Preparing a Financial Audit Report

 The audit report will determine if the accounting practices of the company were in accordance with Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). The report will go on to outline the auditors’ findings and either confirm the financial data as accurate, not accurate, or unable to determine accuracy due to limitations imposed in the audit process. This report will then be filed with the Securities and Exchange Commission (SEC) and published for the public to review. This process is meant to keep the public and investment community informed of the financial position of public companies. Audit reports, however, are not guarantees of a company’s overall financial health.

The Standard in Audit Report Writing

The standard format for a financial audit report is as follows: introduction, responsibilities of directors and auditors, basis of opinion and the opinion. Build your audit report using the above mentioned format. Each section should be one paragraph in length. The basis of opinion section can be multiple paragraphs but only when it necessary. There are four different kinds of audit reports, or opinions. There is an unmodified opinion, a qualified opinion, an adverse opinion and a disclaimer of opinion. The unmodified opinion, or clean opinion, declares the information as correct. The qualified opinion is rendered when several items do not conform to the proper accounting guidelines of either GAAP or IFRS. However, the rest of the data is deemed correct. The adverse opinion is issued when the auditors find that the financial statements have been materially misstated. Finally, the disclaimer of opinion states that the limited scope of the audit does not allow the auditor to issue an opinion. All of the information should be communicated clearly with an economy of words. It should be written in standard business writing formats, direct, intelligible and concise.

Your report will follow this format. They all must contain a title and header that declares the document as an “Independent Auditor’s Report”. The title will include the firm’s name, author’s name and business address. Your report needs to be written in the form of a formal business letter and addressed to the board of directors and shareholders of the audited company. This format is approved by GAAP and is used in all audit documents presented to the SEC.

In your introduction include the name of the company being audited and the date or period that the audit covers. This is usually December 31 of the year of the audit, unless the company has a different fiscal year. A company may choose to use a fiscal year other than the standard calendar year, if they can show a logical business reason to do so. State in your paragraph that it is the responsibility of the audit firm to issue an opinion and the company management’s responsible for the creation of the financial statements.

The basis of opinion needs to declare that the audit was conducted in accordance with US Generally Accepted Audit Standards (GAAS). Describe the audit process and the type of information that was examined. Be descriptive and concise. This section will sell the opinion that is being issued in the audit report. You should use an economy of words however, sell your opinion. Include all relevant information to support the reasons for issuing the opinion that you are about to issue.

State your opinion in the beginning of the paragraph plainly. This will provide the outcome of the audit and details to the validity and credibility of the financial statements. If they are stated fairly render an unmodified opinion. If the statements have a few errors render a qualified opinion. If the statements are misstated and not fairly represented then you have no choice but to issue an adverse opinion. If you were unable to complete the audit properly then you must issue a disclaimer of opinion. You will then state the name of the corporation and date in which the audit was completed. Use a business letter format. Follow the opinion section with the author’s signature, address and issue date of the report will follow the opinion. Attach the audit report to the company’s financial statements. The financial statements should be in the order of balance sheet, income statement, retained earning statement, statement of cash flow, statement of shareholders equity and finally the footnotes to the financial statements.