Writing a Financial Audit Report: Best Practices and Common Mistakes

Crafting a professional audit report is essential to make sure that stakeholders and potential investors actually understand and comprehend the financial aspect of a business. But in a world where everyone is distracted by tasks, calls and notifications, going through an audit can be challenging.

That’s why in order to stand out, the audit must be simple, interesting and well written. Not sure how to write an audit report? Here’s what you have to know.

A Few Tips Before You Start

Before proceeding with the main things, there are a few general things you need to remember. In order to keep your financial statement auditing report effective, you’ll need to know who it’s for first. Basically, you have to know the readers and audience.

There are different cultures that must be approached in different ways. Each audience brings unique perspectives, expectations, and levels of financial literacy. At the same time, some people are more technical than others too. But that’s not everything.

• Lose the fluff. You don’t need an audit to be long in order to be effective. Instead, you need to keep it straight to the point.
• Explain everything. Whether the audit is written for a financial expert or someone with no technical experience at all, the summary must be written for every level of experience.
• Avoid technicalities. On the same note, stay away from big words or acronyms. Analogies are helpful too, not to mention bullet points to break big chunks of text.
• Highlight stuff. Tables are great for findings, rather than random text. Numbers and percentages are easy to read. Highlight other key points by underlining them.

How to Write an Audit Report

Now that you have a few rules to start with, here are the steps for a perfect audit. Understanding these points will help you create a professional document that communicates effectively.

• Reference

Citations can help. If you use claims or studies, make sure you reference everything. People reading the audit should have the opportunity to do research deeper. It could get confusing, so include a reference section to cover everything, rather than congesting text. Good references build credibility and show thorough research.

• Use Visuals

Visuals can help you transmit a message more effectively. Font styling is also helpful, not to mention graphs or tables. These visual elements can break monotony and make your audit more effective.

• Contextualize

Important stats and contextual data should be part of the audit. You need to provide relevance. Presenting general stuff means nothing. Context around values means much more and helps stakeholders get a better idea of what’s going on.

This also means you have to keep it direct and straightforward. Forget about blame, no one cares. State the facts instead, simple as that. 

• Pluses and Minuses

Audits are meant to bring both good and bad news to the table or they’ll look biased. While some people expect to hear bad news only, the truth is you can break this stereotype and provide some positive findings too.

Highlighting positive things will encourage the good habits causing them, so your team might keep doing the same good work. It’s not all about criticism, but also about the good things that must be acknowledged and encouraged.

The Structure of an Audit Report

When learning how to write an audit report, you need to make a plan first. Find a structure and work around it.

The structure usually starts with the purpose. What are the objectives of the audit? Identify the scope, as well as the methodology. This initial section sets the foundation for everything that follows.

The next part covers the findings. No matter what the audit will reveal, there’s some evidence to back the findings. At the same time, it’s important to highlight the impact of these findings too. What do they actually mean? The findings section is where you translate raw data into meaningful insights that stakeholders can understand and act upon.

Next, you’ll need to conclude with something. It could be a recommendation. Or perhaps you have some actionable suggestions you’d like to make. These conclusions should be practical, specific, directly connected to the findings you’ve presented.

Last, but not least, if applicable, you can introduce an audit opinion too. This isn’t always the case though.

Common Mistakes in Writing an Audit

Both new and experienced people can make mistakes. It’s a complex world with lots of data coming from more directions, so even the most experienced professionals can stumble at times. Some mistakes are more common than others. Here’s what you have to be aware of.

• Inaccurate revenue recognition. Revenue could be recognized too early or perhaps too late. Become familiar with this principle and implement some solid controls for accuracy.
• Wrong classification of expenses. Expenses are sometimes seen as capital expenditures or the other way around. Proper classification is required while writing an audit. You need to educate yourself on operational expenses and capital expenses.
• Underestimating bad debts. This mistake will inflate the net income. Review accounts more often and adjust the provision on a regular basis.
• Misusing accounting principles. Accounting principles vary, but they must be used by the book. The matching principle is often misused, but also the principle of conservatism.
• Hiding contingent liabilities. Failing to disclose these liabilities can give stakeholders the wrong impression about the health of a company, so you have to introduce them in notes.
• Inaccurate inventories. This mistake affects the net income and profit. Physical inventory counts must be conducted on a regular basis for accuracy.
• Small transactions. Overlooking these transactions may seem irrelevant. Everyone does it. The problem is they do add up. Adjust your system to make sure that every expense is counted, whether small or big.
• Wrong documentation. Not having the right documents can lead to different problems when tracing transactions. Your audit will become more difficult too. The solution is maintaining a solid system in terms of documentation. Each transaction must be documented accordingly.​