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The Meaning, Objectives and Effectiveness of Audit Reports

Meaning of Audit Reports

An audit report is an account, statement, or description containing the final results or the conclusions of an audit. This report or account lists down all the information concerning or pertaining to the audit in a formal, final language. To be able to understand the term audit report in a vivid manner the following keywords will be of great assistance:

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  • Audit; this is the examination of a company’s or an institution’s or a firm’s products, activities or records to find out if the firm, company or institution is carrying out the activities for which it was registered for.
  • Audit interview; this is a method used for collecting information mainly through a chain of questions and observations. In turn the interview forms the basis of collecting, analyzing and interpreting the information for the audit.
  • Audit team; this is a group of people formed of qualified personnel deployed to perform an audit in their own company and is therefore referred to as an internal audit. This means that an internal audit is an audit of a company that is performed by employees of the same company. The auditors in this case are faced with the responsibility of carrying out audits on particular departments of their own company.
  • External audit; this is an audit carried out in a company by personnel who are not employees or owners of the company. This is mainly ordered by the company owners or the government like the case of public corporations.
  • Auditee; this is a department or organization that is to be audited either by external or internal auditors.

In order to get a broad but clear definition or meaning of the term audit report, different meanings by different scholars are listed below for a comparison. These definitions include;

  • An auditors report consists of a formal opinion or provision.thereof which is issued by an independent auditor from outside or rather external auditor or an internal auditor after either an external or internal processes of audit or evaluation carried out on a company otherwise referred to as a legal entity. The report is supplied to a user or is available for a potential user especially the government, a group of persons, a company or maybe the general public as an assurance to make logical and rational decisions concerning the company based on the audits
  • An audit report is the summarized form of results submitted by either the external or internal auditors concerning the findings of the performed audit. The audit report is basically of the relevant financial accounts and records of the firm in question. This report always takes either of the forms prescribed by the organizations of professional accountancy which actually covers all the demands of the law to the auditor. The term qualified report is used describe to audit reports that do not match the company’s records. And therefore a report is termed as qualified if its contents indicate that either the external auditor or the internal auditor has failed in assuring himself or herself of the major points that the law highlights. Qualifications can also be inadequate explanations or information given or the aspect of the auditor unsatisfaction that other records or books are kept properly. In this case audits could be of two types. One is short form audit reports in which the auditors present the audit opinion showing whether the financial statements clearly depict the financial position of the client. The second is the detailed audit report by the auditors presented directly to the board of directors managing the company or to the top management of the company. This is inclusive of particulars of audit scope and often discusses with reasons the trends of financial data in the company. (Messier 2005)
  • The other definition of audit reports comes from the yearly report from the circulations by the audit bureau that provides verified figures in published circulations of either the magazines or newspapers. Audit report, in this case, explains the variation of the figures published in the articles and the accurate ones. The audit report further explains the cause of the differences.
  • According to UNESCO, audit report is detailing the audit process, outcomes, and finings of the same in a coded manner. This is mainly done by internal or external auditors and a project team. It further states that audit report can be called evaluation report or assessment report and is a document got after assessing the quality that is targeted. This may include the academic standards of an institution, learning infrastructure even the staffing in the institution. An audit report about an organization can describe the quality assurance procedures of that particular organization.
  • Chea (2001) describes audit reports as documents made after carrying out a quality assessment in a team review visit.

Types of Audit Reports

Financial Statements Audit Report

This is the most common type of audit report in the world and is mainly prepared by external auditors about an auditee especially on the financial statements of a company and the accompanying notes. This type of report is aimed at advising investors, agents and even the government on whether the financial statements of the auditee have been made in accordance with the accounting principles generally accepted, as well as whether they are not affected by material misstatement for example absence of significant and important errors and if the statements show a true picture and clear view of the major operations as well as cash flow structure of the auditee.

In other words this audit report acts as an assurance that the financial information brought by the auditee is accurate and reliable in making decisions such as buying stock from that firm, lending finances to such a firm, or ensuring that the firm pays the right amount of tax. Something important and worth noting is that the reports on financial statements are only a verification of information presented by auditee and do not evaluate nor give opinions on financial performance, health, potentiality or effectiveness of any firm.

Unqualified OpinionType of Audit Report

This type of audit is the same as a clean bill of health for the sake of patients. This type of audit report is given by an auditor when the financial statements presented by the auditee are not affected by misstatement and comply with the GAAP rules. This implies that the firms’ position in terms of operations and finances is fairly indicated in statements of finance. This is in fact the best type of report that an auditee would expect from an external auditor.

Qualified opinion audit reports

These types of reports are issued when the external auditor comes across a number of items that are not in accordance with GAAP although most of the items could be fairly presented financial statements. This type of report is similar to the unqualified opinion with the only difference being that it states that the statements of finance are fairly presented with exceptions. Situations that could force an auditor to give the qualified opinion and not the unqualified opinion include;

  1. A sole deviation from GAAP leading to misstatement since single or more areas is not in line with GAAP.
  2. When the auditor finds it hard to ascertain some specific areas of the financial statement when all the other areas adhere to GAAP.

Opinion Disclaimer Audit Report

Opinion disclaimer report simply referred to as Disclaimer is unable to come with an opinion on statements of finance. This kind is given when the auditor for whatever reason is unable to complete his work. Standard auditing statements suggest some situations in which the disclaimer could be appropriate are;

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  • Material conflict, lack of independence or conflict of interest between the auditee and auditor.
  • There are oblivious scope limitations either intentionally or otherwise that hinder the auditor from carrying out his work.
  • There is doubt whether the auditee has the ability to continue operating
  • There are too many uncertainties about the auditee.

Although this opinion is hardly used or is rarely used one of the situations is when the auditor is denied willingly the access to some information and evidence making him have inadequate material to prepare the other types of audit reports.

Statutory Audit Reports

These types of audit reports are given by every public company which is limited by shares or limited by share capital held by the guarantee. The secretary of the company prepares the statutory audit report and is signed by a minimum of directors and also the chief executive. The directors who raise funds for the company either through selling debentures and shares or sale of participation certificates issue prospectors to the general public (Elizabeth 2004).

Solvency Audit Report

A special resolution can be passed by shareholders for bringing to an end of the company. This is referred as winding up of the firm. The auditors in this case may be asked by the directors to prepare this audit report. The Ordinance of companies of 1984 stipulates the sufficient conditions necessary for a company’s winding up. The auditors then make the solvency audit report in consultancy with shareholders so as to comply with company ordinance of the year 1984.Objectives and effectiveness of audit reports

Audit reports play a very important role in the running of every organization. The objectives of the audit report depend on the type of audit report in question and can be summarized as;

The Audit report: assessment report from HEQC concerning the institution that was audited. On the grounds of the qualitative and also the quantitative evidence collected during the audit, to develop a report based on the panel’s consultations and finalized with deliberations with the chairman. The report afterward provides an evaluation of the firm to be able to come up with various targets based on the recommendations made by the report.

An auditors report is very important especially to a third party for example an investor who would like to find the financial status of a firm. Since most audits are carried out by independent external auditors then they portray a clear picture of the viability of a firm. Investors are therefore able to make sound decisions like buying stock from the company, giving financial aid to the company or even buying shares from the company.

The audit report of an institution also describes the quality assurance of the firm. The audit report which describes the audit method, conclusions and findings of the company is very important source of information for running the firm since recommendations from the report are used as corrective measures of the firm as well as reinforcement of the firm’s strong areas.

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The audit reports on government agents are used to form a judgment of the adequacy of the appointed agencies. The evaluation and monitoring of the programs by the government help track down government programs that are not performing hence improve their functioning or wind them up altogether. Better practices are identified in the programs as well as grabbing any opportunity for improvement.

Audit reports on government taxation system enable the government to control the taxation system by ensuring that the system is fair to everyone. The government gets an opportunity to take the views of its citizen concerning the taxation system.

Audit reports on the security system of a country enable the relevant authorities to employ the recommended ideas in the reports so that no stone is left unturned in management of security. The government is likewise able to identify the ineffective programs in its security deal in the country.

Through audit reports the government is able to control all the public corporations and save them from mismanagement by constantly checking on their audit status.

Works Cited

Messier, W. Auditing & Assurance Services: A systematic approach. Hill Ryerson Limited, 2005.

Robert R. Using Disclaimers in Audit Reports: Discerning Between Shades of Opinion. UK: Sage publishers, 2004.

Elizabeth, K. The Growing-Concern Assumption Revisited: Assessing a Company’s Future Viability. USA: McGraw Hill, 2004.

Statement on Auditing Standards No. 59: The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern, Issued by the Auditing Standards Board Williams R “Auditors Reports”.

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StudyCorgi. (2021, November 4). The Meaning, Objectives and Effectiveness of Audit Reports. Retrieved from https://studycorgi.com/the-meaning-objectives-and-effectiveness-of-audit-reports/

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"The Meaning, Objectives and Effectiveness of Audit Reports." StudyCorgi, 4 Nov. 2021, studycorgi.com/the-meaning-objectives-and-effectiveness-of-audit-reports/.

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