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The audit report in China is the final result of the audit work and has the statutory effect. After the implementation of the necessary audit procedures, the CPA forms an audit opinion based on the verified audit evidence and is issued an audit report, which is of great significance to all parties involved.
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I.Definition of the audit report
- The audit report refers to the written documents issued by the certified public accountant after the implementation of the necessary audit procedures in accordance with the requirements of the independent auditing standards and used to issue audit opinions on the annual accounting statements of the audited entity.
- The audited entities involved here include enterprises responsible for the preparation and submission of accounting statements and audited by certified public accountants and institutions that implement enterprise management.
II.Nature of the audit report
- The audit report is a comprehensive summary report on the audit work. Explain the results of the audit work The way to achieve the audit target of the CPA is to implement the audit process, and the results of the audit objectives are reflected through the audit report. The audit report reflects the final requirements of the client and also reflects the quality of the auditor’s work, and is also a concentrated expression of the evaluation and conclusions of the subject.
- The audit report is a legally binding document. The auditing behavior of the CPA is carried out in accordance with the law. The audit results are responsible for the client in accordance with the provisions of the law and are also responsible for other related parties. The audit report itself should express opinions on the legality, fairness, and consistency of accounting treatment methods of the audited financial statements. All parties concerned use the accounting opinions to make decisions based on such opinions with the forensic role.
Therefore, the audit opinion in the audit report must be convincing, fair and serious, and have legal effect. Otherwise, the principal and various parties need not to use the audit report. The statutory effect of the audit report is reflected in the process of using the audit report by all parties involved.
- An audit report is a publicly available information report. As a kind of information report, the audit report can be used not only by the audit client and the management unit of the audited entity but also by relevant creditors, banks, financial institutions, financial departments, industry and commerce departments, tax authorities, and the public. Audit reports and obtain fair information on the extent to which the project is fairly reflected.
III.The role of the audit report
Forensic Role
The CPA expresses its opinions on whether the financial status, operating results and fund changes reflected in the audited financial statements are legal, fair and consistent in the capacity of a detached independent third party. This objective opinion is obtained by the government and its various departments. And the general recognition of all walks of life objectively played a role in forensics.
Protective effects
The CPA issues audit reports of different opinion types to improve or reduce the degree of trust of users of accounting statements in accounting statements, and can effectively protect the property of the audited entity, the interests of creditors and shareholders, and the interests of corporate stakeholders.
Proof role
By issuing an audit report, the CPA can prove (or indicate) the quality of the audit work and the audit responsibility of the CPA. It can prove whether the CPA has implemented the necessary audit procedures in the audit process and whether the audit opinion is based on the audit evidence. Whether the opinions expressed are objective and true, and the audit report can also prove the performance of the audited accountant’s audit responsibility.
IV.The content of the China audit report
The independent auditing standards stipulate a more reasonable, scientific and rigorous audit report based on the absorption and reference of international auditing standards and the US generally accepted auditing standards.
- 1.Title
Regarding the title of the audit report, there are many names in the world, such as the report of certified public accountants, the opinions of certified public accountants, and so on. In China, according to the provisions of the“Independent Auditing Standard No. 7 – Audit Report”, the title of the audit report is uniformly standardized as “audit report”. - 2.Recipient
Refers to the principal of the audit business. The audit report should state the full name of the recipient. For example, “Sichuan Changhong Electric Co., Ltd.” cannot be abbreviated as “Sichuan Changhong Company”. In addition, the full name of the recipient should be printed by a certified accountant or a computer, and cannot be replaced by the official seal of the recipient. It is the basic requirement of official documents. - 3.Range segment
The following paragraphs should be stated in the scope of the audit report:
(1)The name of the audited financial statement, the date or period of the reflection.
(2)Accounting responsibility and audit responsibility.
(3)Audit basis.
(4)Audit procedures already implemented.
V.Classification of audit reports
- According to the scope and nature of the audit work, it can be divided into standard audit reports and non-standard audit reports.
- According to the purpose of the audit report, it can be divided into the purpose of the publication of the audit report and the purpose of the non-published audit. The purpose of the audit report is the audit report for the non-specific stakeholders such as the owner, investor or creditor of the audited entity. Such audit reports must be accompanied by an accounting statement. Typically, standard audit reports are audit reports that are used for public release. The non-announcement audit report refers to an audit report distributed to a person with a specific purpose, such as a business operator, a related party to a merger or business transfer, or a financial institution providing credit. The CPA’s provision of such audit reports is usually issued on the basis that the principal has a specific purpose, such as certain items of accounting statements, operations management, mergers or business transfers, and financing funds.
- According to the detailed level of the audit report, it can be divided into a simple audit report and a detailed audit report. As the name implies, it is a brief and concise audit report of the content and format, including various audit opinions issued by the certified public accountant after auditing the accounting statements. Audit report. The content of such audit reports is stipulated by laws or auditing standards, and the words used to express them are well-known. Therefore, it is required to be concise and has a general standard format. The detailed audit report refers to the audit report issued by the CPA as a result of detailed and specific analysis and explanation of all important economic business and situations. Because the detailed audit report is rich in content and varies in degree, it is difficult to make uniform wording or basic uniform wording, and it does not have the characteristics of a standard format. For example, the report issued by the audited entity on management and economic benefit audits will not be clear to the CPA. In some cases, tens of thousands of words, even hundreds of thousands of words, plus attachments, the contents of these audit reports More and more words can be compared to the monographs of this audit theory or practice.
- According to the format of the audit report, it can be divided into text-based audit reports and tabular audit report text. The explanatory audit report is the most common format form, and most audit reports use this format. The tabular audit report is an audit report in the form of a form. Such audit reports are rare, and they are not the same as imagined in people’s minds. Because it is more or less necessary to be accompanied by certain texts, pure tabular audit reports do not exist.
VI.Audit report preparation requirements
- The purpose of the CPA audit is to express an audit opinion on the legality, fairness, and consistency of accounting methods of the audited entity, and provide economic forensic services to the society. The preparation and issuance of audit reports by CPAs should focus on this purpose so that the elements are complete, the opinions are accurate, the evidence is sufficient, and the content is legal.
VII.Complete elements
- The required documents for the establishment of the audited unit and the approval documents from the approving authority;
- Agreements, contracts, and articles of association related to investment signed by investors in the audited unit;
- Business license of the investor’s corporate legal entity or identification documents of the natural person;
- Documents proving the appointment of the legal representative of the audited unit and their identification documents;
- Proof of identity and authorization of designated representatives or appointed agents of all investors, as well as their identification documents;
- The “Pre-Approval Notice of Enterprise Name” approved by the enterprise registration authority;
- Proof of residence and use of premises of the audited unit;
- Receipts and bank statements (or equivalent documents) issued by banks and bank inquiry letters and responses;
- A written statement by the proposed company regarding the establishment of accounting books and other related matters in accordance with the law;
- A confirmed list of monetary contributions, lists of contributions of physical assets and intangible assets, lists of assets and liabilities related to net assets contributions, and a detailed table of registered capital and actual paid-in capital;
- Other information required by relevant national regulations.
VIII.Types of capital verification reports
- A.Capital Verification Report for Domestic Investment Enterprises
a.Report for Regular Establishment:
(1).Ordinary Establishment. (2). Phased Establishment for Companies/Enterprises. (3).Individual Business.
b.Report for Capital Changes:
(1).Regular Increase. (2).Second-phase Payment for Companies/Enterprises. (3). Full Payment for Second-phase for Companies/Enterprises. (4).Phased Payment for Capital Increase for Companies/Enterprises. (5).Report for Capital Reduction for Companies/Enterprises. (6).Report for Capital Verification for Mergers for Companies/Enterprises. (7).Report for Capital Verification for Spin-offs for Companies/Enterprises. - B.Capital Verification Report for Foreign Investment Enterprises:
(1).Regular Establishment Verification Report. (2).Verification Report for Capital Increase. (3).Verification Report for Merger. (4).Verification Report for Capital Reduction. (5).Verification Report for Spin-off.
- Note:
- The recipient of the capital verification report refers to the person to whom the registered accountant sends the verification report in accordance with the business agreement, usually the client who commissioned the capital verification. The full name of the recipient should be stated in the capital verification report.
- The scope section of the capital verification report should explain the scope of the review, the responsibilities of the contributors and the audited unit, the responsibilities of the registered accountant, the basis of the review, and the main review procedures implemented.
- The opinion section of the capital verification report should indicate the audited unit’s actual paid-in capital or changes in registered capital and actual paid-in capital that have been audited.
- For change capital verifications, the registered accountant only issues an audit opinion on the changes in the registered capital and actual paid-in capital for the current review.
- The explanation section of the capital verification report should explain the purpose of the report, the responsibilities of use, and other important matters that the registered accountant believes should be stated.
- For change capital verifications, the registered accountant should also indicate in the explanation section of the capital verification report the name of the accounting firm that audited the previously registered capital and actual paid-in capital, and their audit results, as well as the cumulative registered capital and actual paid-in capital after the changes.
- If there is a dispute with the audited unit over the confirmation of registered capital and actual paid-in capital and no agreement can be reached, the registered accountant should clearly reflect the relevant matters, differences, and reasons in the explanation section of the capital verification report.
- The appendix of the capital verification report should include detailed statements of the audited registered capital and actual paid-in capital, or the changes in registered capital and actual paid-in capital, as well as an explanation of the capital verification matters.
- The capital verification report should be signed and stamped by the registered accountant. The date of the capital verification report refers to the date when the registered accountant completed the verification work.