An audit report is a statement through which an audit or submits his findings and expresses his opinion on the state of affairs of the company’s Business impartially .

“The auditor is required to make a report to the member of the company –

a) On the accounts examined by him, and

b) On every balance sheet and profits and loss account ; and

c) On every other documents declared by the act, to be annexed to the balance sheet and profit & loss account which are laid before the company in the general meeting during his term of office. Such a report is known as the auditor’s report.”

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Audit report

It is the medium through which an auditor express his opinion on the financial statement.

It is the end product of audit.

It is based on factual information.

Nature of audit report

4) The audit report may be short or long.

5) The audit report may be in the form of letter or statement.

6) The audit report is attached to the balance sheet.

IMPORTANCE OF AN AUDIT REPORT

It is a statutory requirement in the case of a company audit.

It is the end product of audit. It summarizes the result of the audit work done by the auditor.

It is the medium through which an auditor submits his findings and expresses his opinion on the state of affairs.

An audit report ensures to the shareholder that the accounts of the company are properly maintained.

It is evidence in the court of law

Unqualified Opinion

Qualified Opinion

Disclaimer of Opinion

Adverse Opinion

An unqualified opinion is expressed when the auditor concludes that the financial statements give a true and fair view in accordance with the financial reporting framework used for the preparation and presentation of the financial statements. It indicates that:-

Generally accepted accounting principles are consistently applied in the preparation of financial statements;

Financial statements comply with the relevant statutory requirements and regulations; and

There is adequate disclosure of all material matters relevant to the proper presentation of financial information (subject to statutory requirements)

In situations when a company’s financial records have not been maintained in accordance with GAAP but no misrepresentations are identified, an auditor will issue a qualified opinion. The writing of a qualified opinion is extremely similar to that of an unqualified opinion. A qualified opinion, however, will include an additional paragraph that highlights the reason why the audit report is not unqualified.

A qualified report is given by an auditor under the following circumstances:

1) When he is not satisfied with the accounts or financial statements.

2) When proper books of accounts as required by law have not been maintained.

3) When there is a violation of the companies act

4) Where report is a material misstatement in the financial statement.

5) Where there is an omission of a material disclosure.

6) When the explanations sought by the auditor are not made available to him.

7) Where the assets are over or under valued.

8) Where secret reserve have been created.

9) Where there is insufficient provision for depreciation.

10) Where there is inadequate provision for bad and doubtful debts.

The worst type of financial report that can be issued to a business is an adverse opinion. This indicates that the firm’s financial records do not conform to GAAP. In addition, the financial records provided by the business have been grossly misrepresented. Although this may occur by error, it is often an indication of fraud. When this type of report is issued, a company must correct its financial statement and have it re-audited, as investors, lenders and other requesting parties will generally not accept it.

Qualified Report Adverse Report

I . A Qualified Audit Report is one an Auditor . gives an opinion subject to certain reservations.

An Adverse Report is given when the concludes that based on his examination, he does not agree with the affirmations made in the Financial Statements / Financial Report.

ii. The Auditor's reservation is generally Stated as: "Subject to the above, we report that the Balance Sheet shows a true and fair view."

The Auditor states that the Financial Statements do not present a true and fair view of the state of affairs and working results of the organisation.

iii. The accounts present a true and fair view subject to certain reservations.

The accounts do not present a true and fair view on the whole.

iv. A Qualification is made in the Audit Report when the Auditor has reservation on specific item(s) of material nature.

An Adverse Report is given when the Auditor has his reservations on the true and fair view presented by the Financial Statements.

Disclaimer of Opinion :-

On some occasions, an auditor is unable to complete an accurate audit report. This may occur for a variety of reasons, such as an absence of appropriate financial records. When this happens, the auditor issues a disclaimer of opinion, stating that an opinion of the firm’s financial status could not be determined.

Basis Report Certificate

Meaning An auditor’s report is merely an expression of the auditor’s opinion on the financial statement of a business.

An auditor’s certificate isthe declaration as to the truthfulness of a statement given by a person.

Base It is based on facts, estimates and assumptions

It is based only on facts.

Basis Report Certificate

Guarantee It is not guaranteed of the absolute correctness and accuracy of the financial statements.

It is a guarantee of the absolute correctness and accuracy of the financial statements.

Authentication If a signed report by an auditor is wrong, the auditor cannot be held responsible.

If a duly signed certificate by an auditor is wrong, the auditorwill be responsible.

Audit Committees: -

An audit Committee is a subcommittee of the board of Directors formed for the purpose of reviewing the annual financial statements before their submission to the Board of Directors, assisting the Board of Directors in discharging their function efficiently and for acting as a liaison between the board of directors and the external auditor.

Nature and composition

The setting up of audit Committee has been supported by Stock Exchange, Corporate law authorities, Professional accounting bodies.

The Composition of audit Committee depends mainly up on the nature and the size of the business. An audit committee, generally, consists three to five members.

Functions of Audit Committee are: -

1. To consider questions of appointment, resignation, dismissal, remuneration of the auditor.

2. To discuss the nature and scope of duties of external auditor.

3. To review the half yearly and annual financial statements.

4. To discuss the issues and problems arising from the audits.

5. To assist the Board of Directors in the fulfilment of their duties and responsibilities.

6. To evaluate the efficiency of the working of the Board of Directors