Three main features of an audit report

An audit report is the end result of the audit of a financial statement. The report is what an analyst read before analyzing a financial report. The reason is that it enhances or adds credibility to a company's annual statements. In this article, we discussed three main features of an audit report.

1. What's an audit report

This is a report provided by the external auditor that explains the outcome of an audit. It usually shows that the financial statements are free from bias, truthfully represent what it is purported to represent and free from material error. The audit report also explains whether or not the auditor is independent in carrying out his audit assignment.

In addition, audit reports can be qualified, unqualified, or disclaimed by the auditor. You can find an audit report immediately after the directors reports or before the statement of financial position. For it to be reliable and credible to users, it must contain the below three features or characteristics.

2. Three features of an Audit Report

According to the ICAN study pack on auditing and assurance for skill levels, the following are the characteristics of an audit report.

2.1 Independence

External auditors must be independent from the preparers of financial statements, that is, the directors. A reason is that the financial statements are prepared generally for users such as shareholders, potential investors and tax authorities. If the auditor lacks independence, it will affect the value and credibility of the financial statement. This will force users to make wrong decisions.

2.2 True and Fair

The external auditor must confirm that a financial statement is presented fairly or reveal the true and fair view of the entity financials. An annual report is true when it is free from material error and fair if it is free from bias. In concluding whether a financial report is true and fair, the auditor applies some judgment. Then, in the audit report, he or she will clearly state that based on the audit the financial statement presented is true and fair.

2.3 Materiality

Materiality implies that the financial statements must be free from material errors and misstatements. When one or more items are misstated in a report, it will lead to making wrong decisions by users. Therefore, In carrying out an audit, the auditor examines figures for errors or misstatements. And in the audit report, it will be stated clearly that the financial statements are presented fairly with all material respects.

Audit report in an annual report is prepared by an external auditor. Therefore, he or she must present it showing the three characteristics. However, for an internal auditor, the characteristics of independence will not apply because he works under the directors.