The audit report: the insights you get from it
When the auditor performs an audit engagement, he tests the information that is provided to him against a number of criteria. He then makes a pronouncement about its reliability. The audit report has a fixed structure that is established by law.
The accuracy of your financial statements
After scrutinising the accounts, the auditor draws up an audit report. This has a fixed structure that is determined by law and contains one of the following four judgements about the reliability of the financial statements – the extent to which they give a true and fair picture of the financial position, financial capacity and results of the company:
- An unqualified opinion: the auditor states that the information gives a true and fair view.
- A qualified opinion: the information is approved, subject to an exception. There are material issues, but these are not pervasive.
- A disclaimer of opinion: the auditor cannot approve or reject the information because he has received insufficient data on which to base his opinion.
- An adverse opinion: the information is rejected in its entirety. This is because the auditor has identified issues that are both material and pervasive.
An overall view of your processes
Through his analysis, the auditor has of course also gained an overall view of a number of processes of which you as manager generally only have a fragmentary view during the year. These insights are set out in the management letter, which is discussed with the auditor during the closing meeting.
The management letter is a report that:
- makes recommendations in order to avoid or reduce risks or errors;
- proposes corrections if material errors have been found;
- provides insight into the financial performance of your company (e.g. KPIs, gross margin, EBITDA, actual tax rate, cash flow, various ratios).
In short, as an external reviewer, the auditor identifies both the risks faced by your company and your internal control mechanisms. His recommendations may support your decision-making processes and give direction to the further growth of your organisation.