Understanding Audit Reports

Reading through an auditor’s report may seem daunting, but you can take the stress out of the process by familiarizing yourself with how these reports are structured and the purpose of each section. Once you know how to read an audit report, you can accept the document handed to you at the end of your next audit and read it with confidence.

The Scope of the Audit

The first section of an audit report summarizes the audit’s scope — in other words, what the auditors did and how they did it. This section will state that the auditor examined the company’s financial statements in accordance with generally accepted auditing standards (GAAS). These standards include well-trained, careful and independent auditors conducting audits. 

The section on the scope of the audit will confirm that the auditors assessed:

• The company’s documentation of its finances: These documents include, for example, the company’s balance sheets and statements detailing its earnings and cash flows.
• The company’s underlying financial situation: Auditors will conduct tests to confirm that the information in the company’s documents is consistent with its actual performance.
• The internal controls the company uses: These internal controls describe the measures the company takes to ensure the accuracy and integrity of its financial information.

The scope of the audit section should give you confidence that the auditors have conducted a careful and thorough investigation. That credibility means you can rely upon the second section of the report — the auditor’s opinion.

The Auditor’s Opinion

The second section of the audit report is the auditor’s opinion, which summarizes their findings based on their examination of the company and its records. There are three generally accepted opinions:

• An unqualified opinion: An auditor will issue an unqualified — or “clean” — opinion when the company’s management provides all the relevant documents and information and the audit reveals that the company’s financial statements are accurate. An unqualified opinion will not contain any adverse comments or disclaimers about the limits of the audit.
• A qualified opinion: An auditor will issue a qualified opinion when they are unable to gather necessary evidence or support for one or two areas of the audit. For example, if a company has significant inventory and the auditors were unable to perform an observation to confirm that the actual physical inventory matches the company’s documentation, they would issue a qualified opinion.
• An adverse opinion: An auditor will issue an adverse opinion when a company’s financial statements are not presented in accordance with generally accepted accounting principles (GAAPs). GAAPs are the accounting standards that companies use to measure and present their financial results. An adverse opinion means that the company’s financial documentation is incomplete or inaccurate. This result doesn’t mean the company is deliberately doing something wrong — in many cases, the auditor can work with the company to correct these problems.

Contact Us Today for Audit Services

Marshall Jones has provided accounting and bookkeeping services to companies in the Atlanta area for decades. To learn more about how we can help your business with its next audit, contact us and schedule an appointment.