Explaining your audit report and the different audit opinions

Whether you’re legally obliged to complete a statutory audit or have been requested to carry out a non-statutory audit by directors, trustees, or shareholder, the results can have a significant impact on the business. There is no doubt a lot of information to process from an independent auditor’s report, but it’s crucial that you understand the notes and any recommendations made so that you can improve or remedy any internal procedures and safeguards as well as remain legally compliant and adhere to corporate governance. The article will explain the different types of audit reports, how to understand your audit report, and what might need to be done after based on the auditor’s opinion.

What is an auditor’s report?

An auditor’s report is an external third-party assessment as to whether a company has carried out its financial reporting accurately and in accordance with Generally Accepted Accounting Principles (GAAP). Its purpose is to provide an objective opinion on how diligently a company is performing its legal compliance duties, thereby providing assurance to shareholders and other stakeholders. Whilst the main aim is not to seek out any fraudulent activity, an audit report can detect and may reveal discrepancies or misleading reporting which would raise red flags to the business’ credibility.

Who can carry out an audit report?

Only a registered auditor can carry out an audit report. These are professionally qualified accountants that specialise in audit and will be registered with a supervisory body such as the Institute of Chartered Accountants in England and Wales (ICAEW) or the Association of Chartered Certified Accountants (ACCA).

A majority of publicly listed companies will have their audit reports carried out by ‘The Big4’. This group is known as the four largest global accounting firms, which includes Deloitte, Ernst & Young (EY), PricewaterhouseCoopers (PwC) and Klynveld Peat Marwick Goerdeler (KPMG). However, these are not the only accountancy firms that can offer an audit, and certainly not recommended for smaller businesses that wish to complete a non-mandatory audit. The key point to look out for when seeking out an auditor is to make sure they are registered to do so.

How long does it take to get a completed audit report?

There is no definitive timeframe for how long it should take to complete an audit report. Timings will depend on numerous factors ranging from the size of the company, whether it is a public or private company, how organised and prepared the company is for the audit, whether an audit has been carried out by the same auditors previously (and are therefore familiar with the company’s policies and procedures), and much more. As a general guideline, you can expect a straightforward audit to take around 3 months to complete with 1 month for planning, 1 month for fieldwork, and 1 month for compiling the report. However, we must stress that this is only very basic guidance, and our advice is to always speak with your auditor so that you can understand the level of work involved and their planned timeframes.

When is an audit report due?

As there is no legally set timeframe for which an audit report is to be completed by, it’s important that you are mindful of completing your own annual accounts with sufficient time for the auditor to then complete their assessment. This is because both your annual accounts and audit report will need to be submitted together to Companies House by your filing deadline. This is 9 months after your company’s financial year end date.

Remember, your auditor is providing an external independent assessment of your financial recording and reporting. This therefore means that the responsibility to ensure your accounts are filed with the necessary reports by the deadline remains with the company director(s). If your annual accounts are only completed 8 months after your financial year end date, then you may have to face that you are unlikely to make your filing deadline.

What is included in an audit report?

Audit reports are often dense and detailed documents that will no doubt contain a lot of information. However, you will usually find that this is broken down into core sections that will be structured in a standardised format for clarity, consistency, and compliance to auditing standards. You can expect your audit report to include the following sections in roughly this order:

• Title – Although a formality, an audit report will always begin with a clear title that typically includes terms such as “Independent Auditor’s Report” or “Auditor’s Report” to indicate the nature of the document.
• Addressee – The audit report will state its intended recipients which are usually the shareholders, board of directors, or other key stakeholders.
• Introductory paragraph – The introductory paragraph starts by disclosing which financial statements have been audited, as well as include the exact period that the audit report covers. You can expect this to coincide with the company’s financial year. 
• Outlining the management’s responsibility – This section of the audit report describes the management’s responsibility to prepare and fairly present their financial statements in accordance with the applicable financial reporting frameworks.
• Outlining the auditor’s responsibility – This part will define the auditor’s responsibilities which is to provide an objective opinion on the financial statements based on the audit that has been conducted. It should explain how the audit has been performed in accordance with auditing standards and what procedures have been taken to ensure this.
• Scope of the audit – This section reports the extent to which audit procedures could be taken when completing fieldwork. If there were any limitations to the investigation due to unanswered queries or unsupplied supporting documents, then this will be detailed. It may also reference specific sections of the financial statements covered by the audit.
• Auditor’s opinion – This is arguably the most important section of any audit report. It gives the auditor’s conclusion as to whether they found evidence to support that the company’s financial statements have been prepared accurately and presented fairly without bias.  They may express their opinions on the financial position of the company, results of operations, and cashflow in accordance with the financial reporting framework used.
• Basis for opinion – This is optional but in some cases the auditor may wish to explain the basis for their opinion. It is more likely to be included in an audit report where there are significant considerations or unusual circumstances.
• Date and signature – Again, another formality but included for completeness of the audit report. The audit report is signed by the auditing firm or the individual auditor responsible for the engagement. It also includes the date when the audit report was issued. Some audit reports may include the address of the auditing firm for reference purposes.

What are the different possible audit opinions?

One of the most important things you need to understand from your audit report is the auditor’s opinion. There are four possible audit opinions with varying degrees of consequences:

• Unqualified opinion – this can also be called a clean opinion. It is the most desired audit opinion outcome because it means the auditor found no misrepresentations or issues with the company’s financial reporting procedures. An unqualified opinion confirms that the company had maintained its records in accordance with GAAP.
• Qualified opinion – a qualified opinion is given when the auditor has identified small instances that prevent them from granting an unqualified opinion. This can occur where the auditor finds that the company has not fully complied with GAAP or where the scope of audit was limited because the auditor was unable to review areas related to the company’s financial statements. A qualified opinion indicates that specific areas or transactions need further attention in order to improve. Despite this qualification however, a qualified opinion does assure stakeholders that a majority of the financial statements are reliable.
• Adverse opinion – an adverse opinion has serious implications on a company’s reputation as well as compliance status. It is rarely issued as it requires an auditor to find significant evidence of gross misstatements in the financial statements, with the potential for fraud. It alerts stakeholders that critical areas require immediate attention and remediation.
• Disclaimer opinion – in certain circumstances, auditors may be unable to express an opinion on your financial statements. This situation may arise due to limitations in the scope of the audit, insufficient evidence, or other constraints. A disclaimer of opinion indicates that the auditor cannot provide assurance on the accuracy or fairness of your financial statements. While disclaimers are uncommon, they underscore the need for enhanced transparency and diligence in financial reporting.

What to do after you have received your audit report

The first thing you need to do once you have received your audit report is to read it thoroughly to gain a clear understanding of the auditor’s findings, opinions and recommendations. You then need to assess the potential impact of the findings on the company’s operations, financial reporting, compliance, and reputation.

Where you determine that any findings of deficiencies should be addressed, a plan of action needs to be devised in order to rectify areas of weakness. The action plan should include definitive steps, timelines, responsible parties, and an allocation of resources for implementation where necessary. It is important to prioritise any urgent actions necessary.

It is also crucial that you communicate the outcome of the audit report with all stakeholders as well as how you intend to resolve areas of concern. This should not necessarily be limited to just senior management, but all employees that contribute to the success of the company. By communicating with all those involved, you can provide transparency regarding the findings, the actions required for improvement, and enhance accountability within the organisation.

Once you begin to implement your corrective measures, you should monitor your progress closely. It would be beneficial to document and review your new processes, reporting on both improvements and challenges. By doing this, you demonstrate the company’s commitment to its compliance responsibilities, will strengthen internal controls and boost performance. This documentation can then also be provided as supporting evidence come your next audit report.

What to do if you disagree with your audit report

If you disagree with your audit report, then you will need to resolve the disagreement with your auditor. To do this, you should first ensure that you have reviewed their report against the specific documents that have been referenced. This allows you to see what it is they are raising issues with. Next, you should write to the auditor to state your disagreement. Importantly, you should include strong evidence supporting why it is you believe that your company’s financial statements have been produced according to GAAP.

Once this has happened, it is likely that you will meet with the auditor again to discuss these issues further. Normally, the discussions will result in either the auditor providing further explanation to refute your disagreement where they may highlight areas of oversight or point out where you have misunderstood principles, or they will accept your claim and launch further investigations. It is prudent to be cautious when disputing an audit report as it often leads to extra scrutiny of your internal financial processes and reporting.

If efforts to resolve the disagreement directly with the auditor are unsuccessful, you may need to consider escalating the matter to higher levels of management within the audit firm or seeking assistance from regulatory authorities. This may involve raising formal complaints or grievances according to the audit firm’s internal procedures or engaging external mediation or arbitration services if necessary. In practice, this is extremely rare and seldom provides a satisfactory outcome as it will prevent you from filing your annual accounts on time. 

Find an auditor in Oxfordshire

If you’re looking for an auditor for your company accounts in Oxfordshire, then discuss your needs with our approachable team. We’ll do our best to ensure your audit is seamless and as unintrusive as possible, whilst providing positive and constructive feedback where appropriate. Use our online form to get in touch.