Final answer:
An audit report provides assurance of financial integrity, adds legitimacy, and is important for corporate governance in a small family-owned enterprise, facilitating confidence among owners, investors, and lenders.
Step-by-step explanation:
The principal use and significance of an audit report for a small family-owned enterprise is multifaceted. Primarily, it provides assurance to the owners, and potential investors, that the financial statements of the company are accurate and fair. This enhances confidence in the company's financial integrity. The audit report is also a crucial tool for assessing the effectiveness of the company's corporate governance. In family-owned businesses, which may not have many external shareholders, the report still adds legitimacy and may be important for securing loans or attracting potential investors.
The board of directors, as part of the corporate governance framework, is tasked with oversight of the company's management and operations. An auditing firm complements this by reviewing financial records and providing an independent verification that the financial statements are reasonable. This external validation is particularly important in instances where external investors or lenders are involved. In the case of smaller enterprises, an audit report can spotlight performance issues or financial mismanagements early, potentially averting larger issues as seen with corporate failures, such as the infamous Lehman Brothers.