Auditor’s report on financial statements

The most common auditor’s report in the world is an external auditor’s report on an auditee’s financial statements and its accompanying notes. This auditor's report is intended to advise investors, the government, and other users on whether the auditee's financial statements have been prepared in accordance with Generally Accepted Accounting Principles (GAAP), whether they are free of material misstatement (e.g. free of important and significant errors), and whether they show a true and fair view of the operating results, financial position and cash flows of the auditee. In layman’s terms, the report is an assurance, but not necessarily a legal guarantee, on whether the financial information presented by the auditee is materially correct and trustworthy for making various business decisions.

Reports can take a wide variety of forms and contents but all of them have three things in common:

1. They are all addressed to the person or organisation that engaged accountants and auditors. Occasionally, the addressee-client may differ from the auditee – the entity audited.

2. All the reports are signed with the name of the CPA firm and dated.

3. All the reports have a “ scope paragraph” and an “ opinion (conclusions) paragraph”. Some of the reports have other explanatory paragraphs in the middle.

It is important to note that auditor reports on financial statements are neither evaluations nor opinions as to the financial health, performance, attractiveness, potential, or any other similar determination used to evaluate entities in order to make a decision. The report is only an opinion on whether the information presented is correct and free of material misstatements, whereas all other determinations are left for the user to decide.

There are four common types of auditor’s reports, each one presenting a different situation encountered during the auditor’s work. The four reports are as follows: