The audit report is a letter that states the opinion of the auditor regarding its examination of the financial statements. It gives him or her to express his professional view regarding those statements.
And whether the statements are fairly represented on one hand and free from material misstatements on the other hand. In this article, we will discuss the six (6) importance of having an auditor report attached to a company’s financial statements.
Reliability and credibility
The primary importance of the audit report is to add reliability and credibility to the financial statements. Auditors are well-respected individuals and are known to do their job professionally. Also, they are given the freedom to examine companies’ financial records.
More so, they belong to a professional body and may not want to lose their license to practice. Therefore, they ensure that they perform their duty with due diligence. Therefore, an auditor’s reports will make users rely on the credibility of the annual reports provided by a company’s management.
Enables shareholders to rely on those statements
As a result of the added credibility, shareholders of the company can rely on the financial statements prepared and presented by an auditor. They can trust those statements and make informed economic decisions with them.
It is a requirement by lenders
Banks and creditors may request an audit report before approving a loan to the company. Why? They need to trust the financial information the management is bringing forward to assess the loan facilities. This is especially true if the required loan principles are huge.
Read: 13 Internal Users of public sector accounting in Nigeria
Potential investors will need to prove that the corporate financial statements provided by management fairly represent them. So that they won’t put their funding in salt that will quickly fade away once it comes in contact with water.
Generally, potential investors don’t have access to the company’s accounting records. So they need a third party that will assure them that the financial statements represent them fairly.
Increase the trustworthiness of directors
When an auditor gives a clean or unqualified opinion on an audit report, it is evidence that the directors can be trusted. Also, it proves that they perform their stewardship role correctly.
It is a statutory requirement for publicly traded companies
It is a statutory requirement for a company that trades its shares in a recognized stock exchange market to appoint an external auditor to examine its books of accounts. When submitting its annual report to the exchange, it must include the auditor’s report on it.