AUDITOR’S REPORT
05 01

AUDITOR’S REPORT

By Abhishek Rao Auditing

Auditing is the independent examination of financial information of any entity whether profit making or not, irrespective of its size and legal structure, when such examination is conducted with a view to express an opinion thereon.

Auditor’s opinion is on “True & Fair view” of the financial statements. For this, it is necessary that

  • Financial statements have been prepared using acceptable policies which are consistently applied
  • Financial statements have been prepared as per relevant regulations
  • There is appropriate disclosure of all material items

Importance of Auditor’s Opinion :

It is based on Auditor’s Report on how True & Fair the Financial Statements are, the users decide their economic decisions.

Example, banks & creditors analyse the credit worthiness & repayment capacity , prospective investors analyse future profits & potential wealth creations and so on.

So, “the whole complexion of Financial Statements change when Auditor signs & gives his opinion”

Applicable Standards on Auditing :

  • SA 700: Forming An Opinion And Reporting On Financial Statements.
  • SA 705: Modifications To The Opinion In The Independent Auditor’s Report.
  • SA 706: Emphasis Of Matter Paragraphs And Other Matter Paragraphs In The Independent Auditor’s Report.
  • SA 700 deals with the auditor’s responsibility to form an opinion on the financial statements and the form & content of Auditor’s Report(based on unqualified opinion) whereas, SA 705 and SA 706 deal with how the form and content of the auditor’s report are affected when the auditor expresses a modified opinion or includes an EMP or OMP.
  • Auditing Standards have been given legal recognition under The Companies Act, 2013 which requires that every auditor shall comply with auditing standards notified by Central Government. (Section -143(9) effective from 01/04/2014)

Why Standards on Auditing ?

As we all know , Auditing enhances the credibility of financial statements. But  an important area of concern is , audit of different business entities are carried out  by  different auditors, so how is it possible to ensure uniformity among them ?

This was answered by ICAI in 1982 by setting up Auditing Practices Committee(APC) which was renamed as Auditing and Assurance Standard Board in 2002.

Benefits of complying with standards :

  1. To expedite audits effectively in accordance with generally accepted auditing practices.
  2. To utilise resources properly.
  3. To guide, direct and supervise assistants properly.
  4. To ensure quality control.
  5. To disprove charges of negligence.
  6. To face peer review.

Form of Auditor’s Report :

  1. Title
  2. Address
  3. Introductory paragraph
  4. Management responsibility paragraph
  5. Auditor’s responsibility paragraph
  6. Basis for modified opinion, if any
  7. Opinion paragraph
  8. Other reporting responsibilities
  9. Date, place & signature (including FRN, Membership number) of the Auditor

Apart from above opinions, auditor can also draw attention of users of Financial Statements using “Emphasis matter paragraph” & “other matter paragraph”

So, lets discuss the above in detail with reference to some Annual Reports (Annual Reports will be shown in presentation) ,

Unmodified opinion

When the financial statements “give a true and fair view” and the organization under audit has gone in accordance with all requirements, the auditor will issue an unmodified audit opinion.

Adverse opinion

The Auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements are both ‘material & pervasive’ to the Financial Statements.

Adverse opinion on :

  • Inventory valuation not possible due to unavailability of details on the same ;
  • Unable to ensure correctness of certain transactions ;
  • Expenses incurred shown as advance ;
  • Uncertainity on recovery of advances & trade receivables.

Disclaimer of opinion

The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion and the auditor concludes that possible effects of such undetected misstatements , if any, on the Financial Statements could be both ‘material & pervasive’.

Auditing is the independent examination of financial information of any entity whether profit making or not, irrespective of its size and legal structure, when such examination is conducted with a view to express an opinion thereon.

Auditor’s opinion is on “True & Fair view” of the financial statements. For this, it is necessary that

  • Financial statements have been prepared using acceptable policies which are consistently applied
  • Financial statements have been prepared as per relevant regulations
  • There is appropriate disclosure of all material items

Importance of Auditor’s Opinion :

It is based on Auditor’s Report on how True & Fair the Financial Statements are, the users decide their economic decisions.

Example, banks & creditors analyse the credit worthiness & repayment capacity , prospective investors analyse future profits & potential wealth creations and so on.

So, “the whole complexion of Financial Statements change when Auditor signs & gives his opinion”

Applicable Standards on Auditing :

  • SA 700: Forming An Opinion And Reporting On Financial Statements.
  • SA 705: Modifications To The Opinion In The Independent Auditor’s Report.
  • SA 706: Emphasis Of Matter Paragraphs And Other Matter Paragraphs In The Independent Auditor’s Report.
  • SA 700 deals with the auditor’s responsibility to form an opinion on the financial statements and the form & content of Auditor’s Report(based on unqualified opinion) whereas, SA 705 and SA 706 deal with how the form and content of the auditor’s report are affected when the auditor expresses a modified opinion or includes an EMP or OMP.
  • Auditing Standards have been given legal recognition under The Companies Act, 2013 which requires that every auditor shall comply with auditing standards notified by Central Government. (Section -143(9) effective from 01/04/2014)

Why Standards on Auditing ?

As we all know , Auditing enhances the credibility of financial statements. But  an important area of concern is , audit of different business entities are carried out  by  different auditors, so how is it possible to ensure uniformity among them ?

This was answered by ICAI in 1982 by setting up Auditing Practices Committee(APC) which was renamed as Auditing and Assurance Standard Board in 2002.

Benefits of complying with standards :

  1. To expedite audits effectively in accordance with generally accepted auditing practices.
  2. To utilise resources properly.
  3. To guide, direct and supervise assistants properly.
  4. To ensure quality control.
  5. To disprove charges of negligence.
  6. To face peer review.

Form of Auditor’s Report :

  1. Title
  2. Address
  3. Introductory paragraph
  4. Management responsibility paragraph
  5. Auditor’s responsibility paragraph
  6. Basis for modified opinion, if any
  7. Opinion paragraph
  8. Other reporting responsibilities
  9. Date, place & signature (including FRN, Membership number) of the Auditor

Apart from above opinions, auditor can also draw attention of users of Financial Statements using “Emphasis matter paragraph” & “other matter paragraph”

So, lets discuss the above in detail with reference to some Annual Reports (Annual Reports will be shown in presentation) ,

Unmodified opinion

When the financial statements “give a true and fair view” and the organization under audit has gone in accordance with all requirements, the auditor will issue an unmodified audit opinion.

Adverse opinion

The Auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements are both ‘material & pervasive’ to the Financial Statements.

Adverse opinion on :

  • Inventory valuation not possible due to unavailability of details on the same ;
  • Unable to ensure correctness of certain transactions ;
  • Expenses incurred shown as advance ;
  • Uncertainity on recovery of advances & trade receivables.

Disclaimer of opinion

The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion and the auditor concludes that possible effects of such undetected misstatements , if any, on the Financial Statements could be both ‘material & pervasive’.

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Author

Abhishek Rao