Obligors for auditing financial statements are defined in the Accounting Act and the Audit Act, as well as in some special regulations. With the adoption of the new Accounting Act, all medium-sized enterprises and economies of the Republic of Croatia are subject to one-year audit of financial statements. The financial statements must present a true and fair view of the financial situation, the business performance of the company and the ability of the company to generate cash flow that must be positive. The purpose of the audit is to express an opinion on whether the financial statements, in all relevant respects, are in accordance with the defined financial reporting framework, while the purpose of the audit is to confirm, independent opinion of auditors authorized, the credibility of financial statements issued by management. Persons examining and observing the reality and objectivity of financial statements for the interests of external users must adhere to the prescribed guidelines and auditing standards. This master thesis refers to the specifics of auditing for small and medium-sized enterprises, which in the Republic of Croatia amounts 99.7% of all real sector enterprises in the territory of the Republic of Croatia. Also, the paper will describe the entire process of auditing the financial statements of small and medium enterprises, the specifics of the audit risk assessment and the reporting of auditors to small and medium enterprises. At the end of the thesis, an example of the auditor's report for a medium-sized enterprise will be presented and described, and guidelines for the further development of the audit of small and medium-sized enterprises will be given.