What Comprises of Financial Statement Audit Report?

financial statement audit

The purpose of financial statement audit is to determine the fairness of an entity’s financial statements according to the GAAP(Generally Accepted Accounting Principles), by an independent auditor. Fairness here can be broken down as the financials being presented are correct and in the proper formats/methods.

A Financial statement audit report simply is the document, with which the auditor or the accounting audit service presents their findings in a standardized manner.

Why Do You Need Financial Audits?

Financial statement audits are needed to assure various stakeholders such as Financial institutions, management, and the tax authorities that the financial statements are prepared correctly and that there is no misreporting.

Auditing accounting statements can also help present a clearer picture to the suppliers about the company’s ability to pay them. Banks and other financial institutions can use it to establish creditworthiness and the potential for investment.

Elements of the Financial Statement Audit Report

Mention the addressee(s) of the report; it is usually the shareholders or the board of directors.

Opinion Paragraph

The opinion paragraph specifies the financial reporting framework as per which the financial statements have been prepared and whether they have been made compliant with that framework. Whether it is International accounting standards or those of a specific country, the framework is mentioned clearly.

Once the auditors are able to determine that the statements are in fact prepared within the framework. The terminology generally used is that the financial statements “give a true and fair view of ” or “are prepared in accordance with the framework  {GAAP} for instance.

For Eg. accounting firms in Mississauga, Canada, in general, would mention either IFRS or ASPE depending on whether the company is listed or not, as these are the GAAP in Canada.

Basis for Opinion

This paragraph or section should mention that the audit was done in accordance with Canadian generally accepted accounting standards. It should also clearly state that the auditors are independent of the entity for which the financial statements are being audited and that they have fulfilled the ethical requirements that apply to them for performing the audits.

It should also specify that the information and evidence that the company’s management has provided is sufficient to provide a basis for their opinion.

Material Uncertainty Related to Going Concern

This section of the report states that the consolidated financial statements as presented to the auditors are prepared with the  going concern assumption. Going concern basically implies that the entity will be able to realize its assets and discharge the liabilities in normal course of business.

Key Audit Matters

These are the keys that the auditors would like to highlight and report as most significant in the  audit. Also that these matters were addressed in the context of the audit as a whole, and in forming the auditor’s opinion and that there is no separate opinion on these matters.

It aims to make the report more transparent and clearer by reporting each matter in accordance with CAS 701 and also provides additional information to the parties that use the audit report.

Other Information

Any information included in the report, besides the Financial Statement and the Auditor’s Report thereon. This is again provided by the management of the entity being audited.

It means that the auditors need to read this information and check for any inconsistencies with the information in the financial statements. These are then to be reported in accordance with CAS 720.

Responsibilities of Management and those Charged with Governance for the Consolidated Financial Statements.
This section emphasizes that the responsibility of the financial statements lies with the entity’s management entirely and that the auditor’s responsibility is to review the statements presented and provide an opinion on the basis of said audit.

The statements are to be prepared and presented according to IFRS and are free from misstatement whether fraudulent or erroneous.

It should also include the management’s assessment of the ability to continue as a going concern unless they intend to liquidate the company, cease operations or have no alternative but to do so.

Responsibilities of the Auditor

It states that the audit was done to provide reasonable assurance that the financial statements were free of misstatement, whether fraudulent or erroneous since a guaranteed assurance is difficult due to certain limitations of the audit.

Basically this an emphasis on the auditor’s responsibilities to conduct a fair audit. It entails that the auditor should understand the risks of misrepresentation in the financial statements and the importance of reporting them.

Check the underlying assumptions such as going concern that the entity’s management has made while preparing the financial statements. Also the presentation overall structure and fairness of the financial statements.

Report on Other Legal and Regulatory Requirements

The form and content of this section of the auditor’s report would vary depending on the nature of the auditor’s other reporting responsibilities prescribed by local law, regulation, or national auditing standards

Takeaway

Financial statements are key indicators of a company’s health and are equally important for meeting respective compliance norms anywhere in the world. Choosing the right accounting audit service providers, therefore, is a critical decision and should be made after careful deliberation.