Audit reports are often heard about but not fully understood. Whether they are generated by government agencies or accounting firms, audit reports provide a powerful, third-party review of a company or agency and what it’s been doing with resources. This is particularly useful for those who have a financial stake in that organization, whether it be as taxpayers, shareholders or stakeholders. However, financial writing covering audits often takes the easy way out, just rewriting the executive summary of an audit report. This kind of analysis mistake can often miss the big issues of the audit findings as well as the context in which they are reported.
An audit report is typically constructed following a set formula. A determined body of rules are first identified. These rules are then applied to the behavior of the company or agency, its spending or its activities. Where the auditor finds variations or differences, those are identified and discussed with the examinees. If the reasoning or explanation is insufficient to rationalize the variance, then the auditor identifies it as a finding. Additionally, the auditor also spells out in writing what should have occurred and what the variation is resulting in with regards to risks. In financial writing the risks are typically quantified in the loss, misuse, misdirection or loss of monies.
The audit report itself is then constructed in three parts for easy finding of details. The first section is the executive summary. This is a brief explanation of the document that lasts maybe a page or two. Many readers go to only this section for a quick summary and digestion of the audit. The second section is the body. This is where each finding is detailed with the formula above and the specific conclusions. A lot of the context and details as well as the players are identified here, but it requires some in-depth reading. The third part is the company or agency response by those examined. This is where the issues by those examined push back on or formally note their disagreement with the audit; they are not minor if put in writing and usually reflect a point where the examinees feel they can defined their variation, regardless what the auditor wrote. Finally, the appendix includes any secondary research or additional data such as charts and graphs.
Good financial writing doesn’t fall into the trap of immediately assuming a conspiracy. Summarizing an audit means reading the details and the examinee’s defense response as well. Objective writers try to show both sides of a story versus just one. Unfortunately, audits tend to trigger assumptions of something being wrong, like indictments. To avoid a biased perspective, writers should dig deeper and understand the story behind the story. Particularly with government audits, even audit agencies have political motivations. Just repeating the summary page doesn’t do the issue justice. Instead, writers should make calls and get additional input, using the audit report as a basis for interview questions. Most audited organizations will be glad to defend themselves and auditors will equally want to defend their reports. So the post-audit environment is often ripe for more detail to be found.
Tom L has worked in government for almost 20 years, seeing all types of financial audits along the way. He has also been covering financial topics for just as long, from public investment to investigations.