How to read, process and implement an audit report
As an auditor, I’ve seen all sides of the spectrum – business owners who glance at the report, nod sagely, and file it away untouched.
However, I’ve also seen those who treat the findings as a roadmap to transform their business.
Unsurprisingly, it’s the latter group that tends to do best.
So, if you want to be in that camp too, here’s my advice on how to read, process, and implement your audit reports in future.
The structure of an audit report
Before you can do anything useful with an audit report, you need to understand what it’s telling you.
A standard audit report consists of several key components:
- Auditor’s opinion – This tells you whether your financial statements present a ‘true and fair view’ of your business. You’ll typically see one of four types of opinions:
- Unqualified (clean) opinion – The best outcome. Everything is in order.
- Qualified opinion – There are some issues, but they’re not deal-breakers.
- Adverse opinion – Major problems. Your financial statements do not accurately reflect reality.
- Disclaimer of opinion – The auditor couldn’t get enough information to give a proper verdict. This is a red flag.
- Basis for opinion – This section explains why the auditor reached their conclusion. If there’s anything you don’t understand, ask questions.
- Key audit matters (KAMs) – This highlights significant risks and issues the auditor paid particular attention to. If something appears here, it deserves your attention too.
- Financial statement analysis – The meat of the report. It’s not just about numbers; it tells a story about your business’s financial health.
- Internal control weaknesses – If your audit includes an internal controls assessment, this section highlights areas where your processes might be letting you down.
What do these things actually mean?
Once you’ve understood the structure, the next step is to interpret what it actually means for your business.
Here’s where things get interesting.
- Look for patterns, not just individual issues – A single minor weakness in your internal controls might not be a huge problem, but multiple similar issues suggest a systemic failure. That’s where you should focus your energy.
- Context matters – Financial figures don’t exist in a vacuum. Compare this year’s results with previous years and industry benchmarks. Are you improving, stagnating, or declining?
- Materiality is key – Not all findings carry the same weight. An issue with a tiny portion of your revenue is less concerning than a problem affecting a major revenue stream.
- Don’t ignore ‘near misses’ – Just because something hasn’t caused a financial disaster yet doesn’t mean it won’t. If an auditor highlights a risk, it’s worth addressing before it turns into a real problem.
Implementing the recommendations
Prioritising issues is the first step.
Immediate concerns that could lead to regulatory non-compliance or financial loss should be tackled first.
Medium-term risks, such as process inefficiencies, should be addressed next, followed by long-term improvements, including strategic financial planning.
I recommend that you identify who in your team is responsible for fixing each issue.
Determine whether you need external support, such as accountants, consultants, or IT specialists, to effectively implement these changes.
However, if, for example, an audit flags weak cash flow management, don’t just aim to ‘improve cash flow.’
Set a tangible goal, such as reducing debtor days from 60 to 45, to track progress effectively.
Also, don’t just assume changes are working just because they’re in place.
You should be regularly assessing their effectiveness and adjusting where necessary to ensure continuous improvement.
I often find that embedding changes into company culture solidifies long-term success so it’s best to make financial discipline and risk management part of your company’s DNA if possible.
My suggestion: Treat audits as a business growth tool
If you only take one thing away from this, an audit isn’t just about compliance – it’s a tool for growth.
A well-interpreted audit report can help you streamline processes, manage risks, and make better financial decisions.
In short, the smartest business owners don’t dread audits – they embrace them.
They see them as an opportunity to make their business stronger, more resilient, and ultimately, more profitable.
So, next time you receive an audit report, don’t just skim it and move on. Dig in, ask questions, and use it as a blueprint to drive your business forward.
To speak to an audit expert, please get in touch!