An audit report is a formal document that communicates an auditor’s assessment of a specific aspect of an organization, whether it be financial, internal controls, or compliance. It concludes whether the entity complies with current legislation or the desired certification.
Depending on who conducts the audit, it must comply with the standards established by the Federal Accounting Council (CFC) or the Institute of Independent Auditors of Brazil (IBRACON) recommendations.
If done correctly, the report allows key stakeholders to better understand the organization’s current situation and the challenges it faces now and will encounter in the future. A well-done audit will stand out, capturing everyone’s interest and promoting the necessary changes to improve the company.
What is the importance of an audit report?
The audit report plays an important role in the transformation process of an organization. After all, it provides the assurance of an independent entity that a company’s processes are operating correctly.
Additionally, the auditor’s document can point out non-compliance issues, allowing the responsible sector to address the current problems. At the end of the process, when everything is in compliance with the desired standard, the organization can seek certification such as ISO 9001.
Financial audit reports are even more critical because the auditor confirms that your company’s financial information is reliable. The result can affect stakeholders’ confidence in the organization, whether when forming partnerships or even investing money in it.
Continue reading — Audit and compliance: everything you need to know
What is the difference between internal and external auditing?
Although many people confuse the two modalities, internal and external audits serve different purposes. Internal audits will evaluate a company’s operations and processes, while external audits involve independent evaluations of its records and financial information.
Both are important to ensure the integrity and accuracy of an organization’s operations, as well as the reliability of its financial information.
However, they have differences in scope and the level of detail of their analyses. Internal audits will cover the following areas:
- Financial reporting;
- Compliance;
- Information security;
- Operations;
- Risk management.
External audits, on the other hand, will only look at financial statements, ensuring they are accurate and in compliance with the law.
In addition to the mentioned differences, it is important to highlight that internal audits are conducted by professionals from the organization itself, while external audits are conducted by independent auditors, usually from specialized firms.
This independence is crucial to ensure the neutrality and credibility of the external audit report. In both modalities, transparency and clear communication of results are fundamental for recommendations to be effectively implemented and contribute to the continuous improvement of the organization.
Check below for some relevant terms to better understand the process:
Compliance
Compliance refers to the adherence to laws, standards, and internal policies applicable to an organization. It is the foundation for ensuring that processes and controls are aligned with regulatory requirements and international standards.
Compliance audit
A compliance audit is the systematic examination of processes and records to verify adherence to specific standards, such as ISO 19011 or sector regulations. Its goal is to identify gaps and guide the organization on necessary corrective actions.
Internal control
Internal control encompasses policies, procedures, and activities implemented to mitigate risks and ensure the integrity of operations. It provides a framework for monitoring transactions, protecting assets, and ensuring the reliability of information.
Non-compliance
Non-compliance occurs when a process or outcome does not meet the criteria established in standards, legislation, or internal requirements. Identifying non-compliances allows the organization to take corrective actions and prevent recurrence.
Risk analysis
Risk analysis is the systematic assessment of potential events that may affect the organization, considering probability and impact. It serves as a basis for prioritizing audit procedures and strengthening preventive controls.
Keep reading – Non-conformance report: what it is for and how to create one
How to Prepare an Internal Audit Report
Now that you know the difference between an internal and an external audit, it’s time to find out how to ensure everything is in order with your organization’s processes.
Follow our step-by-step tips to prepare the ideal internal audit report:
1. Prepare a Cover Page
Have you ever heard the saying that the first impression is the one that lasts?
The auditor’s work should make a good impression. Therefore, it is essential to start with a quality cover page. It will be the first point of contact for senior management with the audit results. Therefore, it is important to present information such as:
- Report title;
- Name of the responsible auditor;
- Audit completion date;
- Name of the audited company or business unit.
2. Prepare an Introduction
In this section, the auditor should provide an overview with information about the audited area and processes, which standards support the work (e.g., ISO 14001), and any necessary background information before reading the full report. This way, anyone reading the report can understand the reasons that led to the audit.
For example, the report may address the emergence of new legislation that impacts the company’s operations. The introduction can describe which laws were applicable until then, where they failed, and how the new legislation proposes to address these issues.
3. Prepare an Executive Summary
The executive summary should present the conclusions of the work performed in a compact form. It should be structured as follows:
- A brief description of what was audited, objectives, scope, and start and completion dates.
- Present the auditor’s conclusions.
4. Present the Terminology Used
The next section should present the terms used in the report so that everyone can understand the information presented.
Example: if there are references to ISO, it is important to clarify that it refers to the International Organization for Standardization.
5. Present the Audit Plan
The audit plan should present the lead auditor and their qualifications, as well as other team members. This section should also describe which documents were evaluated and which people were interviewed.
The auditor should describe the steps followed during the audit — a process mapping tool can help — and the criteria used to select the evaluated documents and the interviewed people.
6. Describe the Findings and Present Recommendations
The auditor should take note when something is not in accordance with established standards, describing the findings and evidence.
At the end, the auditor should conclude the report with a “Recommendations” section for organizational improvement. At this stage, they should consider the following aspects:
- Be positive: focus on what is happening now and how the company’s positive aspects can be applied to ineffective areas or processes.
- Be specific: be very clear and specific about which aspects are not in compliance with established standards and what actions should be implemented to ensure compliance. Make it clear who needs to act to address these issues.
- Be concise: be brief in recommendations and include only the necessary information and details.
Next, we will introduce some important terms to better understand the internal audit report process:
Traceability (Audit Trail)
Traceability, or audit trail, is the chronological record of records and actions that document the history of processes and transactions. It facilitates the investigation of discrepancies and the verification of the integrity of audited data.
CAPA (Corrective and Preventive Action)
CAPA are planned initiatives to eliminate the cause of identified non-compliances (corrective action) and prevent their future occurrence (preventive action). This cycle promotes continuous improvement and strengthens the quality culture.
Continuous improvement
Continuous improvement is the practice of continuously reviewing and enhancing processes, seeking efficiency, reducing failures, and adding greater value to stakeholders. Tools like PDCA and Six Sigma are commonly used to structure this process.
Audit plan
An audit plan describes the scope, objectives, criteria, resources, and schedule of an audit. It serves as a guide for the audit team, ensuring that all steps are conducted in a standardized and objective manner.
PDCA (Plan-Do-Check-Act)
PDCA is a four-step cycle used to manage processes and promote continuous improvement: plan, execute, check, and act. It is widely adopted in management systems to sustain progress and the effectiveness of controls.
Keep reading – Quality audits: how to do it in 4 simple and effective steps
Final Considerations
Preparing an efficient audit report is essential to ensure transparency, compliance, and continuous improvement within an organization. A good report not only assesses the company’s current situation but also offers clear and specific recommendations to correct any flaws and promote best practices.
In both internal and external audits, the focus should be on the accuracy of information and clarity of communication. By following a structured and thorough process, it is possible to produce a document that not only meets legal and regulatory requirements but also adds real value to stakeholders. This way, you contribute to the sustainable growth and credibility of your organization.
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FAQ – Frequently Asked Questions
What is an audit report?
An audit report is a formal document that communicates an auditor’s assessment of a specific aspect of an organization, indicating whether it complies with legislation or desired standards. It presents clear conclusions, showing the points of compliance and non-compliance identified during the process.
How to prepare an audit report?
To prepare an audit report, start by creating the cover page (with title, auditor’s name, date, and audited unit) and an introduction that describes the scope, supporting standards, and relevant background. Next, draft an executive summary, define the terminology, present the audit plan, and describe the findings along with improvement recommendations.
What should be included in the audit report?
The report should include the cover page, introduction, executive summary, terminology section, audit plan, and description of the findings. Additionally, it should conclude with specific recommendations for addressing non-compliance issues and suggestions for best practices.
Who can sign an audit report?
The audit report must be signed by an engagement partner, whose requirements vary depending on the type of entity being audited. For public companies, the professional must be a licensed CPA, and the firm must be registered with the PCAOB, adhering to specific standards set by this body.
In the case of non-public entities, the auditor must also be a licensed CPA but is not required to be an AICPA member, though GAAS standards (managed by the AICPA) apply. Some states require minimum attestation experience (e.g., 500 hours), but there is no single national standard.
The experience required to sign reports depends on the rules of the state board that issued the CPA license. For example, California sets specific requirements, while other states may prioritize general competencies or different hour thresholds.
A CPA license is mandatory for any audit, but PCAOB registration applies only to firms auditing public companies. The AICPA primarily focuses on standard-setting and education, with no regulatory authority over auditors of public companies.
In summary, the regulation combines federal requirements (PCAOB) for public companies and varying state rules for other entities. Flexibility in experience criteria and the distinction between standards (PCAOB vs. GAAS) are critical to ensuring compliance.
What is the audit process outline?
The outline begins with preparing the cover page and drafting the introduction, explaining the scope and applicable standards.
Next, there is the executive summary, the presentation of terminology, the detailed audit plan, and finally, the description of the findings and improvement recommendations.
