| LO4 – Explain the purpose and content of the auditor’s report. |
Financial statements are often accompanied by an auditor’s report. An audit is an external examination of a company’s financial statement information and its system of internal controls.
Internal controls are the processes instituted by management of a company to direct, monitor, and measure the accomplishment of its objectives. This includes the prevention and detection of fraud and error. An audit seeks not certainty, but reasonable assurance that the financial statement information is not materially misstated.
The auditor’s report is a structured statement issued by an independent examiner, usually a professional accountant, who is contracted by the company to report the audit’s findings to the company’s board of directors. An audit report provides some assurance to present and potential investors and creditors that the company’s financial statements are trustworthy. Therefore, it is a useful means to reduce the risk of their financial decisions. Put in simple terms, an unqualified auditor’s report indicates that the financial statements are considered reliable. A qualified auditor’sreport is one that indicates the financial statements may not be reliable. A Canadian example of an unqualified auditor’s report for BDCC is shown below, along with a brief description of each component.
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