What is an Independent Auditor Report?

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.

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Types of Independent Auditor Report

There are two types which are as follows –

#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.

#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:

  • 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 is provided in the financial statement or the auditor cannot obtain appropriate and sufficient evidence. However, some misstatements in financial statements may not be so high that they will become unacceptable.Adverse Report – The auditor reports negative reports by examining financial statements and evidence obtained. They believe a material misstatement in the financial information can affect stakeholders’ decisions.Disclaimer Report – When the auditors cannot form an opinion on financial statements in the absence of sufficient and appropriate audit evidenceAudit EvidenceAudit evidence is information gathered by auditors during the course of an audit, whether internal, statutory, or otherwise. These facts serve as the foundation for the opinion in the audit report.read more, they cannot perform an audit and give a disclaimer report.

Format of Independent Auditor Report

Below is the format of independent auditor reports –

  • Title – It remains the same in all reports as “Independent Auditor’s Report.”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.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.Scope of the Audit – In this paragraph, the auditor mentions the scope of the audit as it was conducted per generally accepted auditing standards.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.Basis of the Opinion – In this paragraph, the auditors provide facts and grounds on which they have given their opinions.Other Reporting Responsibility – In this paragraph, the auditor mentions any additional responsibility apart from primary responsibilities.Signature of the Auditor – The partner of the audit firm, which the company appoints, will sign the audit report.Place of Signature – Here the auditor has to mention the name of the city where the auditor will sign the audit report.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 company’s day-to-day operations like shareholders.It gives an accurate and fair financial picture of the company to the management and board of directorsBoard Of DirectorsBoard of Directors (BOD) refers to a corporate body comprising a group of elected people who represent the interest of a company’s stockholders. The board forms the top layer of the hierarchy and focuses on ensuring that the company efficiently achieves its goals.
  • read more based on which they can take action for the future.The audit helps identify costs, which can be saved with proper control.The auditor checks the company’s internal control 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 or not.It safeguards the company and the responsibility of its employees, who fear that they can be caught in an audit if they are doing some bad practice.Banks will easily give loans to the company based on a qualified auditor’s report.

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.

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

  • Audit TestInterim AuditPurpose of An AuditAudit Cycle