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What is an External Audit?

An auditor is required to deliver a report or statement to an entity once an audit has taken place. These reports are essential for businesses as they verify the entities financial records and are imperative for businesses that want to apply for loans, tenders or gain investors in their company.

It may be complicated for someone without a financial background or with limited financial knowledge to understand the report given to them from their audit company. There are essentially four different reports or opinions a charted accountant may deliver, depending on the findings after the auditing the financial statements of the entity namely an unqualified opinion, a qualified opinion, an adverse opinion and a disclaimer of opinion.

The auditor's report that all entities will want to receive from their auditing company is the unqualified opinion report. This report tells one that the auditor is of opinion that the accounting procedures of the entity comply with generally accepted accounting practices (GAAP) and that there was efficient information available to substantiate the financial information presented to them.

If an auditor encounters a couple of instances in the entities financial statements that do not conform to generally accepted accounting practices and if these errors do not compromise the overall accuracy of the financial statements of the entity, the auditor will produce a report known as a qualified opinion. Another instance that may force an auditor to produce this type of report is if the financial statements of the entity could not be audited or verified for a particular reason.

When the entities financial statement do not conform to GAAP and if the auditor believes that the documents presented are not accurate and are not correct, a report stating that an adverse opinion was determined is issued to the entity. This essentially means that the entity is asked to remedy these inaccuracies and is then requested to undergo another external audit after they have done so.

Lastly, the disclaimer of opinion is presented when an auditor is unable and refuses to offer any opinion on the financial statements of the entity. This may be for a number of reasons such as nonexistent financial information provided by the entity that is being audited.

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