business credibility
- Build trust between organization and consumer
- Ensure complete transparency of business operations
- Highlight areas of improvement
- Detect instances of fraud or malpractice
The 5Cs of Audit Reporting
Every auditor must include some version of the following five criteria in their audit report:
- Condition: What is being assessed?
- Criteria: Did the company meet or fail the general standards? If they failed, what are they in violation of?
- Cause: What is the reason for the problem?
- Consequence: What did the auditor find?
Corrective action: How can the company resolve the issue?
Types of Audit Reports
There are four types of opinions an auditor can form that will influence the type of audit report they produce.
Clean Report
A clean report is based on an unqualified audit opinion. It means that the auditor found no problems with the company’s records and operations and does not have any negative opinions of the company. Generally, investors and shareholders wait for a clean report before proceeding with investing in a company.
Qualified Report
A qualified report is based on a qualified audit opinion. This type of report indicates that the auditor is unsure about the company’s financial records and cannot deem them compliant to the regulations. A qualified report will also have the auditor’s reasons for such an opinion. This is viewed as a negative outcome and may require further investigation from the company.
3. Disclaimer Report
Another type of audit report is a disclaimer report. This is based on a disclaimer of opinion which means that an auditor is unable to provide any sort of opinion on a company’s financial records. A few reasons for this type of report can be:
- The company could not answer certain questions posed by the auditor
- The company did not provide enough evidence to support their financial performance
- The company did not allow the auditor to review certain procedures
- The company showed cause for bankruptcy
4. Adverse Audit Report
An adverse audit report is written based on an auditor’s adverse opinion about a company. Adverse audit reports are generally a major problem as it indicates potential for fraud and incorrect financial reporting. This can have negative consequences for a company’s operations and reputation as it can result in loss of funding and investigation from the authorities.
General Structure of an Audit Report
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1. Title
Every audit report starts with a title. The title mainly indicates whether the audit report is independent or not.
2. Recipient of Report
The next part of the report mentions who the report is prepared for. This can be the board of directors, investors, shareholders, or interested parties.
3. Scope of Audit
The scope outlines the process of the audit, how it was conducted, the standards followed by the auditor. This is also where the auditor must mention any restrictions the audit is limited by.
4. Opinion of Auditor
This is the main part of the report, as this is where the auditor details their findings. The opinion can be qualified, unqualified, a disclaimer, or adverse. They will also report on the implications of the report for the company in question.
5. Signatory Details
The last part of the report will contain the name and signature of the auditor along with the date of the report.
How A&A Associate Can Help
A&A Associate is a leading auditing firm in Dubai offering both external and internal audits. Our team is well-versed in the international auditing standards and experienced in conducting objective, thorough audits across the country.
We also offer bookkeeping services for companies that need a little help keeping their books straight. You can also hire our consultants to guide you in paying VAT in UAE and staying compliant to UAE’s business laws.
To get started with your Auditing, contact us at +971 54 793 9972 or email us at enquiry@aaconsultancy.ae.
FAQ’s
What is Opinion in Auditing?
An audit opinion is an auditor’s unbiased review of a company’s financial records. It is formed after a thorough assessment of business operations, financial statements, and interviewing employees.
How Many Audit Report Examples Are There?
The most common audit reports are qualified reports, clean reports, adverse reports, and disclaimer of opinion reports. Every audit report is based on an audit opinion and aims to evaluate whether a company is staying compliant with regulatory principles and accounting standards.
What is Qualified and Unqualified Audit Report?
A qualified audit report is based on an auditor’s qualified opinion. This means the company being audited is not satisfied with the company’s financial reporting and will outline areas of improvement. An unqualified report, also called a clean report, means the auditor is satisfied with the company’s practices and finds no fault with their books.
What Does a Good Audit Report Look Like?
The language and style of an audit report should be tailored to the intended reader. It should be concise, and avoid using overly complicated jargon. The report should also avoid mentioning any confidential information about the company.
What are the Benefits of Audits?
An audit report can provide multiple benefits for the audited company and the external parties who want an unbiased opinion. Audits can identify areas of improvement, miscalculations and misreporting of transactions, and increase the credibility of a company.
How Can a Company Avoid a Bad Audit Opinion?
A company can avoid getting a bad audit opinion by staying compliant with the accounting standards, staying on top of their recordkeeping, and fully cooperating with the auditor during the process, by submitting all the required documents and answering all their questions.
What are the 5Cs of Audit Report Writing?
The 5Cs of audit reporting writing are: Condition, Criteria, Cause, Consequence, and Corrective Action.
What is the Audit Process?
The audit process starts with the auditor collecting company documents, setting the audit scope, and developing a strategy to inform their audit. The next step is actually conducting the audit; interviewing employees, assessing company policies, and reviewing documents. The last step is preparing the audit report which will be presented to the company and the relevant external parties.
What Happens After an Adverse Audit Report?
An adverse audit report can imply that the company in question has some serious violations of reporting and a potential for fraud detection. This can trigger a loss in investor confidence and risks in funding access. In this case, the company is generally required to launch an investigation themselves or cooperate with the authorities during their investigation.
What is the Difference Between Internal and External Audit?
An internal audit is generally conducted by a company to identify problem areas. It can also help mitigate risks, increase profitability, and improve the operational efficiency of an organization. An external audit is conducted by an independent party specifically hired to assess regulatory compliance and financial reporting. Positive external audit reports can help boost stakeholder confidence and a company’s reputation.
