Meaning and Importance of Audit Report [Auditing Important Topics]

Meaning and Importance of Audit Report

Auditing Important Topics

Meaning of Audit Report

Audit report is a statement on financial position of the company which is issued after the conclusion of audit. It is a medium through which an auditor expresses his opinion on the financial statements under audit. It generally shows the nature and scope of audit conducted by the auditor and his opinion on the final accounts of the company. It is an important part of audit because it provides the results of the audit conducted by the auditor. The audit report is the final and ultimate report of audit process.

Importance of Audit Report 2015, 2016, 2019

In case of a company management is separated from the ownership shareholders appoint the auditor to check the accounts and submit a report to them. However, the report doesn’t guarantee accuracy of the accounts. The auditor is neither a guarantor nor an insurer. In one of the cases it was held that “the auditor must not be held liable for not tracing fraud, when there is nothing to arouse their suspicion and when those frauds are perpetrated by the trusted servants of the company”.

The auditor is expected to act honestly with reasonable skill and care. Audit report is an extremely significant document as shareholders rely upon it. The auditor will be guilty of professional misconduct if he deliberately fails to disclose material facts known to him. Conceals misstatements and fails to obtain necessary information to complete his audit.

The auditor's report is important for all those persons and parties who are concerned with the organization. It is especially important for the following:

(1) For Shareholders: Shareholders are the real owners of the company, but they do not directly take part in the management of the company. It is managed by a group of representatives selected by them. This group of representatives is known as Board of Directors. So, the shareholders do not have knowledge about the activities of the company.

They can get correct information about the working of the company from the auditor's report. He audits the accounts and gives his report about the completeness, correctness, accuracy and adherence to principles, etc. Thus, the audit report is an important document for the shareholders.

(2) For Directors: All the affairs of the company are managed by the directors. But in practice it is not so. They do not themselves do all the work. To a large extent they have to depend on their employees. They also want to know whether the employees are working sincerely and honestly. Such information can be provided to them by the auditor's report. Hence, the report is also important for the directors.

(3) For Creditors: The creditors of a company are always eager to know the real position of the company and whether their money is safe or not. They can get all such information from the auditor's report only.

(4) For Investors: It is human nature that the investor, while making an investment, wants safety for his money and also maximum income from his investment. The audit report creates confidence in the investors about the company. It is on the basis of the audit report that they decide to invest their money in the organization.

(5) For the Government: The government also relies on the audited accounts. So, it can take decisions about the affairs of the company on the basis of the report without any investigation.