Gregory J. Cook, EA, CPA Accredited Tax Advisor

Internal Audit Reports The internal audit report should explain the scope of the review and detailed audit findings. In the report, there should be a statement of the general scope of the examination. Further, background information should be given. If limiting factors exist, they should be stated. The body of the audit report contains details of the examination, which should be cross-referenced to the summary.

Written reports may emphasize:

• Details of verification including reasons for and disposition of exceptions.

• Financial accounting data.

• Information of special executive interest such as unusual or defective situations along with corrective action which will be taken by the audited entity.
   

The internal audit report should include a summary of major findings and recommendations. A conclusion about what was uncovered by the audit should be provided. The internal audit report must be factual and based on hard evidence.

In forming the internal audit opinion, the auditor will typically express opinions on the findings. Contrary opinions by operating management should be noted. Even though opinions may differ, a disagreement as to facts should not exist. The internal auditor’s conclusion should be stated clearly with objective support.

To non-accountants, narrative reports are more meaningful than numerical tabulations. If there is significant numerical information, this should be contained in an exhibit supplementing the report. The body of the report should have a summary of the relevant reference to the exhibit and its importance.

All internal audit reports should contain the same basic structure, including:

• Identification - The name of the report should identify the unit or operational area reviewed. The auditors involved in the examination should be named. Give the date of the report along with the test period. State if the report is a regular one or a follow-up. Indicate the name of the auditor issuing the report.

• Summary - Highlight the major points for management so that it is easier to identify areas requiring action.

• Scope - Describe the objectives of the audit work performed.

• Background - Provide background information relevant to understanding the findings and recommendations of the audit report. Examples are number of employees and sales volume.

• Findings - Present findings relating to the factual information uncovered in the review. The audit findings should be given in logical order of importance, or in terms of functions, phases, or account classifications. Prior to report issuance, findings should be discussed with local (audited entity) management in a closing meeting to minimize disputes. If a dispute is unresolved, the positions of the auditor and management should be given. Where corrective action has been implemented by management it should be referred to in the report.

• Opinion and Recommendations - Present conclusions regarding the findings. Propose suggestions to solve the problems.

• Signature - Have the auditor-in-charge sign the report.

• Acknowledgement - Provide a statement recognizing help given the auditor by the manager along with a request for a reply to the report.

• Appendices (optional) - Appendices should contain information not needed to comprehend the report but valuable if detailed information is desired. Examples are a listing of standards violated, explanations, and statistical information. This data should be after the body of the report.

• Graphics (optional) - Graphics help explain material in the report including graphs, charts, pictorial representations, and photographs. For instance, a flowchart can explain how a recommendation may be implemented. Pictures truly are worth a thousand words.
   

The format of the internal audit report depends on whether the report being issued is formal or informal, the readers being addressed, and the nature and reasoning of the auditing activity. Different auditing organizations will use different report formats and divide their reports into different subsections. The format should be consistently used. The internal audit report must be accurate, concise, clear, and timely. The internal audit report should be distributed to those who have authority to take corrective action.