An Audit is an independent examination of the financial statements of an entity irrespective of the size or legal form, whether profit-oriented or not, in order to express an opinion thereon, in the form of an Audit Report. The audit report is used by many stakeholders including the entity’s management, the board of directors, shareholders, investors, government bodies, banks, and many others. Audit reports are divided into 4, which are:
- Unqualified Audit Report – An auditor issues an unqualified audit report when no material misstatements were found in the financial statement and the books of accounts are true and fair. The report contains an unqualified opinion from an independent auditor.
- Qualified Audit Report – An auditor would issue a qualified audit report if a material misstatement was found in the books, but the misstatement is not pervasive. For example, the opening balance of the entity contains a large number of inventories that could not be verified. In this case, the auditor may issue a qualified report. Hence, a qualified audit report is true and fair, subject to conditions.
- Adverse Audit Report – An Adverse audit report is issued when the auditor finds during his independent examination of the financial statements, that there are material misstatements which are pervasive. In this case, the books of accounts are not true and fair.
- Disclaimer Audit Report – This type of audit report is issued when the auditor could not obtain sufficient and appropriate audit evidence during the audit. This mostly occurs when an auditor is prevented from accessing any information, he may require audit evidence.