Define Audit Report

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Audits paint a financial picture.
Audits paint a financial picture. (Image: books image by Tadija Savic from Fotolia.com)

In the financial and business world, an audit report is a commonly encountered document. Sometimes referred to as an auditor’s report, it is often found as part of a larger group of documents that highlights financial transactions and details for anything from an entire corporation to a single person over a period of time.

Definition

An audit report is essentially a section of a financial report wherein an accountant offers their official opinion and stance on the statements given in the report. The audit report is therefore almost always tied to an audit itself, which involves an accountant or team of financial experts meticulously scrutinizing the financial information of a company or individual to verify the relevancy of financial statements that were made.

Audit Report Ratings

An audit report gives the company or person in question one of four ratings or categorizations based on the findings of the auditor. An “unqualified” audit signals a clean report, wherein no discrepancies were found with the financial statements or paperwork. A “qualified” report means a few problems were found but nothing that raises red flags or is so egregious that they hurt the reputation of whoever is being audited. An “adverse opinion report” means there were too many errors and misrepresentations found in the financial statements that the person being audited cannot be considered to be in conformity of standard accounting principles and laws. Finally a “disclaimer of opinion” report means the auditor cannot give a rating at all, be it due to conflict of interest or lack of proper paperwork that makes a fair rating impossible or unethical to give.

Parts of a Report

For the sake of consistency and simplicity, each type of audit report follows a specific style and organization. An unqualified report is a three-paragraph report. The introduction paragraph outlines the general purpose of an audit report and gives the legal meanings of the report without being specific to the company or person being reported on. The scope paragraph then describes the nature and process of the audit and makes clear that the financial statements are verified and acceptably reported on. In the final paragraph, the auditor gives his opinion on the findings that lead to his rating. Each of the other types of audit reports follow this same format; however, they add a fourth paragraph where the auditor further expounds on why a favorable rating couldn’t be given, citing facts from the audit process.

Uses

An audit report comes in handy in many financial situations. The report is essentially the same as a job reference. It takes the research and findings of a trained financial specialist and uses them to verify that your financial reputation and future is secure. The audit report then serves as a good word to creditors, banks and any other financial institution that may need to investigate your financial history and stability. A clean audit report can help when getting a loan or line of credit.

Getting a Report

Audits for individuals are typically done by certified public accountants. You would normally not need or want an audit report unless some reporting of your finances, such as taxes, comes under scrutiny. Should an audit report be needed, any professional accountant should be able to produce an audit report after going over your financial history and transaction records. For larger businesses or corporations where financial records and filings are extremely numerous and complex, internal auditors are usually kept on staff. This is due to the fact that larger corporations may require audit reports quite frequently, because human error combined with the sheer volume of financial statements often leads to misreporting.

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