Comments on an audit report

Audited financial statements assure users that the company's reports are true and fair. The audit report contains the auditor's opinion on whether the financial statements are reliable and comply with legal requirements.

Who Uses Financial Statements?

Below are several groups interested in a company's financial results, along with why they care:

Group	Reason for Interest
Owners (Shareholders)	• Interested in the overall performance of the business.
Potential Owners	• May be considering an investment in the company.
Board of Directors (Management)	• Use reports for planning, improving weak areas, and maintaining good practices.
Banks / Lenders	• Want to see if assets can cover loans and whether debts can be repaid from company resources.
Employees & Trade Unions	• Concerned with profitability for job security and possible wage increases.
SARS (Tax Authority)	• Needs to confirm profits for tax and VAT liabilities.
Independent Auditor	• Must offer an opinion on whether the statements fairly represent the company's operations.

Function of the Independent Auditor

• Issues an Auditor's Report: Provides assurance that the financial statements are reliable.
• Gives an Opinion: States whether the records truly reflect the company's activities at year-end.
• Does Not Check Every Transaction: Focuses on material items rather than detecting all fraud.
• Informs Shareholders: If the auditor finds evidence of fraud, they must report it.
• Ethical Standards: Auditors adhere to a professional code and face disciplinary action if negligent.

Quality of Auditors

• Must Be Registered with professional bodies (e.g., SAICA, IRBA).
• Professional Conduct: Guided by a code of ethics.
• High Standards: They must ensure accurate and impartial reporting.
• Disciplinary Measures: Auditors can be deregistered or sued for misconduct or producing misleading reports.

Independent vs. Internal Auditor

• Independent (External) Auditor
  • Appointed at the AGM by shareholders.
  • Charges fees based on work/hours required.
  • Opinion is based on whether statements give a fair representation of the company's financial position.
• Internal Auditor
  • An employee of the organisation.
  • Verifies internal controls (e.g., checks for fraud or errors in payroll, debtors, computer entries).
  • Findings can guide the external auditor's work.

Types of Audit Reports

1. Unqualified (Good Report)

• Statements are fairly presented with no serious irregularities.
• Shareholders can rely on these figures.

2. Qualified (Some Concerns)

• Minor or specific irregularities are found.
• Auditor discloses these issues to shareholders (qualifies the statements).

3. Withheld / Disclaimer (Serious Issues)

• Auditor cannot give a clean opinion.
• May suggest further investigations due to material uncertainties or lack of proper records.

King Code: Good Governance (STARDIF)

This acronym outlines key corporate governance principles:

Letter	Principle	Meaning
S	Social Responsibilities	Contributing to the community in which the business operates.
T	Transparencies	Acting in an open manner, with no hidden agendas.
A	Accountability	Explaining your actions when called to as a business.
R	Responsible Management	Showing critical consideration for issues like environmental care and ethical leadership.
D	Discipline	Sticking to principles and ethics in business conduct.
I	Independence	Operating without undue influence from outside parties.
F	Fairness	Treating stakeholders equitably and giving them what they deserve.

In Summary, an audit report is crucial for shareholders and other stakeholders to evaluate the credibility of financial statements. An independent auditor offers assurance that the company's figures are true and fair, guided by strict professional and ethical standards.