The Basic Types of Financial Audit Reports

A financial audit report refers to a written document that includes the opinion of a professional auditor about the financial statements of an organisation. The report should follow the standard format of generally accepted auditing standards (GAAS), and should include the following sections:

  • Overview of the auditor’s responsibilities and the management of an organisation/entity
  • Scope of the auditing done
  • Opinion of the auditor on the financial statements released by the entity

In addition to the expert assessment and professional outlook of the auditor, the report also details the assets and liabilities of an entity or organisation. Publicly traded companies and businesses that are planning to apply for funding are required by law to submit an audit report of their finances.

There are four standard types of audit reports:

  • Clean opinion – A clean opinion is issued by the auditor if the entity’s financial statements are accurate and reflect a fair representation of their financial standing. A clean opinion is indicative of the auditor’s adherence to Generally Accepted Accounting Principles (GAAP) in auditing the relevant financial records. Also known as an unqualified opinion, this audit report typically states that it is independent to signify that it was performed and completed by an objective and unbiased third party.
  • Qualified opinionAuditors in JAFZA, for instance, issue a qualified opinion in case there were limitations imposed on their auditing process. In this scenario, an organisation did not maintain its financial records according to GAAP standards, but the auditor found no misrepresentations of the company’s financial standing. This audit report follows a similar format to that of a clean opinion, but it includes information on why the report is determined as “qualified.”
  • Adverse opinion – In case where the financial statements do not coincide with GAAP, auditors issue an adverse opinion, which is regarded in the field as the worst type of financial report. It basically says that an entity’s financial statements misrepresent its financial standing. However, it does not necessarily mean that the entity has intentionally misrepresented its financial status, or that a fraudulent activity has been committed, as the situation can also be the result of an error. Companies that have received an adverse opinion must correct its financial statements and undergo another financial audit until the requesting parties (e.g., lending institutions, banks) are satisfied.
  • Disclaimer of opinion – An auditing firm like macnross.com will issue a disclaimer of opinion if they are unable to complete and provide an accurate and objective audit report. In some cases, the auditor may not have been able to function independently, or there were insufficient financial records to work on, rendering them unable to verify the financial status of an entity.