An auditor is a fitness-trainer for your business. He/she can identify problematic areas, draft a workout plan which will prepare your company to sustain different challenges and pressure.

How does an auditor work? He/she is similar to a fitness-trainer who conducts data collection and processing, draws conclusions on what is to be strengthened in the first place, – that’s what the auditor’s financial report is about. The workout plan is an email to management with a detailed overview of critical and important issues which should be addressed in the first place.

Auditor’s report shows if a company faces problems

The auditor’s report is considered such an important document by the creators of audit rules that they have published an International Auditing Standard 700 (МСА 700) in order to establish a standard format and content of this document.

МСА 700 includes templates of independent auditors’ reports, as well as detailed requirements to the content of its parts. Besides standard legal clauses (headline, addressee, date of the conclusion, information on responsible parties, auditor’s signature and his/her address) the report should also contain the following information:

1. The list of verified sources of information (financial reports or other financial data, depending on the subject of the agreement on the provision of auditing services).

2. Personal opinion on objects of the verification (financial reports or other financial data which was verified).

The audit can be obligatory and voluntary. The only difference between the two types is that the first one is required by the law while the second one isn’t. The owner or top-manager of the company orders audit when there is a need in the detailed analysis of the consistency between the real situation at the enterprise and accounting reports, or they want to understand whether the accounting system is correctly developed and whether the information provided by accountants is trustworthy and can be used for the management of the company. In this case, requirements, the number of areas to be audited and the timeframe of the procedure increases.

The audit conclusion issued as the result of such verification contains detailed information allowing to make grounded judgments on the real state of affairs at the enterprise as well as identify hidden problems in business.  

Based on the audit results the owner or manager of the company can evaluate the relevance of financial reports which are based on indicators of the accounting system. Furthermore, based on the findings of the audit, its conclusion allows to adopt a wide range of decisions starting with the simplest ones related to overall inventory reconciliation to the dismissal of top-management due to the fraud or cheating.  

The report also complements the general understanding of the situation in the company

Whether investors should worry or not about the results of the audit depends on the type of its conclusion. An auditor, providing his/her opinion on financial reports (according to the results of obligatory audit) or on the subject of the audit (in case of voluntary audit) can reach one of the three following conclusions:

• negative;
• with reservations;
• positive.

An auditor can also refuse from the provided conclusion.

If the auditor provided a negative conclusion then it means that during the verification procedure substantial violations and misinterpretations were made by the company. The list of such mishaps is provided in the annex to the conclusion.

A conclusion with reservations shows that an auditor is in general satisfied with the reporting and accounting procedures of the enterprise but still there are some gaps which cause doubt.

In order to understand what in particular led to such a conclusion by an auditor, it’s necessary to refer to the text of the report. It should contain reservations which prevent an auditor from providing a positive conclusion about the reviewed reporting materials.

A positive conclusion foresees that an auditor didn’t identify any substantial errors in the financial reports. The provision of the positive conclusion based on the results of the audit means that an auditor considers that reports of the company are consistent with accounting rules.

Though, any audit resulting in the positive conclusion doesn’t provide an absolute guarantee that errors or violations are absent. An auditor is limited in his/her work by own assumptions, experience and provided information, or sometimes even by the intellectual capacities and level of compliance.  

If the verification was detailed and the auditor is credible then his/her conclusion can be considered trustworthy. Otherwise, the conclusion of an auditor can be simply a document which complements the general understanding of the situation in the company instead of defining it.

You can refer to the fitness-trainer when you already have a breath shortage and excessive weight. Though, it’s better not to wait until this moment and try to always stay fit. Thus, the audit shouldn’t be postponed until the moment when business will face serious consequences. It’s always better to take preventive measures than deal with results of questionable management. By knowing your drawbacks, you can simply omit undesirable consequences.