An audit report is a written opinion of an auditor regarding an entity's financial statements. The report is written in a standard format, as mandated by generally accepted auditing standards (GAAS). GAAS requires or allows certain variations in the report, depending upon the circumstances of the audit work in which the auditor engages. The following report variations may be used:
- A clean opinion, if the financial statements are a fair representation of an entity's financial position.
- A qualified opinion, if there were any scope limitations that were imposed upon the auditor's work.
- An adverse opinion, if the financial statements were materially misstated.
- A disclaimer of opinion, which can be triggered by several situations. For example, the auditor may not be independent, or there is a going concern issue with the auditee.
The typical audit report contains three paragraphs, which cover the following topics:
- The responsibilities of the auditor and the management of the entity.
- The scope of the audit.
- The auditor's opinion of the entity's financial statements.
An audit report is issued to a user of an entity's financial statements. The user may rely upon the report as evidence that a knowledgeable third party has investigated and rendered an opinion on the financial statements. An audit report that contains a clean opinion is required by many lenders before they will loan funds to a business. It is also necessary for a publicly-held entity to attach the relevant audit report to its financial statements before filing them with the Securities and Exchange Commission.