REPORTS AND CERTIFICATES 1. Contents of auditor's the auditor has completed his investigation of the books and ac counts of his client, he usually prepares in his own office a report of the result of his examination. Each auditor will have his own method of preparing this report. All reports are alike to the extent that in balance sheet audits a balance sheet will be submitted. If ,the audit is a detailed audit, a profit-and-loss state ment will also be prepared. Both statements will be supported by such schedules as the auditor deems necessary. The report will include comments on those matters which the auditor deems necessary to bring to the attention of his clients. The nature and the character of the comments will be largely de termined by the nature of the contract which the client makes with his auditor.
The certificate of the auditor will also be included, either on a separate sheet or typed upon the balance sheet. The client should arrange beforehand with the auditor for the number of copies of the report which he desires. Thus, in the case of a partnership, each partner should receive a copy of the auditor's report. A client might also request additional copies to submit to his 2. The scope of the auditor's report.—The contents of the auditor's report will ordinarily deal only with matters relating to the accounts. As a rule, if the client has not specifically requested it, the auditor will not criticize the system unless it is inadequate or de void of necessary internal checks. Even in this in stance, he will probably do nothing more than sug gest the advisability of a change, leaving it to the client either to pursue the matter further or to leave the system unchanged.
3. The right of an auditor to make suggestions and recommendations.—In so far as methods of account ing are concerned, the auditor is entirely within his province in making suggestions and recommendations. Suggestions or recommendations on matters of busi ness policy or organization are beyond the scope of the auditor's work. Nevertheless, it often happens that a client will value the good judgment and busi ness ability of his confidential adviser to such an ex tent as to welcome suggestions or criticisms, both as to matters of business policy and as to internal or ganization. If advice of this character is given by the auditor, in most instances it should be given orally, as it does not properly form a part of an auditor's report.
4. Eliminating extraneous matter from an auditor's report.—The importance of the elimination of ex traneous matter from the auditor's report will perhaps be better realized when it is considered that one of its most significant uses is as the basis of a bank loan.
Hence, suggestions or recommendations for changes in system or internal organization May well be made the subject matter of a special report.
5. Auditor's mistakes in preparing reports.—Busi ness men sometimes justly criticize the reports of an auditor because the latter has not written it with spe cial reference to those to whom it is addressed. It is clear that a report to a client who has no knowledge of accounts should be free from technical terms. The statements accompanying the report should be pre pared, not with special reference to the accounting technique, but in such a way that a layman could easily understand them without having had any knowledge of debits and credits.
Some auditors, also, fall into the mistake of mak ing their reports too cumbersome, reporting unin teresting details which the business executive has neither the time nor the inclination to consider. This type of auditor utterly fails in his mission, and he cannot blame the business man if the latter does not engage him for a subsequent audit. Many times the business man has called in another accountant, and asked him to audit the books again and prepare a report which he could understand.
6. Restrictions placed by auditors on the use of their reports.—Some auditors have felt the necessity of forbidding the public use of their reports and cer tificates, unless special permission to use them has been obtained in advance. The reason for this is, that owing to the misuse of auditor's reports in the past, innocent third parties have been repeatedly de ceived, very often to their financial detriment. Un scrupulous promoters have, on occasions, published misleading advertisements in which it appeared that auditors had certified to certain facts, when they had not done so. This misinterpretation of the auditor's report was made with intent to deceive prospective investors.