Breaking down the auditor's report and four audit opinions
Every commercial entity in Australia, from global corporations to Not for Profit charities and clubs, needs to prove that its financial activity is fair and honest. Independent audits confirm the accuracy of an organisation's accounting practices, and demonstrate its compliance with state and federal regulations.
But the auditor's report is more than a bare necessity. It can also be used by commercial entities to benchmark how well internal financial strategies have worked, or identify opportunities to improve enterprise processes.
To make these benefits clear, we've broken down the auditor's report and the four possible opinions that an auditor can arrive at which will affect the outcome of your organisation's financial audit.
Why audits are a crucial compliance function
Private enterprises are governed by industry-specific legislation, which mandates that business leaders prove they are trading and managing finances in an ethical way. Government bodies and Not for Profits also have to comply with financial regulations, to make these groups more accountable to the public and improve transparency.
Those who fail to comply with the regulations can face government sanctions including fines, trading bans and legal action against organisational leaders. On top of these material ramifications, an organisation failing to appropriately audit its financial data breaches the trust of its stakeholders and customers, compromising its reputation.
What are the benefits of a financial audit?
Those unfamiliar with the ins and outs of an auditor's report may think the above seems like a box-ticking exercise. While achieving government-mandated compliance is important, financial audits can also benefit organisations:
- Proving that financial data is a fair reflection of an organisation's activity demonstrates to stakeholders and business partners that it is accountable and trustworthy, and that existing financial reporting structures are working.
- For Not for Profits and government-sector associations, the transparency that comes from publishing an auditor's report publicly is pivotal to ensuring the continued support of the public, be they donors or voters.
- A core function of the auditor's investigations prior to publishing their report is to assess an organisation's operations to discover opportunities for improvement. An auditor works with an organisation's accounting team to help rectify inefficiencies, ensuring the group gains a positive report at the end of all financial investigations.
The four auditor's opinions and what they mean
An auditor's report will come with a concluding opinion, summating the investigation of your organisation's financial data. Here are four potential auditor's opinions and what they mean:
1) Unqualified opinion
This is the outcome of the vast majority of audits. An unqualified opinion verifies that an organisation has managed its finances within accepted accounting principles and is compliant with regulations. It also affirms that consolidated financial statements are truthful.
2) Qualified opinion
A qualified opinion suggests that all trading and stock value information is fair, aside from minor issues that reflect a difference in opinion rather than inaccuracy. For example, an auditor may disagree on the quantifiable value of an organisation's asset, such as a vehicle. This encourages enterprise leaders to reassess the item to check whether its valuation is to date.
3) Disclaimer of opinion
This judgement suggests an organisation's financial information is incomplete or inaccurate and that the auditor doesn't have everything needed to offer fair insight. A disclaimer of opinion could be down to a failure in a commercial entity's internal data reporting framework, or a mistake made when compiling financial statements. Either way, it is usually indicative of ineffective accounting, rather than a deliberate attempt to hide financial transactions.
4) Adverse opinion
An adverse opinion is the most negative outcome possible from an auditor's report. This concludes an organisation's financial data is deliberately misleading or inaccurate. An auditor will question their client's commitment to fair trading or meeting obligations.
Now that you have a better understanding of what an auditor's report includes and its importance beyond checking regulatory compliance, it's important that you find the right partner to back your organisation's financial data.
DFK Crosbie's specialist audit services
Our audit team works with clients across all verticals and industries, from the government sector to large private companies and Not for Profits to ensure their financial data is sound. With our help you'll have peace of mind that you're making organisational decisions backed by accurate figures that are a fair reflection of how you are trading.
By providing commercial audit services to numerous sectors, our team members specialise in meeting the precise demands of a range of regulatory requirements. From healthcare to hospitality to charities, we pair your organisation with an auditor who can offer valuable insight into your unique financial structures.
Ready for a new outlook on the same old financial audit? Contact DFK Crosbie today to speak to the team.
I own a business and this is my dilemma…
18th October 2019
“I own a business and this is my dilemma…It’s a family business but it’s time for us to think about moving on. The problem is, we’re not sure who should take it over.... more
Introducing MyGovID and RAM
14th August 2019
AUSKey will be retired in March 2020 to make way for the new online services systems the ATO is developing, “MyGovID” and Relationship Authorisation Manager (RAM).
MyGovID is... more
The art of effective negotiation
14th August 2019
Effective negotiation strategies leave all parties satisfied while improving and maintaining personal relationships.
The key to success is remembering that everything is negotiable, and to... more