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AUDITORS' COMMUNICATION( unit v)
AUDIT REPORT : A written document of the auditor containing his independent professional
opinion whether the books of accounts of the Company exhibits a true and fair view of the
state of affairs of the [Link] report is subsequently provided to a “user” (such as an
individual, a group of persons, a company, a government, or even the general public, among
others) as an assurance service in order for the user to make decisions based on the results
of the audit.
Audit Certificate : When an auditor certifies the financial statement , it implies that the
contents of the statement are reliable as the auditor has vouched for the exactness of
[Link] auditor gives guarantees about the genuineness of facts and figures of the
statements and does not involve any estimate or [Link]. Auditor may certify value of
imports or exports of a company or certain income and expenses for the purpose of Income
tax.
TYPES OF AUDIT REPORT
1. CLEAN/ UNQUALIFIED REPORT. An opinion is said to be unqualified 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
[Link] auditor makes a clean report when he is satisfied that:
[Link] Financial Statements have been prepared using the Generally Accepted
Accounting Principles
[Link] Financial Statements corresponds to the books of accounts.
c. He has got reasonable evidence in support of all material transactions.
d. All relevant information have been disclosed.
2. ADVERSE REPORT An Adverse Opinion is issued when the auditor determines that the
financial statements of an auditee are materially misstated , the information contained is
materially incorrect, unreliable, and inaccurate in order to assess the auditee’s financial
position and results of operations and the auditor gives a negative opinion that the balance
sheet and profit and loss account do not exhibit a true & fair view.
3. Disclaimer of Opinion When an auditor is unable to express an opinion or it may not be
possible for him to collect all information which are necessary for expressing an opinion on
the financial statements and states that in the report, it becomes a report with Disclaimer of
Opinion.
4. Piecemeal ReportAuditor's opinion is not on the entire financial statements but relate to
certain items contained in the statements.
5 .QUALIFIED AUDIT REPORT
When an auditor expresses an opinion inhis report with a reservation but its nature is such
that it does not materially affect the true and fairview shown by the accounts then the
auditor's report is said to be a qualified audit [Link] other words,his assertions in the
qualified report regarding fairness of financial statements depend upon some [Link]
may qualify his report stating that 'subject to above,we report the balance shows a true &
fair view.......'.
The several types of qualifications include:
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Limitation of scope of auditors' work that prevent them from obtaining sufficient
[Link] limitation maybe internal, such as directors may not permit to attend a stock
take or such limitation maybe outside the control of auditors or the officers of the company
such as all records of company have been destroyed by fire.
Disagreements : auditors do not agree with the accounting treatment or disclosure of some
items in the accounts given by the officers of the [Link] such cases,the auditor issues a
qualified report.
Reasons for qualification:
when one or more areas of the financial statements do not conform with GAAP (e.g.
are misstated),
Accounting principles maynot have been applied consistently and proper disclosures
of such fact has not been given.
The provisions for bad and doubtful debts may not be adequate.
Insufficient provisions for depreciation on fixed assets has been made.
various assets of the Company may have been over or under valued.
Proper explanations sought by the auditor may not have been available to him
Inconsistency in presenting accounting information
CONTENTS OF AUDIT REPORT
AS PER SEC 227 OF COMPANIES ACT, 1956,THE FOLLOWING MATTERS ARE TO BE
INCLUDED IN THE AUDITOR'S REPORT OF THE COMPANY:
1. Whether in his opinion & to the best of his information and according to the information
given to him :
a. The accounts of the Company examined by him give the information as required under
Companies Act.
b. The Balance Sheet and P/L account exhibit a true and fair view of the affairs of the
Company.
2. Whether he has obtained all information and explanations which were necessary for the
purpose of his report.
3. Whether proper returns and audit report of branch offices not visited by him has been
forwarded to him and the methods used to deal with branch auditor's report in preparing his
report.
[Link] the P/L and balance sheet of the Company are in agreement with the books of
accounts and returns.
5. Whether in his opinion the Balance Sheet and P/L a/c are in conformity with the books of
accounts and returns.
6. Whether in his opinion the Balance Sheet and profit and loss account comply with
accounting standards.
7. Whether any of the matters in the auditor's report is answered in negative or with
qualification , the reasons for such should also be stated.
AS PER COMPANIES ( AUDITOR'S REPORT) ORDER, 2003:
The order is produced as follows
TITLE : This order may be called the Companies (Auditor’s Report) Order, 2003.
AREA OF APPLICaTIOn : It shall apply to every company including a foreign company as
defined in section 591 of the Act, except the following :—
(i) a Banking company as defined in clause (c) of section 5 of the Banking Regulation Act,
1949 (10 of 1949);
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(ii) an insurance company as defined in clause (21) of section 2 of the Act;
(iii) a company licensed to operate under section 25 of the Act; and
(iv) a private limited company with a paid-up capital and reserves not more than fifty
lakh rupees and does not have loan outstanding exceeding Rupees Twenty Five lakhs
from any bank or financial institution and does not have a turnover exceeding five crores
rupees at any point of time during the financial year and which has not
accepted any public deposit.
EFFECTIVE DATE :It shall come into force on the 1st day of July, 2003.
MATTERS TO Be INCLUDED IN AudITORS' report
1. RE : Fixed Assets
(a) whether the company is maintaining proper records showing full particulars, including
quantitative details and situation of fixed assets;
(b) whether these fixed assets have been physically verified by the management at
reasonable intervals; whether any material discrepancies were noticed on such verification
and if so, whether the same have been properly dealt with in the books of account;
(c) if a substantial part of fixed assets have been disposed of during the year, whether it has
affected the going concern
2. RE : Stock - in - trade
a) whether physical verification of inventory has been conducted at reasonable intervals by
the management;
(b) are the procedures of physical verification of inventory followed by the management
reasonable and adequate in relation to the size of the company and the nature of its
business. If not, the inadequacies in such procedures should be reported;
(c) whether the company is maintaining proper records of inventory and whether any
material discrepancies were noticed on physical verification and if so, whether the same
have been properly dealt with in the books of account;
3. RE: Loans obtained / granted
(a) has the company granted any loans, secured or unsecured to companies, firms or other
parties covered in the register maintained under section 301 of the Act. If so, give the
number of parties and amount involved in the transactions, and
(b) whether the rate of interest and other terms and conditions of loans given by the
company, secured or unsecured, are prima facie prejudicial to the interest of the company;
and
(c) whether receipt of the principal amount and interest are also regular; and
(d) if overdue amount is more than rupees one lakh, whether reasonable steps have been
taken by the company for recovery/payment of the principal and interest;
4. RE: Internal Control System
Is there an adequate internal control system commensurate with the size of the company
and the nature of its business, for the purchase of inventory and fixed assets and for the
sale of goods and services. Whether there is a continuing failure to correct major
weaknesses in internal control system.
5. RE: Special Transactions
In case of transactions exceeding the value of five lakh rupees in respect of any party and in
any one financial year
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a) whether particulars of contracts or arrangements referred to in section 301 of the Act
have been entered in the register required to be maintained under that section; and
(b) whether transactions made in pursuance of such contracts or arrangements have been
made at prices which are reasonable having regard to the prevailing market prices at the
relevant time;
6. RE: Acceptance of Deposits
In case the company has accepted deposits from the public, whether the directives issued
by the Reserve Bank of India and the provisions of sections 58A, 58AA or any relevant
provisions of the Act and the rules framed thereunder, where applicable, have been
complied
7. RE: INTERNAL AUDIT SYSTEM
In the case of listed companies and/or other companies having a paid-up capital and
reserves exceeding Rs. 50 lakhs as at the commencement of the financial year concerned,
or having an average annual turnover exceeding five crores rupees for a period of three
consecutive financial years immediately preceding the financial year concerned, whether the
company has an internal audit system commensurate with its size and nature of its
business;
8. RE : Maintenance of cost records
where maintenance of cost records has been prescribed by the and maintained; Central
Government under , whether such accounts and records have been made.
9. RE : Statutory Obligations
Is the company regular in depositing undisputed statutory dues including Provident Fund,
Investor Education and Protection Fund, Employees’ State Insurance, Income-tax, Sales-tax,
Wealth Tax, Service Tax, Custom Duty, Excise Duty, cess and any other statutory dues with
the appropriate authorities.
In case dues of income tax/sales tax/wealth tax/service tax/ customs duty/ excise duty/cess
have not been deposited on account of any dispute, then the amounts involved and the
forum where dispute is pending shall be mentioned.
[Link] : Accumulated losses
Whether in case of a company which has been registered for a period not less than five
years, its accumulated losses at the end of the financial year are not less than fifty per cent
of its net worth and whether it has incurred cash losses in such financial year and in the
immediately preceding financial year;
11 . RE : Default in repayment
whether the company has defaulted in repayment of dues to a financial institution or bank
or debenture holders? If yes, the period and amount of default to be reported;
12 : RE : Secured loans and advances.
whether adequate documents and records are maintained in cases where the company has
granted loans and advances on the basis of security by way of pledge of shares, debentures
and other securities; If not, the deficiencies to be pointed out;
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13 : RE : Chit Funds Whether the provisions applicable to chit funds have been duly
complied with.
14 RE : Mutual benefit funds / societies Whether special provisons related to mutual
benefit funds/ societies have been duly complied with.
15. RE : Investments if the company is dealing or trading in shares, securities,
debentures and other investments, whether proper records have been maintained of the
transactions and contracts.
16. RE : Guarantee for loans whether the company has given any guarantee for loans
taken by others from bank or financial institutions, the terms and conditions whereof are
prejudicial to the interest of the company.
17. RE : Term loans whether term loans were applied for the purpose for which the loans
were obtained;
18. RE : Uses of funds whether the funds raised on short-term basis or long term have been
used for the said purpose and if any short term fund have been used for long-term
investment then the nature and amount is to be indicated.
19. RE : Preferential allotment whether the company has made any preferential allotment of
shares to parties and companies covered in the Register maintained under section 301 of
the Act and if so whether the price at which shares have been issued is prejudicial to the
interest of the company;
20. RE : Creation of Securities whether security or charges has been created in respect of
debentures issued.
21 RE: Public Issue whether the management has disclosed on the end use of money raised
by public issues and the same has been verified;
22. RE : Fraud whether any fraud on or by the company has been noticed or reported during
the year; If yes, the nature and the amount involved is to be indicated and what remedial
measures has been taken by the management.
23 . RE : Reasons for unfavourable or qualified answers
Where, in the auditor’s report, the auditor gives an unfavourable or qualified opinion, the
auditor’s report shall also state the reasons for such unfavourable or qualified answer, as the
case may be. Where the auditor is unable to express any opinion in answer to a particular
question, his report shall indicate such fact together with the reasons why it is not possible
for him to give an answer to such question. The opinion of the auditor should be justified by
proper facts and evidences.
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