What is the Format of Audit Report?
An Audit Report is a report describing the financial condition and internal accounting controls by an independent auditor. The report is consumed by the stakeholders of the organization like the board of directors, shareholders, investors to name a few. The auditor must be meticulous and unbiased while preparing the report. It is the responsibility of the Auditor to prepare this audit report in the standardized format every year after reviewing the financial statements of the organization.
Investors tend to rely on the auditor’s report before investing in any company. The Audit Report provides a clear picture of the financial health of the company without having to analyze the reports on your own. The report gives a reliable summary of an organization’s financial health.
An auditor’s report describes the financial statements that were audited in the introductory paragraph. In the scope paragraph, the nature of the audit is briefed upon and the auditor’s opinion is expressed in the opinion paragraph.
The audit report format is as follows –
- Introductory Paragraph
- Management’s Responsibility
- Auditor’s Responsibility
- Basis of the Opinion
- Other Reporting Responsibility
- Signature of the Auditor
- Place of Signature
- Date of Audit Report
Let us discuss the above format of the audit report in detail.
Audit Report Format
The basic aspects of an Auditor’s report format are the following:
#1 – Title
The title should mention – ‘Independent Auditor’s Report’.
#2 – Addressee
The addressee should mention as to whom the report is being presented.
#3 – Introductory Paragraph
A statement that the financial statements described in the report have been audited.
#4 – Management’s Responsibility
This section of audit reports format should mention the Management’s Responsibility to the integrity of the financial statements which gives an overview of the financial condition, cash flows of the Company and financial performance. The responsibility also includes the maintenance of accounting records to prevent frauds. It is their responsibility to formulate and execute necessary financial controls to ensure the accuracy of the financial records. It should mention that the financial statements are the responsibility of the organization’s management.
#5 – Auditor’s Responsibility
The Auditor responsibility is mentioned to depict an unbiased opinion on the financial statements and issue an audit report. The report is based upon Standards on Auditing. The Standards require that the auditor complies with ethical requirements. It is the auditor’s responsibility to plan and execute the audit to procure assurance regarding the financial statements.
#6 – Opinion
The most important content in an Audit Report is the Auditor’s Opinion. This mentions the impression derived after auditing the financial statements.
#7 – Basis of the Opinion
The basis on which the opinion has been achieved as reported. Facts of the basis should be mentioned.
#8 – Other Reporting Responsibility
Any other responsibility relating to reporting exists, the same should be mentioned. This may include Regulatory requirements.
#9 – Signature of the Auditor
The Auditor needs to sign the audit report thereby confirming the authenticity of the report.
#10 – Place of Signature
The name of the city in which the report is signed.
#11 – Date of Audit Report
The date on which the audit report is signed/reported.
Sample Audit Report Format Example
A sample format of an Auditor’s Report is given below:
Independent Auditor’s Report
To the Members of X Company
Report on the Financial Statements
We have audited the accompanying consolidated balance sheets of X Company (the Firm) as of December 31, 20XX, and the related statements of income, comprehensive income, retained earnings, changes in stockholders’ equity and cash flows for the year then ended, and a synopsis of the accounting policies and other information. We also have audited the Firm’s internal control over financial reporting as of December 31, 20XX.
Management’s Responsibility for the Financial Statements
These financial statements are the responsibility of the Firm’s management. The Firm’s Board of Directors is responsible for the matters with respect to the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Firm in accordance with accounting principles generally accepted in the United States of America.
Our responsibility is to express an opinion based on our audit on these financial statements. The audit has been conducted in accordance with the auditing standards generally accepted in the United States of America. The standards necessitate us to plan and perform the audit to gain assurance on the authenticity of the financial statements and to ensure that it is free from any misstatements or possible frauds. The audit includes inspection of the amounts and disclosures in the financial statements. The audit will provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present justly, the financial position of X Company as of December 31, 20XX, conforms to the accounting principles generally accepted in the United States of America. Also in our opinion, the Firm maintained effective internal control over financial reporting as of December 31, 20XX.
This has been a guide to Audit report format. Here we discussed the basic contents of an Auditor’s report format along with the sample audit report example to understand it better. You can learn more about accounting from following articles –