eSignature Internal Audit Report Made Easy

E signature internal audit report

in this presentation we will take a look at the general format or general outline of an audit report as we do so remember that this is going to be the end process so now we're imagining the in process and as we go through future presentations we'll be going through the audit process with the goal of ending of course with the end process of the audit report the audit report that is the document that's going to be issuing the opinion of the audit or so in looking at the format of the audit report we're visualizing where we're going where are we going to end up at the end of the audit process now the audit report is going to be fairly standardized because we have a specific goal in mind at the end of the audit process that is of course to give our opinion on whether or not the financial statements are being presented in a fair way in accordance to whatever they are being prepared in accordance with such as generally accepted accounting principles because the goal is going to be a specific goal the format of the audit report will take a specific format as well in other words we have a pretty good idea of what we would like the audit report to look like at the end of the process now you might be saying how could we know what we would want it to look like when we're trying to issue an opinion and we don't know what our opinion is at the beginning but of course our opinion what we're hoping for is to be able to say hey these audit reports are good they have been presented in accordance with whatever they've been said they're going to be presented with with regards to those assertions that's what this specific goal is that's what we're hoping will happen and therefore we have a pretty good idea of the format of the audit report at the end of the process however there are certain conditions which may restrict us from having that standard format tone to basically issue an opinion saying hey the financial statements are in accordance and we're going to basically want to know exactly what those differences are so that we can then standardize what the financial statements or the audit report will look like if we have some problems some areas where the financial statements do not line up exactly what we would hope to line up where the audit doesn't go exactly as we would hope where we can't issue exactly a clean type of presentation so let's look at first what of course the normal format would be of the audit report and then we'll take a look and think about some types of restrict or deviations from that normal clean type of audit report that we would put together under normal or good conditions if everything runs smoothly through the audit process now later on we'll go through the audit report in more detail as we go through the steps of the audit but we want to get a good idea of what the endpoint will be as we go through and start through the audit process so audit report for a public for a public company so now we're thinking about publicly traded companies typically here we're gonna have a title line which includes independent registered public accounting firm so we're gonna be saying hey this is an independent registered public accounting firm that hopefully will give some assurance to the reader of the audit report why because we're saying hey we're independent we're not part of the company therefore you can depend on what we're saying a little bit more hopefully than the company itself because we're not invested in the company in the same way that of course management or an agent of the company would be will discuss more about matters of Independence later in future presentations also note that audit reports for non publicly traded companies will most likely take a very similar type of format but of course the more stringent type of format the longer type of format is going to be those for the publicly traded companies are typically going to have more types of regulations therefore that's the one we usually will consider then possibly tone it back a bit or look at those types of situations or the wording which may not be as necessary or restricted with regards to non-publicly traded types of company so the rules do differ slightly usually the rules are more stringent or more strict with regard to publicly traded companies larger companies usually address to the stockholders and board of directors of the company so note what's happening with the audit is we're gonna have an audit if it's a publicly traded audit it's because it's required to have an audit in order to be publicly traded who's gonna be hiring the auditor the company the company's hiring the auditor because they're the ones that are required to have an audit in order to be a publicly traded company therefore the audit who is the audit going to be given to it you're basically saying hey here's our opinion that's what the audit is that's what the audit report is our opinion as the auditor who are we going to address this letter to this opinion to the stockholders and board of directors of the company that's usually who we think is the most important for for our audit report right the Board of Directors is going to be in charge in essence of regulating the actions of management of the company the stockholders are the people that own the company and vote for then the Board of Directors is the board of directors than the people that hire management so the audit then judging the fairness of the financial statements is in essence or in some degree some type of check or regulation on a very large companies that have this separation of duties or have a less direct management or type of agency issue between the owners stockholders and of course the management who are a couple steps removed the management being hired by the Board of Directors Board of Directors being voted on by the stockholders so in essence the audit can be thought of as something of a kind of a review of whether or not the information is being put together in accordance with what the job of management is to do which is to put the financial statements together in accordance with the assertions of whatever regulations they're putting them together in accordance with generally accepted accounting principles often being the case for for-profit types of organizations audit report sections include the opinion opinion on the financial statements so we're going to give the auditors opinion on the financial statements a paragraph with the auditors opinion of internal controls if report on internal controls is included in a separate report so as we go through the opinion we're going to of course give our opinion on the financial statements that's the end product that's what the audit report is given to do and then we will include the basis for the opinion the critical audit matters and then it's going to end with the signature of the CPA firm the year the audit began serving as auditor the year the auditor began serving as auditor city and state where report is issued and the date of the reports now let's think about different types of opinions now normally you would think that the audit report what we're gearing towards is to have an unqualified opinion this is the highest level of opinion it sounds funny because you have unqualified sounds like a negation type of but what it means and it is a negation type of turn but it doesn't seem like the type of word that you would have for the best report that you can give that what the one we're actually looking for is unqualified and what we're saying here is that look the financial statements are good the assertions are in compliance they are in compliance with the assertions they say they're in compliance with they put the financial statements in accordance with whatever format they said they were going to such as generally accepted accounting principles and we don't have any qualifications that we have found to that being the case within our audit so it takes a little bit of time at least it did for me to look at something it's called unqualified as actually what we're expecting to happen so we're hoping if everything goes well everybody really wants to issue an unqualified opinion at the end of the day what we would like to happen is management wants to say hey I'd like to hire an auditor I'd really like the auditor to say hey you did a great job everything it looks it looks good in accordance with the format that you were following in terms of generally accepted accounting principles possibly the auditor really wants to basically say I've checked everything out I've reviewed it as best I've can and I've gone through all the evidence and all the evidence to show that you have indeed put the financial statements together in accordance with generally accepted accounting principles I have no qualifications to that and therefore I'm gonna give an unqualified or clean audit report on it that's what everybody wants to happen that's what happens hopefully most of the time I mean if you have good clients that are putting this together good companies and the auditor will talk about you know what type of clients auditors will we'll work with and how to pick clients and that kind of thing later but if you have a good set of clients that are putting together good financial statements and are you know adherent to the regulations then of course we would expect that most of our clients would have and we would be issuing unqualified best clean type of audit reports and if someone was to ask us why we gave the unqualified report then we can provide the audit evidence in order to support our opinion about our good clean clients that have been doing their job properly representing the financial statements in accordance with whatever type of regulations they're saying they're representing their financial statements in so that's what we would expect unqualified that's gonna be the baseline report that's what we would that's what everybody's hoping to happen now we might have qualifications though however what if there is an issue what if there's a qualification well there's going to be some kind of standards that we're gonna have to say so if and we'll go into this in a bit more detail but if there's a problem work at what we're saying here is theirs it's not totally unqualified we have a qualification here so this is we might say and that you can imagine this too saying this looks good except for this qualification right which is basically this blemish on it looks good kind of thing and so we'll discuss that and a little bit more detail shortly we could have an adverse opinion which is basically and that's not good we would basically be saying no the you know and we'll talk a little bit more about that opinion as well and we could have a disclaimer of opinion which basically means we cannot have we're not going to be able to issue an opinion on these financial statements so let's take a look at that in a bit more depth first the unqualified opinion which we talked about a bit already the auditors report audit opinion is the main product or output of the audit so just remember that's of course what we're trying to do that's what that's the product that we're given is the opinion on the report that's what's lending to the trust of the third parties by a third party you know opinion from us and that's going to increase hopefully the confidence in the financial statements and therefore better and more business transactions will take place because of it because of the transparency because of the communication in in it and people's more better reliance on it so the standard unqualified clean audit report is the most common type of report issued and of course that's the one we're looking for we're hoping you know that we can give a clean report we want to say that we did everything well here's the clean report everything looks great as we knew it would be because we have good clients and everything's pushing for it as well unqualified means that because the financial statements are free of material misstatements so they don't have the material misstatements and recall what material means those that would change the opinion of a decision maker that is going to be a decision maker that is reasonable so we have that term reasonable decision maker the auditor does not find it necessary to qualify his or her opinion so we don't have a but in there we don't have this is the way it is but accept qualification about the fairness of the financial statements so what about what if we do have a qualification what if there's a problem so we don't have the most standard there's a qualification so this is another type of audit report we're gonna have to qualify our opinion then if an auditors financial statements contain a misstatement that the auditor considers material and management refuses to correct them a statement so note there we'll talk a little bit more about this later but note how we have it we found them as statement and not only that we're gonna say hey the financial statements are wrong we found this misstatement and management says I'm not gonna fix it for whatever reason maybe they have a good reason to do it or whatever but they're they're not gonna fix it and that would mean and it might be good it might be a good reason they might say hey that's gonna misrepresent our financial statements and we're gonna say but that's what generally accepted accounting principles says to do it says you have to do this and they might say well I'm not gonna do it because I think it misrepresents my financial statements in this way shape or form and we might go I will you know we can't issue an opinion saying that the financial statements are correct in accordance with generally accepted accounting principle with this material misstatement on it and therefore if you don't fix it then or change it you know then we're gonna have to put a qualification on the financial statement in some way or if the auditor is unable to obtain sufficient evidence regarding a specific account so we might another situation might be well I can't you're not giving me enough information to get at this number this particular number I can't get at it because you're not giving me the information to test it for what again there might be valid reasons it might be in another country we might not have you know the ability to do that so for whatever reason it might be a valid reason but we can't do it can't test this thing therefore we have a qualification the audit might may qualify the report explaining that the financial statements are fairly stated except for misstatement identified by the auditor so we're gonna say you know either there's a misstatement or there's something that I couldn't we couldn't fully verify and therefore it look everything we tested is good everything's good except this one particular point qualification I couldn't test it or I don't believe it's in accordance with generally accepted accounting principles and and that's our qualification adverse one about an adverse opinion this isn't good if the oddities if the oddities financial statements contain a misstatement that the auditor considers so material that it perversely affects the interpretation of the financial statements the auditor will issue an adverse opinion indicating that the financial statements are not fairly stated and should not be relied upon now if it comes to the point where we're gonna say hey we're gonna issue an adverse opinion it's very rare that you would actually issue the adverse opinion because probably what will happen before that point in time is you're gonna start to indicate problems and you're gonna say hey look god you're not you're not giving me this information I can't find this this looks wrong this looks like it's not reported correctly and you're not and you know you don't seem willing to change it or anything like that and what probably will end up happening is instead of it we get to the adverse opinion we might have a disclaimer or the engagement may end at some point in time in other words if we're if we're going through the engagement from the planning process all the way to the audit report and and things have have not gone bad through that going good through that process the process might be terminated before the end of the time period or we might be in a situation where we were unable to get the information we needed and and then issue a disclaimer of opinion if not then we and if we went all the way through and issued the opinion and again this is our report this is the end product that we're trying to do here the audit report and they're looking for an unqualified opinion we give an adverse opinion you know people aren't going to be happy with this but we have to follow the regulations on whatever whatever the regulations are so just note that adverse opinion of course is saying that there's going to be an auditors financial statements contain a misstatement that the auditor considers so material that it perversely affects the interpretation of the financial statements so we cannot give an opinion on it like we would like to do that would be unqualified or even qualified we have to say adverse and again at that point of time I mean at some point that might be just something that terminates the engagement and we end up not issuing the reporter just claiming the report could happen before and in verse opinion or rapport is given because obviously an adverse report would be of no use to a company because they wouldn't be able to use it for you know if they needed a bank loan or something like that that's not what they're looking to get so so again that would have to happen but it's not what we would expect to be happening and then there's a disclaimer if a scope limitation is so large that it limits the ability of the auditor to make an opinion on the financial statements and again this might actually be more common of course because it could be the case that we just can't conduct the audit for either legitimate reasons or not it might be that the client is not giving us the information for whatever reason scope limitation means that we just can't get to the information we can't get enough information usually on something in order to basically get an opinion on it so for example they might have a part of their company in China or something like that and regulations are such that we can't get to it and if that part of the company is substantial enough we're going to say we can't we can't test it we can't test that part of the company and so we can't give an opinion on it and so we could end up in the fact that you know we have to disclaim it because we just don't have the ability to test on it and then so we would issue the de claimer the auditor will issue a disclaimer of opinion indicating that is not possible to express an opinion on the fairness of a financial statement so we're just gonna say hey there's a scope limitation with this is what we need to do in order to do the audit we can't do it because we can't get the information either because management or whatever won't provide it to us or there are certain other limitations such as regulatory limitations limitations on us maybe we're not big enough to be in all these different countries that are going to be necessary or to complete the audit or we're being restricted by government regulation say in other countries or other states or something like that therefore we can't give an opinion because we couldn't gather the evidence in order to give one