Introduction
An Audit Report is a comprehensive assessment of the financial status of a business or a company completed by a qualified independent accounting professional. This assessment illustrates the financial position of the company i.e. assets and liabilities and the future. It is a requirement by law for all companies that are trading publicly or that are regulated by the Securities and Exchange Commission to have Audit Reports. Audit reports are also carried by companies that are seeking funding as well as those that are looking to evaluate their internal controls.
There are four types of Audit Reports namely;
- Unqualified Opinion
- Qualified Opinion
- Adverse Opinion
- Disclaimer of Opinion
Unqualified Opinion
An unqualified opinion is a “clean” opinion expressed, and it is the best report a business can get. This report is issued when a qualified accountant is satisfied that the financial records provided by a business or a company are free from any misrepresentation and thus indicating the true and fair view of the financial performance and position of the business. This report also indicates that the company’s financial records were maintained and prepared in adherence to the Generally Accepted Accounting Principles (GAAP).
Normally, an unqualified report is structured as follows; a title that has the word “independent” to exemplify that the report was prepared by an impartial third party. The title is followed by the main body which is composed of three paragraphs; outlines the responsibilities of the qualified accountant, the purpose of the Audit, and lastly auditor’s findings. The Auditor then initializes by signing and putting a date and address on the report.
Qualified Opinion
This is a report that is issued by the qualified accountant when financial statements have not been maintained and prepared in accordance with the Generally Accepted Accounting Principles but lacks any misrepresentations. The report of qualified opinion is similar to that of the unqualified report though there will be an additional paragraph highlighting the reasons why the qualified accountant has qualified the report.
Adverse Opinion
Adverse Opinion is the worst Audit report that can be issued to a company or a business. This opinion alludes that the financial statements and records been grossly been misrepresented and they were not maintained in accordance with the Generally Acceptable Accounting Principles. As much as these misrepresentations might be as a result of errors, it alludes to possibilities of fraud thus more tests have to be carried out to rule out fraud. When a business or a company is issued with such a report, the wise thing to do is to correct the financial records and statements and carryout another audit because as it is, relevant stakeholders e.g. investors, government agencies, and lenders among others will not accept it.
Disclaimer of Opinion
Disclaimer of Opinion is a report issued to a business when the qualified accountant for any reason is not able to complete an accurate audit report. This could be a result of the absence of necessary financial records among other reasons. When the qualified accountant finds themselves in such a situation, they issue a disclaimer of opinion drawing a conclusion that the financial status of the business or the company could not be determined.
Audit requirements for Issuer vs non-issuers
Issuers’ requirements; the qualified accountant is required to carry out integrated audits composed of internal controls and financial statements audits. Though auditors will not rely on the internal controls they are required to test controls.
Non-issuers requirements; the test of controls is not a requirement though the qualified accountant must assess the internal control risk. When the auditors decide to rely on internal controls for a non-issuer company, then the test of controls is required but a report an internal control report is not issued for non-public companies.