Audit Report

Governance Glossary

Published: February 22, 2024


An audit report is a formal opinion or disclaimer, generated by an auditor after thoroughly evaluating an entity’s financial records and statements. The primary purpose is to determine whether the financial statements provide a true and fair view of the organisation’s financial position and performance, typically over a financial year. The report provides stakeholders, such as investors, creditors, and regulatory bodies, with a critical assessment of the accuracy and reliability of the financial information presented by the entity, which aids in decision-making processes.

At the core of any audit report is the process of evaluation conducted by the auditor, a qualified and independent professional or a firm specialised in assessing financial statements and related records. The auditing process involves various steps, including planning, examination of financial records, testing selected transactions, and evaluating the internal control systems of the entity. This comprehensive examination ensures that the financial statements are prepared according to the applicable accounting standards and principles, are free from significant misstatement, and accurately reflect the entity’s financial status.

Audit reports come in different formats, but they generally include specific key components:

  1. Title: The report is typically titled as ‘Independent Auditor’s Report’ to emphasise the auditor’s external and unbiased position.

  2. Addressee: This part specifies to whom the audit report is directed, generally the shareholders or members of the organisation, as stipulated by the entity’s governing documents or regulations.

  3. Opinion Paragraph: Here lies the essence of the audit report – the auditor’s opinion. It succinctly states whether the financial statements present a true and fair view of the organisation’s financial position and performance in conformity with the applicable financial reporting framework. There are four types of opinions that can be issued:

    • Unqualified Opinion (Clean Report): Indicates that the financial statements present a true and fair view without any significant misstatements.
    • Qualified Opinion: Suggests that except for certain issues identified by the auditor, the financial statements fairly present the entity’s financial position.
    • Adverse Opinion: Issued when the auditor concludes that the financial statements contain significant misrepresentation which affects the view presented by the financial statements.
    • Disclaimer of Opinion: Given if the auditor couldn’t obtain sufficient appropriate audit evidence on which to base the opinion, often due to significant limitations on the scope of the audit.
  4. Basis for Opinion: This section provides an explanation of the basis for the opinion expressed, describing the scope and the auditor’s assessment of the audit evidence obtained.

  5. Responsibilities of Management and Those Charged with Governance: Outlines the responsibilities of the entity’s management and governance bodies in relation to the preparation and fair presentation of the financial statements and the internal control environment.

  6. Auditor’s Responsibilities: This part explains the auditor’s responsibilities under the audit, highlighting that the objective is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement. The auditor’s role is also to report on the financial statements and communicate according to the audit findings.

  7. Other Reporting Responsibilities: Here, any additional responsibilities, which may vary across jurisdictions or according to specific regulatory requirements related to the audit, are described.

  8. Signature, Date, and Auditor’s Address: The report is closed out with the signature of the auditor or audit firm, the date of the report, and the location, establishing the auditor’s endorsement of the audit report.

An audit report’s significance cannot be overstated as it offers a critical, independent, and professional judgment on the veracity of the financial information supplied by an entity. It is a pivotal factor for stakeholders in making informed decisions, providing confidence in the financial health and operational integrity of the entity. Moreover, in regulatory terms, audit reports also ensure compliance with financial reporting standards, reinforcing the broader public’s trust in the financial markets and systems.

In essence, an audit report transcends a mere assessment of numbers; it embodies an assurance service that underpins the reliability and transparency of financial disclosures, serving as a cornerstone for corporate governance, stakeholder trust, and the efficient functioning of capital markets.

What is an audit report in the context of a not-for-profit (NFP) organisation in Australia?

An audit report is a formal opinion provided by an independent auditor on the accuracy and fairness of the financial statements of a not-for-profit organisation in Australia.

This report assesses whether the financial statements are prepared in accordance with relevant Australian Accounting Standards and present a true and fair view of the organisation's financial position and performance. It's a crucial component of an organisation's annual reporting, ensuring transparency and building trust with stakeholders.

Why is an audit report necessary for NFP organisations in Australia?

  • Compliance: Certain NFP organisations in Australia are required by law, or under their governing documents, to have their financial reports audited, particularly if they exceed specific size or revenue thresholds as defined by the Australian Charities and Not-for-profits Commission (ACNC) or other relevant authorities.
  • Transparency and Trust An audit enhances the credibility of the financial statements, providing donors, members, and the public with assurance that the information presented is accurate and reliable.
  • Risk Management: The audit process can identify weaknesses in financial reporting and internal controls, offering recommendations for improvement, thereby reducing the risk of fraud, financial misstatement, or inefficiency.
  • Stakeholder Confidence: For donors, funding bodies, and grant providers, an audit report is a reassurance that the organisation manages its finances responsibly and adheres to the highest standards of governance.

What does an audit report include for a not-for-profit organisation in Australia?

An audit report for a NFP organisation typically includes the following components:

  • Auditor’s Opinion: The most critical part of the audit report, where the auditor states whether the financial statements give a true and fair view in accordance with Australian Accounting Standards without material misstatement.
  • Basis for Opinion: This section details the basis on which the auditor's opinion is founded, including an assertion that the audit was conducted in accordance with Australian Auditing Standards. It highlights the auditor's responsibilities and the scope of the audit.
  • Responsibilities of Management and Those Charged with Governance: Outlines the responsibilities of the organisation's management and governing bodies in the preparation and fair presentation of the financial statements.
  • Auditor’s Responsibilities: Describes the objectives of the auditor, including the need to conduct the audit with professional skepticism and to provide an opinion on the financial statements based on the audit findings.
  • Other Reporting Responsibilities: If applicable, this section covers other responsibilities the auditor may have, such as compliance with additional laws, regulations, or contractual agreements specific to the organisation or the sector it operates in.

Can a not-for-profit organisation in Australia choose not to have an audit report?

Whether a not-for-profit organisation can opt out of having an audit report depends on several factors, including its legal structure, size, income, and the specific requirements of its constitution or governing documents.

Small-size NFPs may be eligible for an exemption or may only be required to have a review rather than a full audit, depending on legislation and regulations applicable to them.

However, even if not legally required, organisations may choose to have an audit to meet the expectations of funders, donors, and other stakeholders. It's important for NFPs to consult the ACNC's requirements and any sector-specific regulations to determine their obligations.





Better Boards connects the leaders of Australasian non-profit organisations to the knowledge and networks necessary to grow and develop their leadership skills and build a strong governance framework for their organisation.

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