Independent Auditor Report

Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

What is an Independent Auditor Report?

An independent auditor report is a report given by an independent auditor after examining financial statements, books of accounts, financial transactions, accounting practices, and internal and external control of an organization.

An Independent auditor is an independent person who is not associated with the company by any means and is appointed by the company with the consent of the board of directors. He may be a chartered accountant or certified public accountant.

Key Takeaways

  • An independent auditor gives a separate auditor report after analyzing financial statements, books of accounts, financial transactions, accounting practices, and internal and organization’s external control.
  • Unmodified reports and modified reports are the two types of independent auditor reports.
  • Title, addressee, the responsibility of the management and the auditor, the scope of the audit, auditor opinion, basis of the opinion, other reporting responsibility, the auditor’s signature, place of a signature, and date of the audit report are the independent auditor reports format.
Independent Audit Report

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Types of Independent Auditor Report

There are two types which are as follows –

Types of Independent Audit Report

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#1 – Unmodified Report

The unmodified report is also called a complete report or clean report. This report is issued by auditorsAuditorsAn auditor is a professional appointed by an enterprise for an independent analysis of their accounting records and financial statements. An auditor issues a report about the accuracy and reliability of financial statements based on the country's local operating laws.read more when they are satisfied with the financial statementFinancial StatementFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more hat it presents the true and fair value of the business operationBusiness OperationBusiness operations refer to all those activities that the employees undertake within an organizational setup daily to produce goods and services for accomplishing the company's goals like profit generation.read more. It gives investors and shareholdersShareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company's total shares.read more confidence to decide.

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#2 – Modified Report

It is issued when an independent auditor is not satisfied with the financial statement or cannot obtain sufficient and appropriate evidence to believe that the financial informationFinancial InformationFinancial Information refers to the summarized data of monetary transactions that is helpful to investors in understanding company’s profitability, their assets, and growth prospects. Financial Data about individuals like past Months Bank Statement, Tax return receipts helps banks to understand customer’s credit quality, repayment capacity etc.read more is free from any misstatement.

There are three types of modified reports that the auditor gives:

Format of Independent Auditor Report

Below is the format of independent auditor reports –

  1. Title – It remains the same in all reports as “Independent Auditor’s Report.”
  2. Addressee – Addressee means the persons to whom this report will address or who will receive it. The addressee can be the board of directors, shareholders of the company, or any other person depending on the nature of the report.
  3. Responsibility of the Management and Auditor – In this paragraph, auditors and management responsibilities will be defined, like auditors will give an unbiased report after examining financial statements.
  4. Scope of the Audit – In this paragraph, the auditor mentions the scope of the audit as it was conducted per generally accepted auditing standards.
  5. The Opinion of the Auditor – It is the primary and most crucial paragraph of the auditors’ report. In this paragraph, the auditors give their opinions based on examining financial statements. Auditors provide four types of views, which are already described in the kind of auditor reports.
  6. Basis of the Opinion – In this paragraph, the auditors provide facts and grounds on which they have given their opinions.
  7. Other Reporting Responsibility – In this paragraph, the auditor mentions any additional responsibility apart from primary responsibilities.
  8. Signature of the Auditor – The partner of the audit firm, which the company appoints, will sign the audit report.
  9. Place of Signature – Here the auditor has to mention the name of the city where the auditor will sign the audit report.
  10. Date of Audit Report – The date of the audit reportAudit ReportAn audit report is a document prepared by an external auditor at the end of the auditing process that consolidates all of his findings and observations about a company's financial statements.read more is the date on which the auditor will sign the audit report.

Advantages

Disadvantages

  • It is an extra cost to the company, and sometimes it becomes a costly affair for small businesses.
  • Sometimes employees get harassed and do not express their ideas if they fear an audit.
  • If the auditor does not give the correct opinion in the audit report, management may likely take wrong actions or decisions.
  • Auditors must know the business nature and processes; otherwise, it will impact the audit report.

Conclusion

The Independent audit report is nothing but an independent auditor’s opinion after examining books of accounts, business transactionsBusiness TransactionsA business transaction is the exchange of goods or services for cash with third parties (such as customers, vendors, etc.). The goods involved have monetary and tangible economic value, which may be recorded and presented in the company's financial statements.read more, accounting policiesAccounting PoliciesAccounting policies refer to the framework or procedure followed by the management for bookkeeping and preparation of the financial statements. It involves accounting methods and practices determined at the corporate level.read more and practices, and internal controls adopted by the company. It is an essential requirement of banks and creditorsCreditorsA creditor refers to a party involving an individual, institution, or the government that extends credit or lends goods, property, services, or money to another party known as a debtor. The credit made through a legal contract guarantees repayment within a specified period as mutually agreed upon by both parties. read more for lending loans to the company.

There is a specific format and content of the independent auditors’ report, which auditors have to maintain. These reports are good for the company because external and independent parties issue them. Therefore, it is unbiased and provides a clear picture of the organization. However, management must give actual, correct, sufficient, and appropriate evidence; otherwise, it will misguide the auditor and the report.

Frequently Asked Questions (FAQs)

Why an independent auditor reports on financial statements?

The independent auditor’s ordinary audit objective of financial statements is the expression of the fairness they present, in all material respects, financial position, operations results, and cash flows per generally accepted accounting principles.

Are independent audit reports confidential?

Auditors must keep independent audit reports confidential. They must protect the client’s business secrets with their work product. One may access the information which is allowed to see it.

Who is an independent audit report addressed to?

An independent audit report is addressed to the shareholders and the board of directors, or equivalents for companies not organized as corporations.

What is the reason why an independent auditor reports?

The independent auditor enables reasonable assurance to decision-makers that the company’s financial statements are fairly presented in all material respects and according to the U.S. GAAP.

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