An audit report is a document that contains the results of an audit. In a financial statement audit, it contains the independent auditor's opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. In an internal audit, it contains conclusions, findings, and recommendations for management.
A financial statement audit is not mandatory for every company. Under Article 68 paragraph (1) of Law Number 40 of 2007 on Limited Liability Companies, the obligation applies to companies that raise public funds, issue debt acknowledgments to the public, are public companies or state-owned companies (persero), have assets and/or turnover of at least IDR 50 billion, or are required by law.
This article covers the meaning of an audit report, the differences between its types, the components of an independent auditor's report, types of opinions, audit results, and an example of an internal audit report.
What is an Audit Report?
An audit report is the final document of an audit that the auditor delivers to interested parties. Its content depends on the type of audit carried out:
- Financial statement audit: an independent auditor's report containing an opinion on the financial statements.
- Internal audit: an audit results report containing the objectives, scope, findings, conclusions, and recommendations or action plans.
- State financial audit: the Audit Results Report (LHP) issued by the Supreme Audit Agency (BPK).
An audit report is different from financial statements. Financial statements, such as the balance sheet and income statement, are prepared by management, generally based on the Financial Accounting Standards Statements (PSAK). Auditors audit those statements under the Auditing Standards (SA) issued by the Indonesian Institute of Certified Public Accountants (IAPI), then report the results.
An auditor's report without modification is not a guarantee that the financial statements are free of errors. The auditor provides reasonable assurance, a high level of assurance but not a guarantee, that the financial statements as a whole are free from material misstatement.
What Is the Difference Between a Financial Audit Report, an Internal Audit Report, and a BPK Audit Results Report?
The issuer, content, and reference standards of the three differ. The table below summarizes them.
| Aspect | Independent auditor's report | Internal audit report | BPK audit results report |
|---|---|---|---|
| Issuer | A licensed public accountant (assurance services are provided only by public accountants under Law Number 5 of 2011) | The organization's internal audit unit | The Supreme Audit Agency |
| Core content | An opinion on the financial statements | Objectives, scope, findings, conclusions, and recommendations or action plans | Results of financial, performance, or special purpose audits of state finances |
| Reference standards | IAPI Auditing Standards (SA), including SA 700 and SA 705 | Global Internal Audit Standards (The IIA, 2024) | State Financial Audit Standards |
Internal audits are carried out by a company's internal audit unit, while external audits of financial statements are carried out by public accountants. Government auditors, such as BPK and APIP, audit government entities and state finances.
See also:
- 7 Differences between Internal and External Audit, Let's Know!
- External Audit is: Knows 7 Differences, Steps, & Examples
What is the function of an audit report?
The function of an audit report depends on its type. For an independent auditor's report, the main functions are as follows:
- Increasing the confidence of the intended users of the financial statements in those statements.
- Serving as a basis for shareholders, creditors, and investors to assess the financial statements before making decisions.
- Meeting the legal obligation for companies that must be audited. If that obligation is not met, the financial statements are not approved by the General Meeting of Shareholders (RUPS), under Article 68 paragraph (2) of Law Number 40 of 2007.
For an internal audit report, the function is to communicate the audit results to management and the responsible parties, so findings can be followed up and internal controls improved.
What Are the Components of an Independent Auditor's Report Under Auditing Standards?
SA 700 (Revised 2021) governs the form and content of the auditor's report on financial statements. The following is the usual order of components in a report for a listed entity.
| Components | Function | Listed entities only? |
|---|---|---|
| Title and addressee | Shows this is an independent auditor's report and who it is addressed to | No |
| Opinion | States the audit result on the financial statements; always the first section | No |
| Basis for opinion | Explains the standards used, the auditor's independence, and the basis for the opinion | No |
| Key audit matters | Communicates the matters of most significance in the audit of the current period (SA 701) | Yes |
| Other information | Reports on information other than the financial statements included in the annual report (SA 720) | If present |
| Responsibilities of management and those charged with governance | Affirms that preparing the financial statements is management's responsibility | No |
| Auditor's responsibilities | Explains reasonable assurance, a high level of assurance but not a guarantee | No |
| Name of the engagement partner, signature, address, and report date | Identifies who is responsible for the report; the engagement partner's name is required for listed entities | Partly |
These Auditing Standards apply to audits of financial statements for periods beginning on or after 1 January 2022. Check the latest version published by IAPI before using it as a working reference.
What Are the Types of Opinions in an Audit Report?
An independent auditor's report contains one of four types of opinion. The official term in SA 700 for a clean opinion is an unmodified opinion, known in practice as unqualified. The other three are called modified opinions (SA 705).
| Type of opinion | When it is given | Short example |
|---|---|---|
| Unmodified opinion (unqualified) | The auditor concludes the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework | All major accounts are presented in accordance with accounting standards and there is no material misstatement |
| Qualified opinion | There is a material but not pervasive misstatement, or the auditor cannot obtain sufficient appropriate audit evidence and the possible effects are material but not pervasive | Inventory is materially misstated in a single account group only |
| Adverse opinion | The auditor has obtained sufficient appropriate evidence and concludes that misstatements are both material and pervasive to the financial statements | Many major accounts are materially misstated so the financial statements as a whole are misleading |
| Disclaimer of opinion | The auditor cannot obtain sufficient appropriate audit evidence, and the possible effects of undetected misstatements are both material and pervasive | Management restricts the auditor's access to most of the financial records |
Pervasive means the effects of misstatements are not confined to specific elements, accounts, or items in the financial statements, represent a substantial proportion of the financial statements, or are fundamental to users' understanding of the financial statements. The nature of the matter causing the modification and how pervasive it is determine the type of opinion chosen.
A material uncertainty related to going concern, if adequately disclosed, does not turn the opinion into a modified one. The auditor adds a separate section to the report (SA 570). If the disclosure is inadequate, the auditor may give a qualified or adverse opinion.
A full discussion of each type of opinion is available in the articles below.
See also:
- Audit Opinion: Definition, 4 Types, Stages, and Examples
- What is an unqualified opinion? - Definition, examples and how to get
- Qualified Opinion: Definition, Basis for Issuance, & Implications
- Unreasonable opinions on Auditing: definition, implications, and how to avoid
- What is opinion not expressing an opinion? - Definition and basis of awarding
What Are the Results of an Audit?
Audit results differ by type of audit:
- Financial statement audit: an independent auditor's report containing an opinion. The auditor also communicates internal control deficiencies found to those charged with governance and management (SA 265), often called a management letter in practice.
- Internal audit: engagement conclusions, findings with their criteria, condition, root cause, and effect, and recommendations or action plans.
- State financial audit: the BPK Audit Results Report (LHP).
- After the report is issued: follow-up on recommendations and monitoring of their implementation.
See also:
- Audit Finding Follow-Up: Causes of Overlooked Issues and Their Solutions
- Addressing Recurring Audit Findings to Improve Internal Control Effectiveness
What Does an Internal Audit Report Contain and How Is It Prepared?
The Global Internal Audit Standards 2024 from The Institute of Internal Auditors (Standard 15.1) require an engagement report to contain the objectives, scope, recommendations and/or action plans where applicable, and the conclusions. For assurance engagements, the report also contains findings with their significance and priority, an explanation of scope limitations, and conclusions on the effectiveness of governance, risk management, and control. The standards have been effective since 9 January 2025.
A commonly used structure is as follows:
- Executive summary
- Audit objectives and scope
- Methodology and criteria used
- Findings with their priority
- Conclusion on the effectiveness of controls
- Recommendations or action plans
- Management response, responsible person, and target date
- Attachments
Each finding should be documented with five elements under Standard 14.3: criteria, condition, root cause, effect, and significance and prioritization. The following is an illustrative example of a finding.
| Element | Illustrative example |
|---|---|
| Criteria | The procedure requires bank reconciliation to be completed within 10 working days after month end |
| Condition | Reconciliations for the last three months were completed after 25 working days |
| Causes | No backup when the reconciliation staff member is on leave, and no deadline monitoring |
| Impact | Cash differences are not detected on time, which raises the risk of errors or misuse |
| Significance and priority | High |
| Recommendations | Assign a backup staff member and monitor the reconciliation deadline every month |
| Owner and target | Head of Finance, end of next quarter |
The process runs from drafting, to discussion with the audited party, to review and approval by the Chief Audit Executive before the report is issued (Standard 15.1). Communication must be accurate, objective, clear, concise, constructive, complete, and timely (Standard 11.2).
See also:
- Audit Program (Internal Audit Work Program): Definition, Types, Examples, and How to Prepare One
- Complete Guide to the stages of Internal and external Audit
- Audithink Internal Audit Glossary: 100 Audit Terms from A to Z
What are examples of internal audit reports?
Now that you understand the above information about audit reports, it's time to find out how they work.
Well, here are some examples of internal audit reports:
1. Example of an internal audit report in the form of a letter or memorandum
COVER LETTER
Number:
Attach:
Subject: Audit Report
………………………..
Dear Sir.
…………….
Opening Paragraph
Basis for conducting the audit, identification of the audit, objectives or goals, scope, audit methodology, statement that the audit was conducted in accordance with applicable standards. Statement of audit limitations (if any)
Paragraph Contents
Audit results in the form of conclusions, audit findings, recommendations, and responses from the responsible audit officer. Reporting of confidential information (if any)
Closing Paragraph
Audit Responsible Position
Signature
Name
NIP
Copy:
2. Sample audit report in chapter form
INTERNAL AUDIT PROCESS
POSYANDU (MCH)
A. OVERVIEW
Internal audits are conducted on the basis of instructions from quality management to control the quality assurance mechanism, both at the input stage of the process and the results.
B. PURPOSE
Improving Puskesmas X services in order to assist MCH officers to carry out their duties according to their competencies and activities. In addition, it also aims to improve the performance of all staff at Puskesmas X.
C. AUDIT SCOPE
The scope of the internal audit to be conducted is Posyandu X (KIA).
D. AUDIT OBJECTS
Documentation in the process of activities carried out at Posyandu X (KIA).
E. AUDIT STANDARDS/CRITERIA
The audit standards and criteria used are based on the provisions of the legal basis applicable to Posyandu.
F. Auditors
Coordinator : [Coordinator name]
Member:
1. [Member name 1]
2. [Member name 2]
G. AUDIT PROCESS
The internal audit activity process will be carried out on Monday, April 17-28, 2023 at the Puskesmas X hall from 08.00 - 12.00 WIB. Based on the results of the quality management team meeting, it is determined regarding the audit implementation schedule, namely the date, unit, and auditor coordinator.
The auditor coordinator forms a small team to carry out the audit. The next day, the audit team makes a plan in the form of work unit or target, process or activity, standard or criteria, date and time of audit I & II, and place of implementation.
In addition, it must also determine the audit instrument, namely the criteria, questionnaire, facts in the field, findings, recommendations, and time to complete.
Who Receives and Follows Up on an Audit Report?
- Independent auditor's report: the audit results are submitted in writing to the General Meeting of Shareholders through the Board of Directors (Article 68 paragraph (3) of Law Number 40 of 2007).
- Internal audit report: the audited management gives a response and carries out the action plan, while internal auditors monitor the follow-up.
FAQ About Audit Reports
What is an audit report?
An audit report is a document that contains the results of an audit. In a financial statement audit, it contains the independent auditor's opinion on the financial statements. In an internal audit, it contains conclusions, findings, and recommendations.
Does every company have to be audited?
No. Article 68 paragraph (1) of Law Number 40 of 2007 requires a financial statement audit for companies that meet certain criteria, for example raising public funds, being a public company or persero, or having assets and/or turnover of at least IDR 50 billion.
What Are the Types of Opinions in an Audit Report?
There are four: an unmodified (unqualified) opinion, a qualified opinion, an adverse opinion, and a disclaimer of opinion. The last three are called modified opinions under SA 705.
What is the difference between a qualified and an adverse opinion?
A qualified opinion is given when a misstatement is material but not pervasive, or the auditor cannot obtain sufficient evidence and the effects are material but not pervasive. An adverse opinion is given when the auditor has obtained sufficient evidence and the misstatements are both material and pervasive.
When does an auditor give a disclaimer of opinion?
When the auditor cannot obtain sufficient appropriate audit evidence and the possible effects of undetected misstatements are both material and pervasive. In very rare cases, it is also given when there are multiple interacting uncertainties.
What standards govern auditor's reports in Indonesia?
Auditors perform audits and report the results based on the Auditing Standards (SA) issued by IAPI, including SA 700 and SA 705. PSAK, short for Financial Accounting Standards Statements, is used by management to prepare financial statements.
What does an internal audit report contain?
Objectives, scope, findings with their priority, conclusions, and recommendations or action plans. Findings are ideally documented with the elements of criteria, condition, root cause, effect, and significance and priority.
An audit report is the final output of an audit, containing the independent auditor's opinion on the financial statements, or the conclusions, findings, and recommendations in an internal audit. Understanding the differences between its types helps you read and prepare reports correctly.
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