The Audit Report: Structure, Content, and Types of Opinions

Posted on Jul 2, 2024 in Economy

The Audit Report

General

At the end of an audit, the auditor issues two documents: the audit report and the letter of recommendations. The audit report is the expression of professional opinion and represents the culmination of the audit work performed. The part of the report containing the opinion is called the DICTAMEN.

The report begins with the auditor’s report, which outlines the work performed and forms the basis for the auditor’s opinion. It consists of at least two parts:

  • Paragraph of Reach: Addresses the reasonableness of objectives set out in the planning of the audit activity.
  • Paragraph of Opinion: States the auditor’s opinion on the fairness of the annual accounts and whether they accurately represent the true economic and financial picture of the company.

Other data contained in the report include the balance sheet, profit and loss statement, and accounting principles used.

Essential Parts

  • Title: The report title must clearly indicate that it is an independent audit of annual accounts.
  • Recipient: The report is addressed to the person or body within the company that contracted the audit services.
  • Description of Scope: The auditor must consider the following requirements when describing the scope of the audit:
    • State whether the annual accounts are presented in accordance with Generally Accepted Accounting Principles (GAAP).
    • State whether the accounting principles were applied correctly.
    • Evaluate whether the information in the accounts is adequate.
    • Reference any restrictions on the scope of work.
  • Lessons Learned: The report should note whether the annual accounts accurately reflect the true economic and financial situation of the company and whether the results align with GAAP.
  • Established: This section indicates the location of the auditor’s office or headquarters.
  • Date of the Report: The report should bear the date of completion of the audit work to provide context for any subsequent events that may impact the annual accounts.
  • Auditor Confirmation: The auditor’s signature must be handwritten, along with their printed name and registration number from the ROAC (Official Register of Auditors).

All of these elements are essential for a comprehensive and valid audit report.

Expression of the Report

The auditor expresses an opinion on the annual accounts using phrases like “in our opinion,” “presented reasonably,” “presented fairly,” “the economic and financial situation,” “performance of the company,” and “in conformity with GAAP.”

  • “In our opinion” acknowledges that the auditor cannot guarantee absolute correctness of the annual accounts due to inherent limitations such as:
    • Sampling in the evaluation of internal controls and verification of transactions and balances.
    • Valid alternative accounting treatments within GAAP, including estimates based on professional judgment.
  • “Reasonably” or “adequately” are used because the auditor cannot provide an absolute judgment on the economic, financial, and business results. However, these terms indicate that the annual accounts reasonably represent the company’s financial position.
  • “Consistently applied” means the auditor has assessed the consistency of accounting principles applied from the beginning to the end of the year. Any changes in accounting principles require explanation and justification in the report.

The use of these expressions reflects the auditor’s cautious approach, acknowledging the inherent uncertainties in financial reporting and the reliance on accounting principles.

Scope of Review

  • Unqualified Opinion: This indicates that the auditor performed all necessary procedures and tests according to auditing standards. It expresses that the annual accounts are prepared in accordance with GAAP and fairly present the economic, financial, and business results of the company.
  • Qualified Opinion: The auditor may issue a qualified opinion when they are satisfied with the overall fairness of the annual accounts but have reservations about specific aspects. This could be due to:
    • Disagreement with the application of GAAP.
    • Limitations on the scope of the audit.
    • Uncertainty about the future outcome of certain events.
  • Adverse Opinion: This is issued when the auditor concludes that the financial statements do not fairly present the economic, financial, and business results in accordance with GAAP. An adverse opinion must clearly state the reasons for the negative opinion and whether it pertains to the entire financial statements or specific parts.
  • Disclaimer of Opinion: This occurs when the auditor is unable to form an opinion on the fairness of the annual accounts. The auditor must explain the circumstances preventing them from expressing an opinion.

Report Structure

  1. Report: Includes the title, recipient, and introductory information.
  2. Opinion: States the auditor’s opinion on the fairness of the financial statements, including the scope and any qualifications.
  3. Annual Accounts: Presents the balance sheet, profit and loss statement, statement of cash flows, and notes to the financial statements.
  4. Explanatory Notes: Provides additional details and disclosures related to the financial statements.
  5. Main Findings: Highlights key observations that may impact the balance sheet, including significant comments and formal comments that do not materially affect the financial statements.

Documents Accompanying the Report

  • Comparative balance sheet with the previous year.
  • Profit and loss account.
  • Statement of cash flows.
  • Depreciation schedule.
  • Other relevant documents deemed appropriate by the auditor.

Letter of Recommendations

: the letter is addressed to the company where the auditor expressed the weaknesses observed in the internal control system during the audit process, including whether it is appropriate recommendations.” criticism of the report: – expressed overly technical, “it is difficult to opine on the efficiency and effectiveness of corporate governance,” it is not past and future aspects of the company.