I am an “AUDIT PERSON”… There is a template for an audit report.. its called the STANDARD REPORT… which is 3 paragraphs with a heading an adressee and signed and dated by the auditor!! life isnt black and white however, so there are going to be variations….
i think the standard audit report sort of makes sense.. i try not to memorize anything… i just try and rationalize it, so that i am not cramming.. understanding the concept.
Please read below… i tried to explain the concept to you….
1. what is the purpose of an audit? the purpose of an audit is for MANAGEMENT to get someone who is TRAINED and INDEPENDENT to express an opinion as to how accurate a representation the financial statements they have prepared are, to what actually happened at the company in that period/ or that year.
2. Who cares about the how the company is doing? the users of financial statements are a wide and varying group. but the people who the regulators are most concerned about are the owners of the company who have nothing to do with the day to day running of the company – the shareholders in a public company. (The board of directors, incidentally, are representatives of shareholders that have nothing to do with the day to day running of the company.)
3. management goes out and finds an expert on auditing and accounting – a CPA, and asks them to come in and give an opinion as to whether their financial statements are a true reflection of what went on at that company for the year.
the CPA tells management that he has the expertise to do the work, (TRAINING and INDEPENDENCE and can exercise DUE PROFFESIONAL CARE in doing the work) but for him to give such an opinion he is going to need to take a closer look at the balances, transactions and disclosures that make up the financial statements. he is going to need to do field work. He is going to need to make PLAN as to how he is going to go about getting the EVIDENCE he needs to form the opinion. This will involve taking a deep hard look at how you as a management team run the company and what safeguards you have in place to facilitate accurate reporting, safeguard the companies assets and facilitate the smooth running of the company – INTERNAL CONTROL.
If you agree (IN WRITING) to allow him to do this, he will be able to provide you with an opinion as to whether the the FS are a FAIR reflection of the the position of the company at a certain date. He unfortunately cannot give management complete assurance, that they are 100% accurate, because he cannot look at every single transaction, but he can give 95% assurance based on the work he will perform. at the end of his work he will supply you with an OPINION in the form of a report.
4. what is the purpose of the audit report? the purpose of the audit report is for the “expert” in audit and accounting (referred to in 1 as independent), that was hired by management, to express to opinion as to whether the financial statements, that were prepared by management, are FAIR representation of the financial statements for that period or for that year.
5. so the title of the report reflects the thing the CPA is most proud of.. (the thing that distinguishes him from other experts like engineers, actuaries etc) his INDEPENDENCE… – independent auditors report..
He addresses the report to the board of directors, (because they are the representatives of the shareholders…)
A standard audit report is 3 paragraphs. Intro, scope, and opinion.
the introductory paragraph tells the reader, the type of project the auditors were engaged to do. – eg. audit 12/31/2011 of balance sheet, inc statement, cash flow and disclosures. it tells the reader that management prepared these financials. and that the cpa's job was to express an opinion.
the scope paragraph goes into detail about the rules that the audtors used to perform the work that is the the basis of the opinion. referred to in the introduction. so they use this para to tell you what they did and what rules they followed. (ie we audited these financials using GAAS rules…)
Now if the auditor DIDNT see something that he thinks any reasonable shareholder would care about… he rings an alarm bell… he doesnt want anyone to go out and buy shares in a company based on his opinion. so if he didnt see something his scope was limited.. He says that first in the scope paragraph… EXCEPT AS DISCUSSED IN THE FOLLOWING PARAGRAPH, WE AUDITED the F/S.
( I think it sort of makes sense that if they couldn't look at something in the financials referred to in the introduction this the place to say it. the scope paragraph is all about the auditors….)
then they add a paragraph to describe what they didnt look at.
Then the last para is the opinion paragraph. YOU ASKED ME TO TELL YOU IF THESE FINSTATS were fair. here goes nothing… The first think i am going to mention is the thing i didnt look at. i dont want to be associated with it, and i dont want you to get it twisted in any way- IN OUR OPINION, EXCEPT FOR that thing described above that i couldnt look at so i cant form an opinion on it, i didnt do any work -everything else is a fair representation of the FS that are prepared in accordance with GAAP…
FYI (It goes without saying that I have looked to make sure that the DISCLOSURES are in line with GAAP, and that GAAP principles have been applied CONSISTENTLY over the period… so once i have said in accordance with GAAP, and havent said otherwise, then you know that the finstats are appropriately disclosed and applied consistenetly )
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