An auditor’s report is often called the accountant’s opinion. The report is an accounting firm’s opinion of a company’s financial statements, especially if they conform to generally accepted accountancy standards.
What is an auditor’s report?
High profile corporate failures in recent years have created more debate in public around the value of audits and auditors. Companies must publish annual reports to hold directors and shareholders to account. While companies can have internal auditors, some accounts will also need to be externally audited to be considered credible.
The auditor’s role is to report on the truth and fairness of financial statements. They must ensure that the accounts have been prepared following all legal requirements and accounting standards – this helps to maintain confidence in the company’s financial reporting.
What is a statutory audit?
A statutory audit is an audit that is mandated by statute or law. The audit aims to ensure that an accurate and fair book of accounts is presented to regulators.
Who can act as an auditor?
A qualified accountant or accounting firm can act as the company’s auditors. The independent auditor cannot also be a director or employee of the firm or a family member or partner of an employee or director.
The shareholders at the AGM may appoint a person as a statutory auditor. The purpose of the statutory audit will then be to provide an opinion on whether the financial statements are factual and fair.
What does an audit involve?
An audit will involve:
- the auditor gaining an understanding of the company’s business
- identifying any areas where there are likely to be discrepancies in financial statements
- checking the accuracy of transactions
- deciding whether policies are reasonable
- testing internal controls
- assessing the validity of directors estimates
- evaluating significant events within the business
- reporting to the directors on any problems identified and recommending courses of action
- issuing the auditor’s report to members of the company
- Auditors must build up a detailed knowledge of the business to assess any risk areas. Auditors must report their opinion to shareholders on any risks
- identified in how debtors, revenue, inventory, or the valuation of assets and liabilities have been dealt with in the company accounts.
However, some time and cost constraints around an audit can lead to some limitations. The auditor will have a duty to report failure to maintain proper books of account and any indictable offences.
Do all companies require an external audit?
In the main, companies must have their financial statements audited; however, if a company has less than €8.8 million turnover per year, no more than 50 employees, no more than €4.4 million on its balance sheet, and is up to date on its filings with the CRO, then a company can decide not to have an audit.
The statutory auditor is required to work independently. While any firm can avail of the services of an independent auditor, it is most commonly a requirement in the case of public limited companies, who must publish annual reports and make their accounts public. However, there may still be cases where financial institutions or investors require private firms to avail of an independent auditor.
What must a company provide during an audit?
The company will have to provide all information required by the auditor, including records, reports, and explanations. Should an auditor not receive this information, they can specify it in their report.
What are the advantages and disadvantages of a statutory audit?
The advantages of a statutory audit are that it enhances the quality of the company’s reporting, reduces the likelihood of financial fraud, enhances the credibility of financial statements, and shows that there are strong internal controls in place.
However, a statutory audit cannot verify 100% of the records all of the time. The charges of audits can also be high for some companies, and audit opinions can be subjective from one year to the next. Undergoing an audit can also be disruptive to the business’s everyday operations.
So, while an external auditor acts as a watchdog over the business, it does not relieve the management or the board of their responsibilities.
Management and the board will still be answerable to the shareholders when it comes to qualifying the auditor’s report and resolving any deficiencies.