An audit report is the result of an audit. It is the final statement written by an auditor that formally states their opinion on the position of the company for which it was hired to audit. The audit report is then distributed to external entities that may be interested in an opinion regarding the company. They may want to invest in the company and want to get a handle of how well their operations are going before they do. The report is strictly an opinion of whether or not the information is included and accurate. There are four types of audit reports, each describing a different situation that the auditor may encounter:¹
- Unqualified opinion: this type of report is written when the auditor concludes that the financial statements of the company are fair and accurate. The auditor has no reservations about the presentation of information in the financial statements
- Qualified opinion: this report is written when the auditor believes that the statements are incorrect due to the misstatement of an account balance or transaction or there is a lack of evidence regarding an account or transaction. This usually refers to a single or minimal number of accounts which does not necessarily affect the entire financial statement, but would still render it incorrect.
- Adverse opinion: similar to the qualified opinion report, the adverse opinion report is written when the auditor believes that there are multiple accounts or transactions with misstated amounts, which would affect the validity of the entire financial statement. This report usually occurs when the company does not comply with a component of GAAP.
- Disclaimer of opinion: this report is written when the auditor would like to discount their opinion, usually due to a conflict of interest that arises or when they are unable to obtain sufficient knowledge regarding the statements.
A term coined within audit reporting is 'opinion shopping'. This refers to companies hiring multiple auditors to look at their financial statements and only issuing the report that best reflects what they want to be common knowledge.
1. Henderson, K. (n.d.). What are the 4 types of audit reports?. Retrieved from http://smallbusiness.chron.com/4-types-audit-reports-3794.html