The audit report is usually the only channel of communication between the auditor and the shareholders of the company whose financial statements have been subject to audit. As such the report acts as a bridge taking the large volume of information possessed by the auditors and conveying it to the shareholders in a much abbreviated form

In order to convey information in a succinct from the audit report has become extremely formalized group of phrases, each of which has special significance. Any deviation from the standard format is regarded by an accountant as being significant and may provide important extra data.

The possibilities are as follows:

1. an unqualified audit report
2. a modified audit report which required an audit qualification
3. a modified audit report which, although the opinion is unqualified, may require additional detail emphasizing particular matters contained within the financial statements.

IFAC has issued ISA 700 The Auditor’s Report on Financial Statements in order to reduce the differences which previously existed in the method of reporting so that shareholders and other users of financial statements could grasp more easily the standardized message which the auditor is intending to convey.

It is important that you recall from your earlier studies that auditors do not ‘guarantee’ or ‘certify’ that financial statements are ‘correct’, they express opinions on the matters required by ISA 700 i.e.

1. Whether they give a true and fair view
2. Whether they are properly prepared in accordance with the financial reporting framework.

Where appropriate, the auditor will also report whether the financial statements comply with relevant local statutory requirements such as the companies Act Cap 486

As an alternative to the phrase ‘true and fair view’ the auditor may report that the financial statements are ‘presented fairly in all material respects’. These two expressions are equivalent and emphasize that the auditor is only concerned with material items.

The content of the auditor's report is governed by the Companies Act, Seventh Schedule to

The Companies Act and the ISA 700, The Auditor’s Report on Financial Statements

The Companies Act lays down no specific requirements as to the wording to be used in the audit report so long as all the matters as mentioned in the Seventh Schedule are specifically mentioned in the auditor's report. The auditing standard seeks to provide guidance on the form of wording that is acceptable.

The auditing standard requires the auditor to:

a) Identify those to whom his report is addressed i.e. the members of the company;

b) The auditor should identify the financial statements on which he is reporting, this is done by numbering the pages of the accounts;

c) The auditor should refer expressly to whether the financial statements have been audited in accordance with the approved auditing standards;

d) The auditors must state expressly whether in their opinion the financial statements give a true and fair view of the state of affairs, profit and loss, and where applicable source and application of funds;

e) The auditor should refer expressly to any matters described by relevant legislation or any other requirements.