Meaning and definition of Audit Report
Audit report, as recorded in the annual report, examines to check the compliance of a company’s financial statements with GAAP. The audit report is, sometimes, also referred as the clean opinion. An audit report includes three paragraphs – the first stating the responsibilities of the auditor and directors; the second stating the use of GAAP; and finally the third paragraph stating the auditor’s opinion.
An audit report is, therefore, an official evaluation of an organization’s financial status, in combination with the opinion of the auditor and collected data on the company’s financial transactions and situation. This is a general process for companies it use while evaluating their records and providing financial info to present as well as future investors.
Constituents of Audit Report
It is important to know about what is contained in an audit report. Besides, it is also important for the auditor to examine the financial statements of a company prior to issuing the audit report. These financial statements are required to be presented fairly in terms of cash flows, results of operations, and financial status in compliance with GAAP.
In addition to the letterhead of the auditing firm, the key elements included in an audit report are as follows:
- a title indicative of the word “independent”,
- that the financial statement, which is the subject of the report, was audited,
- a statement stating that the financial statements are a responsibility of the management and the auditor is just giving his opinion,
- the audit was created in line with the generally accepted auditing standards,
- a statement that the auditor planned and accomplished the audit
In addition to the aforesaid constituents, an audit report must feature a declaration that the auditor believes that there is a reasonable basis for the opinion. Also, it should state an opinion that the financial statements are presented fairly in all material aspects. Moreover, in the closing part, the report should essentially contain the signature of the auditor’s firm, either manually or printed form, and the date on which the audit report was created.