Independent Auditor Report

What is the Independent Auditor Report?

An independent auditor report is a report which is given by independent auditor after examination of financial statement, books of accounts, financial transactions, accounting practices, 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 who is appointed by the company with the consent of the board of directors he may be a Chartered accountant or certified public accountant.

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Types of Independent Auditor Report

There are two types which are as follows –

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#1 – Unmodified Report

The unmodified report is also called an unqualified report or clean report. The unmodified report is issued by the auditor when the auditor is 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 that it is presenting the true and fair value of the business operation. It gives confidence to the investors, 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 so that they can decide based on the Independent Auditor Report.

#2 – Modified Report

It is issued when Independent Auditor is not satisfied with the financial statement or not able to obtain sufficient and appropriate evidence to believe that financial statement is free from any misstatement.

There are three types of Modified Report which Auditor gives:

• Qualified Report – Qualified Audit ReportQualified Audit ReportThe company's auditor issues a qualified opinion in the audit report if it is found that the company's financial statements are presented fairly, but with exceptions in specific areas. It is one level below a Unqualified Opinion (i.e. Clean Opinion) and is given when the Auditor believes the financial statement has not been prepared in accordance with the rules laid down under the provisions of GAAP or IFRS.read more is given when there is a reason to believe that misstatement given in the financial statement or auditor unable to obtain appropriate and sufficient evidence, but there are indications which indicate misstatement in a financial statement. Still, the impact of this misstatement is not so high that a complete financial statement will become not acceptable.
• Adverse Report – Auditor gives adverse reports when based on examination of financial statements and evidence obtained; he believes there is a material misstatement in the financial statement which impacts is high and which can affect the decision of stakeholders.
• Disclaimer Report – When the auditor is not able to form an opinion on financial statements in the absence of sufficient and appropriate audit evidence in such a case, the auditor not able to perform an audit and gives a disclaimer report.

If you want to learn more about Auditing, you may consider taking courses offered by Coursera –

1. Auditing I: Conceptual Foundations of Auditing
2. Auditing II: The Practice of Auditing

Format

Below is the format of Independent Auditor Reports –

1. Title – The title of all the independent auditor reports is the same as “Independent Auditors’ Report.”
2. Addressee – Addressee means the persons to whom this report will address or receiver of this report. The addressee can be the board of directors or shareholders of the company, or any other person depends on the nature of auditors’ reports.
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 examination of financial statements.
4. Scope of the Audit – In this paragraph, the auditor mentioned the scope of an audit like audit was conducted as per generally accepted auditing standard.
5. The Opinion of the Auditor – In this paragraph auditor gives his opinion based on examination of financial statements. There are four types of opinions that 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 give, which is already described in the type of Auditor reports. It is the primary and most crucial paragraph of the Auditors’ report.
6. Basis of the Opinion – In this paragraph, the auditor provides facts and grounds on which he has given his opinion.
7. Other Reporting Responsibility – In this paragraph auditor mentioned any additional responsibility, which is apart from his primary responsibility.
8. Signature of the Auditor – The partner of the audit firm, which is appointed by the company, will sign the audit report.
9. Place of Signature – Here Auditor has to mention the name of the city where the audit report will be signed by the auditor.
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

• It gives confidence to the person who is not involved in the day to day operations of the company like shareholders.
• It gives a true and fair financial picture of the company to the management and board of directors on which basis they can take action for the future.
• The audit helps in the identification of cost, which can be saved with proper control.
• The auditor checks the internal control of the company and reports whether internal controlsInternal ControlsInternal control in accounting refers to the process by which a company implements various rules, policies, or procedures to ensure the accuracy of accounting and finance information, safeguard the various assets of the business, promote accountability in the business, and prevent the occurrence of frauds in the company.read more are adequate of not.
• It creates a safeguard for the company and responsibility among the employee of the company, and employees have fear that they can be caught in an audit if they are doing some wrong practice.
• Banks will easily give loans to the company based on a Qualified Auditors’ Report.

Disadvantages

• It is an extra cost to the company, and sometimes it becomes a costly affair for small business organizations.
• Sometimes employees got harassed and not expressed their new ideas if they have more fear for audit.
• If the auditor does not give the correct opinion in his audit report, then there may be a chance that management will take wrong action and decisions.
• Auditors must have a good knowledge of business nature and business processes; otherwise, this will impact the audit report.

Conclusion

Independent Audit Report is nothing, but it is an opinion that is given by the independent auditor after examination of 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 policies & practices, and internal control adopted by the company. Independent Auditors’ report is an essential requirement of banks and creditors for lending loans to the company.

There are a specific format and content of the Independent Auditors’ report, which Auditors’ has to maintain. Independent Auditors’ report is good for the company because the external and independent party gives it. Therefore, it is unbiased and provides a clear picture of the organization. However, at the same time is very important that management should give actual, correct, sufficient, and appropriate evidence; otherwise, it will misguide the auditor and his report.

Recommended Articles

This article has been a guide to Independent Auditor Report. Here we discuss the contents of independent auditor reports along with its types, advantages, and disadvantages. You may learn more about financing from the following articles –

• Audit Test
• Interim Audit
• Purpose of An Audit
• Audit Cycle