Different Types of Audit Report

1. Un-qualified opinion [Clean Report] An unqualified opinion should be expressed when auditor concludes that financial statements give true & fair view in accordance with the financial reporting framework used for presentation and preparation of the financial statements. Unqualified opinion also indicates that a) The financial statement have been prepared using Generally accepted accounting principles Which have been consistently applied b) Financial statements comply with relevant statutory requirements c) There are adequate disclosures of all material matters [AS]

Modified Audit Report

Matters that do not affect auditors opinion (Immaterial) (Emphasis of matter-paragraph)

Matters that do affect the auditors opinion (Material)

Qualified Audit Report

Adverse Audit Report

Disclaimer of opinion

Matters that do not affect the auditors opinion [(Immaterial) emphasis of matter]
1. of matter paragraph 2. 3. 4. 5. The paragraph is given to highlight a matter affecting financial statement which in opinion of an auditor needs more extensive disclosures The emphasis of matter paragraph does not affect auditors opinion and it will specifically refer to this fact Emphasis of matter paragraph is generally given to highlight a material matter regarding going concern problem where going concern question is not resolved. This paragraph is given above opinion paragraph Auditor report is modified adding an emphasis

B. opinion [Material]
1.

Matters that do affect the auditors

Qualified audit report Qualified audit report should be expressed when auditors concludes that an unqualified opinion cannot be expressed There is disagreement with management BUT It is not so material and pervasive so that adverse opinion is required Or There is limitation on scope of audit BUT it is not so material or pervasive so that disclaimer of opinion is required The above stated situation leads to a qualified opinion. Qualified opinion should be expressed as being Subject to or except for All qualification are given at one place in auditor report and they should be above opinion paragraph All qualification should be qualified individually and their impact of P&L & B/S should be ascertained In case qualification cannot be qualified then this fact is to be disclosed by an auditor The aggregate effect of all qualification is also required to be computed and aggregate affect on P&L & B/s needs to be disclosed. In case the aggregate affect is so material that it leads to distortion of view expressed in financial statement then instead of qualified report, an auditor is required to uses adverse opinion. 2. Adverse Audit Report An adverse opinion is expressed when possible effect of a disagreement with management about financial statement is so material and pervasive , that

auditor concludes that a qualification of report is not sufficient to disclose the misleading or incomplete nature of financial statement When impact of qualification lead to change in view [For ex. Profit into loss or vice versa] than adverse opinion should be given by an auditor. 3. Disclaimer of opinion A disclaimer of opinion is expressed when possible effect of limitation on scope of audit is so material and pervasive that auditor has not been able to obtain sufficient and appropriate audit evidence.

ELEMENTS OF AUDIT REPORT [AAS-28]

A. B. C. D. E. F. G. H. A. Title Addresses Opening or introductory paragraph Scope paragraph Opinion paragraph Date of report Place of signature Auditors signature Title The auditors report should have an appropriate little i.e. Auditors Report. It should be distinguished from the reports of others eg. officers, Board of Directors etc. Addresses Auditors report should be appropriately addresses It should be addressed ACC to circumstances of engagement and applicable laws and regulation Auditors report is genially addressed to authority appointing the auditor Opening of Introductory Paragraph 1. Auditors report should identify the financial statement relates to Entity Date & period covered in financial statement that have been audited 2. It should include a statement of responsibility Responsibility

B.

C.

Management Auditor report should state that financial statements are responsibility of management

Auditor The responsibility of the auditor is to express an opinion on the financial statement based on audit

D Scope Paragraph 1. The report should described the scope of audit by stating the audit was conducted in accordance with the auditing standards generally accepted in India 2. The report should include a statement that audit provides a reasonable basis for opinion 3. The audit report should describe. The audit done is on basis of a) Examining on a test basis b) Evidence supporting amounts and disclosures in financial statement obtained c) Assessment of accounting principles used in preparation of financial statement

d)

Assessment

of

significant

estimates

made

by

management e) Evaluation of overall financial presentations The basic objective of audit is audit provides only Reasonable assurance and by stating this in scope paragraph the inherent limitations of audit are also signified. Statements of facts [Report on Principles assertions u/s 227 (3)] is included in scope paragraph. 1. 227 3a- Whether auditor has obtained all information and explanation which to best of his knowledge and belief were necessary for purpose of audit. 2. 227 (3) (b)- Whether in his opinion proper books of account have been kept by company so far as appears from his examination Whether proper returns of branches not visited by him have been received 3. 227 (3) bb-Whether the report on accounts of any branch office audited u/s 228, by a person other than company auditor has been forwarded to him How he has debt with the same in preparing the auditor report. 4. 227 3 (c)-Whether the P&L A/c & B/s are in agreement with the books of account and returns 227 (3) (d)- Whether in his opinion B/s & P&L comply with accounting standard referred to in Sec 211 (3C) 5. 227 (3) (f)- Whether any director is disqualified from being appointed as director U/s 2741 (g) 6. 227 (3) (e)- Auditor shall state his observations or comments which have adverse effect on functioning of company D. OPINION PARAGRAPH [227 (2)] The opinion drawn by an auditor on basis of audit carried by him in regard to True & Fair view of a) P&L [for the year ending] b) B/s [as at] in conformity with generally accepted accounting principles is to be given DATE OF AUDIT REPORT 1. The date on which audit is completed should be the date of audit report 2. This date should not be earlier then the date on which financial statement are signed or approved by the management

E.

PLACE OF SIGNATURE The report should name the specific location which is generally the city where audit report is signed G. AUDITOR SIGNATURE 1. Only a person appointed as auditor should sign in case of proprietor firm 2. In case firm is appointed then a partner practicing in India should sign.

F.

Membership no to be mentioned below Name & Signature

SPECIAL AUDIT SEC 233 (A) 1. Special audit is ordered by central government if it feels. Affairs of business are not managed in accordance with sound business principles or prudent commercial practices b) Company is managed in manner which is likely to cause damage to the interest of trade, industry c) The financial position is such as to endanger its solvency Shareholders can complain to the central government about affairs of company. If central government is satisfied it can order special however central government is not bound by such complaint even if the complaint is by all shareholders. Special audit can be ordered by central government even without giving company an opportunity of being heard Period of special audit will be mentioned in the order Special auditor can be same person as appointed by company as company auditor or another person, as per desire of central government Powers & duties of special auditor will be same as that of company auditor as per Sec 227 7 Special auditor to submit his report to central government 8 Remuneration is decided by central government paid by company. It company does not pay it is recovered as land revenue. a)

2.

3. 4. 5. 6.

It may take action as it consider necessary

General

In case central government does not take any action for 4 months. It can direct company to circulator read the special audit report to shareholders

Scope Specific as per directions of central government