Audit Report

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These reports form the medium of communication of the auditor’s views to the members of the company.

Contents of Audit Report

The basic contents of the auditor’s report are:

Title

The Auditor’s Report should have an appropriate title i.e. as “Auditors Report” distinguished from other Reports, e.g. reports of officers of the entity, Board of Directors.

Addressee

The Auditor’s Report should be appropriately addressed as required by the circumstances of the engagement and applicable laws and regulations. Ordinarily, the Auditor’s Report is address appointing the Auditor.

Opening or Introductory Paragraph

  • The Auditor’s Report should identify the Financial Statements of the entity that have been audited, including the date of and period covered by the Financial Statements.
  • The Report should include a Statement that the Financial Statements are the responsibility of the entity’s management and a Statement that the responsibility of the Auditor is to express an opinion on the Financial Statements based on the audit.

Scope Paragraph

  • The Auditor’s Report should describe the scope of the audit by stating that the audit was conducted in accordance with auditing standards generally accepted in India.
  • The Report should include a statement that the audit was planned and performed to obtain reasonable assurance whether the Financial Statements are free of material misstatement.
  • The Auditor’s Report should described the Audit as including:
    • Examining, on a test basis, evidence to support the amounts and disclosures in financial statements.
    • Assessing the accounting principles used in the preparation of the Financial Statements.
    • Assessing significant estimates made by management in the preparation of financial statements.
    • Evaluating the overall position of Financial Statements.
  • The Report should include a statement by the Auditor that the audit provides a reason opinion.

Opinion Paragraph

The Opinion paragraph of the Report should indicate the Financial Reporting framework used to prepare the Financial Statements. It should state the Auditor’s opinion as to whether the Financial Statements give a true and fair view in accordance with the financial reporting framework & where appropriate, whether the Financial Statements comply with the statutory requirements.

Date of the Report

The date of an Auditor’s Report is the date on which the Auditor signs the report expressing an opinion on the Financial Statements. The Auditor should not date the Report earlier than the date on which the Financial Statements are signed or approved by Management.

Place of Signature

The Report should name the specific location, which is ordinarily the city where the Audit Report is signed.

Auditor’s Signature

The Report should be signed by the Auditor in his personal name. Where a firm is appointed as the Auditor, the Report should be signed in the personal name of the Auditor & in the name of the Audit Firm. The Partner/Proprietor signing the Report should mention his ICAI Membership number.


Types of Audit Report

SA 200 states that the audit report should contain a clear written expression of opinion on the financial statements. In order to express such an opinion, the auditor should review and assess the conclusions drawn from the audit evidence obtained by him. On the basis of his assessment, the auditor may issue an unqualified, qualified, adverse or disclaimer of opinion.

Unqualified Opinion

The auditor issues a clear report in case he does not have any reservation in respect of matters contained in the financial statements. In such a case, the audit report may state that the financial statements give a true and fair view of the state of affairs and profit and loss account during the period. For issuance of unqualified report, the auditor should satisfy himself that:

  • Reasonable evidence is obtained in support of the transactions recorded in the books of accounts.
  • Accounting entries passed in the books of account are in conformity with the applicable accounting principles and standards followed consistently.
  • The financial statements prepared represent a true summary of transactions that took place during the year.
  • The process of classification and aggregation followed in the preparation of the financial statements is fair and does not hide a material fact. The form of accounting statement is in the required form if any.
  • The accounting statements do not contain any misstatement.
  • The material transactions recorded in the books are neither illegal nor beyond the legal power of the client.
  • All statutory and relevant disclosures have been made.

Circumstances that may result in other than unqualified opinion

  • Limitation of Scope: The client or circumstances may impose the limitation of scope on auditor’s work.

  • Disagreement with Management: The disagreement may be as regards the applicability of accounting policies or the method of their application including the adequacy of disclosures in the financial statement.

  • Uncertainty: A significant uncertainty, the result of which will be dependent upon resolution of future event may cause the auditor to qualify his report.

Qualified Opinion

A qualified opinion is issued when the auditor concludes that he cannot issued an unqualified opinion but that the effect of any disagreement, uncertainty or limitations on scope is not so material as to require an adverse or a disclaimer of an opinion. It is given in respect of a part of the information reflected in the financial statements and that the auditor is not in agreement with that part.

The need for a qualified opinion arises where the auditor is satisfied with the truth & fairness of the financial statements, yet because of certain transactions, he is not fully satisfied so as to issue a clean or unqualified report. There can be numerous situations where it would be proper to opt for a qualified opinion.

Adverse Opinion

not show a true and fair view of the state of affairs or of the operating results. An adverse opinion is given when there is flagrant violation of accounting principle or evidence is not available for material transactions or where there exists material misstatement or concealment about financial affairs.

The auditor must have sufficient evidence in favour of his conclusions. Where the audit gives an adverse opinion, he must disclose all material reasons there for & clearly state that the financial statements do not reflect a true & fair view.

Disclaimer of Opinion

Such an opinion has to be necessarily issued when the auditor is unable to express an opinion on the financial statements because he fails to obtain sufficient information to form an opinion.

For instance, non-availability of records either because they are destroyed in fire or seized by the government authorities or they are not accessible for any other reasons. Such an opinion is appropriate when auditor cannot form an opinion due to absence of the records. The auditor must also state the reasons whenever disclaimer of opinion is given.

Signature of the auditor on Audit Report

Only a person appointed as auditor of the company can sign the Auditor’s Report or sign or authenticate any other document of the company that is required to be signed by the auditor as required under the Act.

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