Audit (Paper 12B) Key points to remember 6.
Key points to remember
Chapter 6 – Reporting requirements under the Companies Act
Audit report A statement of observation where the auditor expresses his opinion
on the financial statements
Importance It is the concluding part of the audit
of audit It gives opinion of the auditor
report It reflects the work done by the auditor
It records the auditor’s responsibility
Indicates the real position of financial status of the company
Basic Elements of audit report are:-
elements of Title – Auditor’s report
audit report Addressee - Authority who appointed the auditor
Opening paragraph – Identifies the name of the entity, period
covered under audit, responsibility of auditor
Scope paragraph – describes the relevant law and standards
under which the audit is performed
Opinion paragraph – contains the opinion of the auditor, ie
whether true and fair view or not
Date of the report; Place of Signature of the auditor; Auditor’s
signature, auditor’s membership number
Types of Clean / Unqualified Report – Financial statements gives a true and
auditor’s fair view
report Emphasis of matter – Financial statement gives a true and fair view
but some issues related to future have been highlighted by the
auditors
Qualified report – Financial statement gives a true and fair view but
some issues related to current financial year have been highlighted
by the auditors
Adverse report – Financial statement do not give a true and fair
view, owing to certain material misstatements
Disclaimer of opinion - No opinion is expressed by the auditor on
all the items of Financial Statements
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Audit (Paper 12B) Key points to remember 6.2
Piecemeal Opinion - No opinion is expressed by the auditor on
some items of Financial Statements
Date of The date of auditors report should be the date of completion of audit
Auditors Events occurring after the date of auditors report is not the
report responsibility of the auditor
The date of auditors report should be equal to or a later date than
the date of signing of financial statements by the company’s
signatories.
Companies According to this order, the auditor is required to report / comment
(Auditor’s on the 16 specified matters in the auditors report, after his
Report) examination of the accounts
Order, 2016
(CARO)
Applicability CARO is applicable to all the companies except for the following
of CARO companies:
Banking company
Insurance company
Companies with charitable / philanthropic objectives like NGOs
(registered under section 8 of the Companies Act)
One person company
small company
private company having:
a paid up capital and reserves of not more than INR 1 crore; and
total borrowings of not more than INR 1 crore; and
total revenue of not more than INR 10 crore
Revision of In case there is a revision in the accounts, after the audit has been
accounts completed, but before the audited financials have been circulated to
before the shareholders, the auditor may re-audit the revised financials
adoption in subject to the following conditions:
the AGM Recover the signed copies of the original accounts and auditors
report back from the company
Ensure that adequate disclose, in regard to amendment, is there
in the revised financials
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Audit (Paper 12B) Key points to remember 6.3
Issue a fresh report on the revised financial statements in which
auditor should refer to the earlier financials and the report
The Partner who signed the Original Audit Report, should also
sign the Revised Report. In case of signing by any other Partner,
the reasons thereof should be stated.
Audit of Abridged financial statements are the shortened version of the
abridged detailed financial statements.
financial These are prepared in addition detailed Annual accounts for ease of
statement understandability and reference of the shareholders.
(Section 136) If they are prepared after the date of signing of the Annual accounts,
the events occurring between the date of sign of annual accounts
and abridged accounts is not the auditors responsibility
Accounts of Audit of a liquidator is conducted on similar lines as any other
liquidators company
(section 138) Auditor should ensure that the Liquidator’s Account (ie.
realisations and disbursements) is in agreement with the books and
records
Auditor should ensure that the Liquidator’s Account give a true and
correct view of the realisations and disbursements of the Liquidator.
When a Chartered Accountant acts as a Liquidator, the Statements
of Accounts to be filed u/s 348 of the Companies Act, 2013, shall
be audited by a Qualified Chartered Accountant, other than the
Liquidator Chartered Accountant.
Audit of To ensure that all the subsidiaries, joint ventures and associates
consolidated have been included in the CFS.
financial To ensure that the accounts of such entities whose composition of
statements Board of Directors is controlled by the Company is also included in
(CFS) the CFS
Where a Subsidiary / Associate /Jointly Controlled Entity is
excluded from the CFS, the Auditor should examine the reasons for
the exclusion
To ensure that the adjustments of goodwill / capital reserve have
been suitably carried out
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Audit (Paper 12B) Key points to remember 6.4
To ensure that intra-group transactions, like intra-group
indebtedness, management fees / interest paid, have been
appropriately set off in the CFS
To ensure that the equity attributable to the minority interest is
determined properly
Audit Unlike the auditor’s report, an audit certificate gives a confirmation
certificate on the accuracy of certain information. Following is the comparison
between the two:
Audit Report Audit Certificate
Opinion on the financial Confirmation on the accuracy of
statements. It is subjective certain information / fact. It is
objective
It doesn’t guarantee correctness It guarantees absolute
of financial statements correctness of the concerned
fact / information
It covers entire accounts / It covers a certain part of the
financial statements accounts / financial statement
It doesn’t hold the auditor It holds the auditor responsible
responsible for anything wrong for anything wrong in the
in the accounts accounts
It may provide suggestions for It doesn’t provide suggestions
improvement for improvement
It covers all the transactions It covers very specific
done during the year transactions
Issued in the specified format There is no standard format
It is addressed to the members It is addressed to particular
person or sometimes may
include the words like “To
Whomsoever it may concern”.
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