- Accounting Basics
- What are Accounting Principles
- Accounting Equation Formula
- Accounting Cycle
- Accrual Accounting Basis
- Cash Basis Accounting
- Matching Principle of Accounting
- Conservatism Principle of Accounting
- GAAP (Generally Accepted Accounting Principles)
- Types of Accounting
- Materiality Concept
- Accounting Transaction
- Accounting Transactions Examples
- Going Concern
- Cost Benefit Principle
- Cost Principle
- Accruals in Accounting
- Accrual Accounting Examples
- Revenue Recognition Principle
- Prudence Concept in Accounting
- Cash Accounting
- What are Accounting Policies?
- Relevance in Accounting
- Accounting Methods
- Accounting Estimates
- Mark to Market Accounting
- Prior Period Adjustments
- Cash Accounting vs Accrual Accounting
- Accounting Controls
- Branch Accounting
- Nostro Account
- Accounting Information System (AIS)
- Break Even Point In Accounting
- Operating Cycle
- Fiscal Year
- Fiscal Year vs Calendar Year | Top Differences | Examples |
- Financial Reporting
- Financial Reporting Objectives
- Financial Statements
- Types of Financial Statements
- Components of Financial Statements
- Financial Statement Examples
- Accrual vs Provision
- Accrual vs Deferral
- Temporal Method
- Interim Financial Statements
- Pro Forma Financial Statements
- Consolidated Financial Statement
- Users of Financial Statements
- Financial Statement Limitations
- Objectives of Financial Statements
- Importance of Financial Statements
- Limitations of Financial Statement Analysis
- Objectives of Financial Statement Analysis
- Audited Financial Statements
- Financial Statement Audit
- Internal Audit vs External Audit
- Interim Reporting
- Accounting Scandals
- Quality of Earnings
- Audit Report
- Audit Objectives
- Audit Report Format
- Audit Report Types
- Internal Audit
- Audit Assertions
- Audit Report Contents
- Audit Report Examples
- Audit Report Qualified Opinion
- Audit Risk
- Sunk Cost
- Sunk Cost Examples
- Cash Receipt
- Fringe Benefits
- Money Measurement Concept
- Window Dressing in Accounting
- Manufacturing vs Production
- Leasehold vs Freehold
- IFRS vs US GAAP
- IFRS vs Indian GAAP
- Accounting for Fair Value Hedges
- Bookkeeping (52+)
- Balance Sheet (30+)
- Assets (109+)
- Liabilities (68+)
- Shareholders Equity (91+)
- Income Statement (158+)
- Cash Flow Statement (17+)
- Accounting Careers (27+)
- Accounting Books (8+)
- Budgeting in Finance (31+)
What is Audit Report and its Types?
Audit Report is the base for determining the financial capacity and quality of the company. Also, the Audit report will be considered in measuring the performance of the company for the given fiscal year based on which investors will rely on the company and will invest their money for enhancing their returns.
The most important part of the audit report is the audit opinion. It can be termed as a gist/crux of the audit report as this will determine the nature of the audit report and image of the company. Any adverse audit opinion can bring down the goodwill of the company and can lead to the litigation which will prove highly futile to the company. Also, based on the opinion, the audit report will be handled by various statutory organizations to determine for the examination/scrutiny of the company to verify the operations and taxation matters.
The audit opinion is based on the factors like data availability, opportunity to follow all due procedures, materiality level etc. which all are purely subjective matters, needed to be considered from case to case basis. Auditors will always have to take various judgemental assumptions, which will result in the audit opinion.
Top 4 Audit Report Opinion Types with Examples
In the modern corporate world, based on the below audit opinion, types of the Audit report is determined:
|Sr No.||Opinion||Type of Audit Report|
|1||Unqualified Opinion||Clean Report|
|2||Qualified Opinion||Qualified Report|
|3||Disclaimer of Opinion||Disclaimer Report|
|4||Adverse Opinion||Adverse Audit Report|
Let’s understand each audit report opinion types with an example:
#1 – Clean Report
This is the most common type of audit report opinion given by the auditors and is always expected by the auditee. In this type of audit report, the opinion given by the auditor will be Unqualified, without any kind of adverse comments or any kind of disclaimer about any clauses or process. As per auditor, by this report, they are satisfied with the company’s performance and finding the functions of the company in sync with governance and applicable statute.
4.9 (1,067 ratings)
Example: HSBC Bank-Calendar Year 2018- Unqualified/Clean Audit Report
In our opinion HSBC (“The Company”) Group financial statements and parent company financial statements:
- Gives a true and fair view of the state of the company’s affairs on 31 December 2018 and of the company’s profit and cash flows for the year then ended;
- Have been prepared in accordance with the requirements of the Companies Act 2006, and complying requirements of the Group financial statements, Article 4 of the IAS Regulation; and
- Have been properly prepared in accordance with UK GAAP and IFRSs as adopted by the European Union.
#2 – Qualified Opinion
This type of audit report is given when an auditor is not having confidence about any specific process or transaction, based on which they are not in the position to issue Clean/ Unqualified Opinion. Qualified Opinion is not acceptable by investors, organizations as it creates a negative impression.
Example: General Format in the UK as per UK GAAP or IFRS
In our opinion, except for the effects of the matter described in the basis for qualified opinion section, the financial statements:
- Give a true and fair view of the state of the company’s affairs as at 31st Dec 2018 and of its profit for the year then ended;
- Have been properly prepared in accordance with the United Kingdom Generally Accepted Accounting Practice / IFRSs as adopted by the European Union; and
- Have been prepared in accordance with the requirements of the Companies Act 2006.
A Basis for Qualified Opinion
The notes to the financial statements do not disclose that one of the company’s directors, John Smith, controls ABC Limited, from which the company purchased goods and services during the year of xxx. Such disclosure is required by IFRS 102 / IFRSs as adopted by the European Union].
We have audited as per International Standards on Auditing (UK) (ISAs (UK)) and applicable law. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion
#3 – Disclaimer Report
Disclaimer report is the type of audit report given by auditor in which auditor distance themselves from giving any kind of opinion on the financial statements. The main reason in providing the disclaimer of opinion can be reasons like putting a limitation on the scope of the auditors, not obtaining satisfactory explanation and not able to determine the correct nature of transactions, not able to obtain sufficient audit evidence etc. This kind of audit opinion is considered very harsh and creates a very adverse image of the company.
Example General Format in the UK as per UK GAAP or IFRS
We do not express an opinion on the accompanying financial statements of the company. Because of the significance of the matter described in the basis for disclaimer of the opinion section of our report, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements.
A Basis for Disclaimer of Opinion
We are also unable to confirm the bank balance (including overdraft) and interest payable thereon since the accounts are freeze by statutory authorities on account of non-deposition of the statutory dues and as a result facility has been ceased to be operational and same matter was reported in a previous year.
In addition, we were unable to verify by alternative means balance of accounts receivable and balance of accounts payable and corresponding translation gain or loss, if any on theses balance is not recorded for the year ended 31st Dec 2018 and same matters were reported in a previous year.
#4 – Adverse Audit Report
The adverse type of audit report is given when the auditor is not at all satisfied with the financial statements or there is a high level of material misstatements, irregularities which can breach the trust of investors and government. Qualified reports are considered as the main weapon of the auditor which they can use as the public accountability and as a responsible professional, the auditor can attract the attention of the public about any kind of non-acceptable approach accepted by the companies.
Example: General Format in the UK as per UK GAAP or IFRS
In our opinion, because of the lacking of the information mentioned in the Basis for Adverse Opinion paragraph, the financial statements do not present the information required by the Companies Act, 2006, as required and also do not give a true and fair view in line of the UK GAAP or IFRS, that state of affairs of the Company as at 31st Dec, 2018, and its profit/loss and its cash flows for the year ended on that date.
A Basis for Adverse Opinion
The Company’s borrowings have got matured and the amount outstanding is payable on Mar 31, 2019. The Company is not been able to take loans and there are chances of defaulting. These events indicate a material uncertainty about Company’s ability to continue its going concern assumption and, therefore, there are high chances of realizing funds from the sale of assets and pay out its liabilities in the continuation of the business. The financial statements (and notes thereto) do not disclose this fact.
Based on the facts and circumstances of each type of audit assignments, the auditor is needed to modify its opinion by taking professional judgments and acceptable legal opinion.
This has been a guide to Audit Report Types. Here we discuss the top 4 audit report opinion types including Clean Report, Qualified Report, Disclaimer Report, and Adverse Audit Report. You may learn more about Accounting from the following articles –