Auditor Reports
If a company has an audit performed, whether by an internal auditor or an outside auditor, the auditor issues a formal opinion. This opinion takes the form on an auditor report . The auditor report is available for use by any individual, group, company, or government to review. The auditor report helps readers make a more informed decision about the company based on its results. Please note that the Securities and Exchange Commission requires an audit by an outside auditor. The notes to the financials statement must include a reference to this report.
Auditor and Management Reports
Auditor reports stem from an internal or external audit of the company's financial statements.
The Purpose Of the Auditor Reports
In business, the auditor report is consider an essential component of the financial statements. Since many third-party users prefer, or even require financial information to be certified by an independent external auditor, many companies rely on auditor reports to certify their information to attract investors, obtain loans, and improve public appearance.
Types Of Auditor Reports
There are four types of auditor reports:
- Qualified opinion report
- Unqualified opinion report
- Adverse opinion report
- Disclaimer of opinion report
Qualified Opinion Report
A qualified opinion report is issued when the auditor encounters one of two types of situations. While these specific situations do not comply with generally accepted accounting principles, the rest of the financial statements are fairly presented. The two types of situations that result in a qualified opinion report are a single deviation from generally accepted accounting principles (GAAP) and limitation of scope.
A deviation from generally accepted accounting principles occurs when one or more areas of the financial statements do not conform to GAAP. These misstated items do not affect the rest of the financial statements from being fairly presented when taken as a whole. An example of GAAP is incorrectly calculating depreciation.
Limitation of scope occurs when the auditor could not audit one or more areas of the financial statements, and although they could not be verified, the rest of the financial statements were audited and they conform to GAAP. For example, if the auditor cannot observe and test the company's inventory, but audited the rest of the statements and found them in accordance with GAAP, then the report is said to be limited in scope.
Unqualified Report
An opinion is unqualified when the auditor concludes that the financial statements give a true and fair view in accordance with the financial reporting framework used for their preparation and presentation. An auditor issues this report when the financial statements presented are free of material misstatements and are represented fairly in accordance with GAAP. An unqualified report is the best type of report a company can receive from an external auditor.
Adverse Opinion Report
An adverse opinion is issued when the auditor determines that the financial statements of an auditee are materially misstated and, when considered as a whole, do not conform to GAAP.
It is considered the opposite of an unqualified or clean opinion, essentially stating that the information contained is materially incorrect, unreliable, and inaccurate.
Disclaimer Of Opinion Report
A disclaimer of opinion, also referred to as a disclaimer, occurs when the auditor could not form, and consequently refuses to present, an opinion on the financial statements. This type of report is issued when the auditor tried to audit an entity but could not complete the work due to various reasons. Although this type of opinion is rarely used, they may be used when the auditee willfully hides or refuses to provide evidence and information to the auditor in significant areas of the financial statements.