The purpose of a 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.
A financial statement audit is an independent examination of an organization’s financial statements by an auditor. The purpose of a financial statement audit is to express an opinion on the fairness of the financial statements in accordance with a particular financial reporting framework.
For eg. Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). The financial statement audit report is a written document that communicates the results of the audit.
The financial statement audit report typically includes the following elements:
- Title: The title of the report identifies the purpose of the audit, the name of the organization being audited, and the financial statements being audited.
- Addressee: The report is addressed to the organization being audited and its management.
- Introduction: The introduction sets the context for the audit and describes the auditor’s responsibilities.
- Scope: The scope section describes the scope of the audit, including the financial statements being audited and the period covered by the audit.
- Opinion: The opinion section is the main conclusion of the audit. It states whether the financial statements are fairly presented in accordance with the applicable financial reporting framework.
- The basis for opinion: The basis for opinion section explains the auditor’s basis for the opinion expressed in the opinion section. It may include a description of the audit procedures performed and the evidence obtained.
- The emphasis of matter paragraphs: An emphasis of matter paragraph is a paragraph included in the audit report to draw attention to a matter that is relevant to the user of the financial statements, but that is not sufficiently significant to warrant an opinion modification.
- Other matters: The other matters section may include additional information or disclosures required by the applicable financial reporting framework.
- Auditor’s signature: The audit report is signed by the auditor, indicating that the audit was conducted in accordance with professional standards.
Why Do You Need Financial Audits?
Financial audits are conducted to provide assurance that an organization’s financial statements are accurate and reliable. They provide a level of assurance that the financial statements are free from material misstatement, whether due to fraud or error.
Financial audits are important because they help to ensure the integrity of an organization’s financial statements. This is important for a number of reasons.
First, financial statements are used by a wide range of stakeholders, including investors, creditors, and regulatory agencies, to make informed decisions about the organization. Without an independent and reliable assurance that the financial statements are accurate, these stakeholders may not have confidence in the information provided.
Second, financial audits help to identify any weaknesses or deficiencies in an organization’s internal controls and financial reporting processes. By identifying and addressing these issues, an organization can improve the reliability and integrity of its financial statements and reduce the risk of financial errors or fraud.
Overall, financial audits play a crucial role in helping to build confidence in an organization’s financial reporting and in maintaining the integrity of the financial markets.
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 concerned basically implies that the entity will be able to realize its assets and discharge the liabilities in the 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, informing 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 for 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 is 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 concerns that the entity’s management has made while preparing the financial statements. Also the presentation’s 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
Final thought
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.
