What is an Auditor's Report
The auditor's report, published in the annual report in conjunction with the financial statements, opines on whether a company's financial statements comply with generally accepted accounting principles (GAAP).
BREAKING DOWN Auditor's Report
An auditor's report is a written letter attached to a company's financial statements that expresses its opinion on a company's compliance with standard accounting practices. The letter follows a standard format, as established by generally accepted auditing standards (GAAS).
Parts of an Auditor's Report
A report consists of three paragraphs: The first paragraph states the responsibilities of the auditor and directors; the second is the scope, stating that a set of standard accounting practices was the guide; finally, the third paragraph gives the auditor's opinion. An additional paragraph may inform the investor of the results of a separate audit on another function of the entity. The investor will key in on the third paragraph, where the opinion is stated. A majority of audits end in unqualified, or clean, opinions. The other three cases are qualified opinion, adverse opinion and disclaimer of opinion. The last type indicates that the auditor has suspicions of material misstatements or misrepresentations in the financial statements, but does not have enough evidence to clearly express that opinion.
Example Auditor's Report
Excerpts from the audit report by Deloitte & Touche LLP for Starbucks Corporation, dated November 17, 2017:
Paragraph 1: "We have audited the accompanying consolidated balance sheets of Starbucks Corporation and subsidiaries ... and related consolidated statements of earnings, comprehensive income, equity and cash flows ... These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits."
Paragraph 2: "We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements ... "
Paragraph 3: "In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Starbucks Corporation and subsidiaries ... in conformity with accounting principles generally accepted in the United States of America."
Paragraph 4: "We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board, [and] expressed an unqualified opinion on the Company's internal control over financial reporting."