Lesson 5 of 6 · 12 min
Audit reports and internal control
An independent audit gives reasonable, not absolute, assurance that the statements are fairly presented, and the type of opinion tells the analyst how much to trust them.
In short
- Auditing standards: ISAs from the IAASB in many countries; for US public companies, the PCAOB.
- Audits rely on sampling and estimates, so they give reasonable assurance (high probability of no material misstatement), never absolute assurance.
- Unqualified (unmodified, clean): fairly presented / true and fair. Qualified: a scope limitation or exception to standards. Adverse: material departure, not fairly presented. Disclaimer: auditor cannot give an opinion.
- Listed-company reports discuss Key Audit Matters (international) or Critical Audit Matters (US): the areas of highest risk or judgement. They do not change the opinion.
- In the US, Sarbanes-Oxley requires management to report on, and the auditor to give an opinion on, internal control over financial reporting.
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