What does an audit report contain?

Most audit reports on financial statements give the business a new looking bill of health, or a clean opinion. At the opposite end of the spectrum, the auditor may situation that the financial statements are misleading and must not be relied upon. This negative audit report is called a negative opinion. That's the big stick that auditors carry. They have the power to give a company's fiscal reports an adverse opinion and no business wants that. The specter of an adverse opinion almost always motivates a business to give way to the auditor improvements its accounting or disclosure to counteract getting the kiss of death of an adverse opinion. An adverse audit opinion says that the financial statements of the business are misleading. The SEC does not tolerate adverse opinions by auditors of public businesses; it would suspend trading in a company's stock share if the company received an adverse opinion looking at the CPA auditor.

One modification to an auditor's report is very serious - when the CPA firm states that it has substantial doubts about the capability of the business to go on with as a going concern. A going concern is small business that has sufficient financial wherewithal and momentum to keep going it normal operations into the potential future and would be able to absorb a bad turn of events while avoiding the need to default on its liabilities. A going concern does not face an imminent financial crisis or any pressing financial emergency. A business could be under some financial distress but overall still be judged a going concern. Unless there is evidence on the opposite side, the CPA auditor assumes that the business is a going concern. If an auditor has serious concerns about if the business is a going concern, these doubts are detailed in the auditor's report.