Most types of businesses and not for profit organizations rely on the auditor’s report as part of their annual financial reporting back to investors, a Board of Directors, and other individuals who have an interest in the ongoing success of the organization. Essentially, an auditor’s report is a device that certifies that an outside auditor has examined the financial records of the organization. The auditor’s report also includes what is referred to as an auditor’s opinion, which in essence reports and comments on the findings of the investigation. Here are some of the reasons that an auditor’s report can be very important to the well being of any type of organization.
One of the main purposes of the auditor’s report is to ensure that the finances of the company, both the Accounts Payable and the Accounts Receivable, are being conducted in a manner that is in keeping with legal requirements. Outside auditors are used for the examination, since it is assumed that auditors with no connection to the day to day financial functions of the organization will be free of bias. It is important that any audit be conducted in a manner that will ensure there are no shortcuts or improprieties, accidental or otherwise, will come to light and can be corrected. From this perspective, auditors reports can be a helpful tool for newer companies that may be still struggling to make sure there is proper accounting for all assets, cash flow, and liabilities incurred during the calendar period under consideration.
Another function of the auditor's report is to point toward resources that may help the organization to enhance their current methods of bookkeeping. This would not involve such matters as recommending different types of accounting software, or recommending the services of a particular accounting firm. But the report could include suggestions for basic changes in the accounting process that will help eliminate duplication of efforts, as well as suggestions for more appropriate classification of expenses, processing of employee expense reports, and similar matters.
Many people assume that being audited somehow implies that there is suspicion of wrongdoing. In fact, an annual audit is simply a means of making sure that all aspects of the internal accounting are being done properly, with an eye to pointing out areas where the process can be improved. It is not unusual for an auditor’s report to cite areas where some small change would make the overall financial reporting of the status of the organization more accessible and understandable to those who have a financial interest in the continuing operation of the organization.