The audit process and audit report

The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product. Audits are performed to ascertain the validity and reliability of information; also to provide an assessment of a system's internal control. The goal of an audit is to express an opinion of the person / organization / system (etc.) in question, under evaluation based on work done on a test basis.

Process of Auditing includes: Evaluating Internal Controls, Testing the Substance of Transactions & Balances.

-Internal controls are policies & procedures put in place by management to ensure the integrity of the accounting system; -Internal controls are tested because the more effective the accounting system is, then the more reliable the output—the financial statements!

The stronger the client’s internal control system, the higher the confidence in its output! Evidence must support such conclusions by auditor.-Evidence must be sufficient; -Evidence must be valid & relevant;

- Evidence must be unbiased, and objectively gathered in light of practicality.

Sufficient & Competent Evidence

-Sufficient evidence provides reasonable assurance of freedom from material misstatement. -Competence concerns the degree of reliability: 1.Externally generated evidence is more convincing than client generated evidence. 2.Generation under extensive controls is more convincing than under weak control systems. Competent evidence must also be valid & relevant.

The auditor's report is a formal opinion, or disclaimer thereof, issued by either an internal auditor or an independent external auditor as a result of an internal or external audit or evaluation performed on a legal entity or subdivision thereof (called an “auditee”). The report is subsequently provided to a “user” (such as an individual, a group of persons, a company, a government, or even the general public) as an assurance service in order for the user to make decisions based on the results of the audit.

An auditor’s report is considered an essential tool when reporting financial information to users, particularly in business. Since many third-party users prefer, or even require financial information to be certified by an independent external auditor, many auditees rely on auditor reports to certify their information in order to attract investors, obtain loans, and improve public appearance. Some have even stated that financial information without an auditor’s report is “essentially worthless” for investing purposes.

There are four common types of auditor’s reports, each one presenting a different situation encountered during the auditor’s work:

1) Unqualified Opinion - An opinion is said to be unqualified when the Auditor concludes that theFinancial Statements give a true and fair view inaccordance with the financial reporting framework used for the preparation and presentation of the Financial Statements.

2) A Qualified Opinion report - is issued when the auditor encountered one of two types of situations which do not comply with generally accepted accounting principles, however the rest of the financial statements are fairly presented.

3) An Adverse Opinion - is issued when the auditor determines that the financial statements of an auditee are materially misstated and, when considered as a whole, do not conform with GAAP

4) A Disclaimer of Opinion - commonly referred to simply as a Disclaimer, is issued when the auditor could not form, and consequently refuses to present, an opinion on the financial statements. This type of report is issued when the auditor tried to audit an entity but could not complete the work due to various reasons and does not issue an opinion.