How To Write an Audit Report
There are two types of auditor: the external auditor and the internal auditor. The role of the former is laid down by statute and in case law; that of the latter, while also affected to some extent by case law, is ultimately what management wants it to be. Therefore the structure of audit reports will depend on the type of audit work being undertaken.
External auditors are independent of the companies on which they report. They are required to report to the shareholders at general meetings on whether the final statements of a company give a ‘true and fair view’ of the state of the company’s affairs. If they are uncertain, or if they do not believe this to be so, they must say so in what is known as a qualified audit report. It is now normal practice also for external auditors to issue reports to management which are more akin to internal audit reports. Internal auditors are concerned with the segregation of duties and the internal control of the business for which they are employed. The structure of their reports tends to be fairly consistent, but it is not defined by any Auditing Standards.
What points should I bear in mind?
In a few words the external auditor commits himself or herself to a high degree of responsibility. If the contents of the report do not reflect the due care, skill and diligence expected of a qualified person, the auditor may be held liable for damages. It is essential, therefore, that the report should be carefully prepared to reflect an opinion within the limits of the examination, and sufficiently clear as to leave no likelihood of misinterpretation by those whom it concerns.
The internal auditor does not face such an onerous responsibility because the report is not written for the same audience – it is for internal consumption (although the external auditor may decide to place some reliance upon it). However, like all report writers, the internal auditor must always strive for objectivity and accuracy.
What would be a suitable format?
The usual format for an external audit report on the financial statements of a company incorporated in Great Britain is as follows:
- Respective responsibilities of directors and auditors
- Basis of opinion
An external auditor’s report to management will include any or all of the following sections:
- Weaknesses in internal control and recommendations on how they may be rectified.
- Breakdowns in the accounting systems and any material errors arising.
- Additional audit time required as a result of either section 1 or 2, or the client’s failure to adhere to timetables.
- Unsatisfactory accounting procedures or policies, and recommendations as to how they may be improved.
- Suggestions as to how financial and accounting efficiency may be improved.
- Constructive suggestions not necessarily related to accounting procedures but noted by the auditor during the course of his or her investigations, with the benefit of an outsider’s viewpoint.
A suitable format for an internal audit report is as follows:
- Contents page
- Summary (the main findings, conclusions and recommendations)
- Introduction (what broad subjects were audited, where and when)
- Scope (what precisely was audited, and possibly what was not)
- Main body (the findings, divided into logical sub-sections)
- Conclusions (flowing naturally from the main body)
- Recommendations (flowing naturally from the conclusions)