NAME: - SURAJ SATAPATHY

REG. NO: - 200415140037

1. What is auditor’s report? Discuss various contents of auditor’s report?
Ans: An independent Auditor’s Report is an official opinion issued by an external or internal
auditor as to the quality and accuracy of the financial statements prepared by a company.
The report is a primary source of communication between the auditor and users of financial
statements. The users include equity holders, lenders, creditors, and any other potential
investors in the company.
OR
An auditor's report is a formal opinion, or disclaimer thereof, issued by either an internal
auditor or an independent external auditor as a result of an internal or external audit, as
an assurance service in order for the user to make decisions based on the results of the
audit. Auditor's reports are considered essential tools when reporting financial information
to users, particularly in business. Many third-party users prefer, or even require financial
information to be certified by an independent external auditor. Creditors and investors use
audit reports from Supreme Audit Institutions (SAI) to make decisions on financial
investments.

Definition of Audit Report

Lancaster has defined a report as “a report is a statement of collected and considered facts,
so drawn up as to give clear and concise information to persons who are not already in
possession of the full facts of subject matter of the report.”
According to Cambridge Business English Dictionary, Audit report is defined as a formal
document that states an auditor’s judgment of a company’s accounts.

The various Contents of Auditor’s report are as follows: -

As per Sec. 143 of the Companies Act, the auditor’s report shall also state—
a. whether he has sought and obtained all the information and explanations which to
the best of his knowledge and belief were necessary for the purpose of his audit and
if not, the details thereof and the effect of such information on the financial
statements;

b. whether, in his opinion, proper books of account as required by law have been kept
by the company so far as appears from his examination of those books and proper
returns adequate for the purposes of his audit have been received from branches
not visited by him;
c. whether the report on the accounts of any branch office of the company audited
under sub-section (8) by a person other than the company’s auditor has been sent to
him and the manner in which he has dealt with it in preparing his report;

d. whether the company’s Balance Sheet and Profit and Loss account dealt with in the
report are in agreement with the books of account and returns;

e.  whether, in his opinion, the financial statements comply with the Accounting

Standards;
f. the observations or comments of the auditors on financial transactions or matters
which have any adverse effect on the functioning of the company;

g. whether any director is disqualified from being appointed as a director under sub-

section (2) of section 164;

h. any qualification, reservation or adverse remark relating to the maintenance of

accounts and other matters connected therewith;

i. whether the company has adequate internal financial control system in place and
the operating effectiveness of such controls;

j. such other matters as may be prescribed.

2. Explain various types of auditor’s report?

Ans. There are 5 common types of auditor’s reports, each presenting a different situation
encountered during the auditor’s work.

1. Unqualified Opinion
2. Unqualified Opinion with an Explanatory Paragraph
3. Qualified Opinion
4. Adverse Opinion
5. Disclaimer of Opinion

1. Unqualified Opinion

Often called a clean opinion, an unqualified opinion is an audit report that is issued when an
auditor determines that each of the financial records provided by the business is free of any
misrepresentations.

Also, an unqualified opinion.

indicates that the financial records have been maintained following the standards known
as Generally Accepted Accounting Principles (GAAP).
This is the best type of report a business can receive.

Typically, an unqualified report consists of a title that includes the word “independent.” This
is done to illustrate that an unbiased third party prepared it. The main body follows the title.

Made up of three paragraphs, the main body highlights the auditor’s responsibilities, the
audit’s purpose, and the auditor’s findings. The auditor signs and dates the document,
including his address.

2. Unqualified Opinion with an Explanatory Paragraph

An unqualified opinion with an explanatory paragraph is an audit report issued when the
auditor determines that a complete audit took place with satisfactory results and financial
statements are fairly presented.

Still, the auditor believes providing additional information is important or required.

An opinion is unqualified when the auditor concludes that the Financial Statements give a
true and fair view following the financial reporting framework used for preparing and
presenting the Financial Statements.

An Auditor gives a clean opinion or Unqualified Opinion when he or she does not have any
significant reservations concerning matters contained in the Financial Statements.

This type of report is issued by an auditor when the financial statements presented are free
of material misstatements and are represented fairly following the Generally Accepted
Accounting Principles (GAAP), which in other words means that the company’s financial
condition, position, and operations are fairly presented in the financial statements.

It is the best type of report an auditee may receive from an external auditor.

An Unqualified Opinion indicates the following –

1. The Financial Statements have been prepared using the Generally Accepted
Accounting Principles, which have been consistently applied;
2. The Financial Statements comply with relevant statutory requirements and
regulations;
3. There is adequate disclosure of all material matters relevant to the proper
presentation of the financial information subject to statutory requirements, where
applicable;
4. Any changes in the accounting principles or their application method and their
effects have been properly determined and disclosed in the Financial Statements.

3. Qualified Opinion

When a company’s financial records have not been maintained following GAAP, but no
misrepresentations are identified, an auditor will issue a qualified opinion.
Writing a qualified opinion is extremely similar to that of an unqualified opinion. A qualified
opinion will include an additional paragraph highlighting why the audit report is not
unqualified.

When the auditor concludes that an unqualified opinion cannot be expressed, a qualified
opinion should be expressed.

Still, that effect of disagreement with management is not so material and pervasive as to
require an adverse opinion, or the limitation on the scope is not so material and pervasive
as to require a disclaimer of opinion.

A qualified opinion is expressed as being “subject to” or “except for” the effects of the
matter to which the qualification relates.

The qualification should indicate the reasons for the qualification and the impact of the
qualification in profit/losses and the entity’s financial position.

The following situation may occur in qualified opinion:

1. Limitation on audit scope: - Nonavailability of confirmation of balances of major

debtors, non-verification of stocks at the year-end, etc.
2. Disagreement with management.

4. Adverse Opinion

An adverse opinion is the worst type of financial report that can be issued to a business. This
indicates that the firm’s financial records do not conform to GAAP.

Also, the financial records provided by the business have been grossly misrepresented.

Although this may occur by error, it often indicates 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.

5. Disclaimer of Opinion

Sometimes, an auditor cannot complete an accurate audit report. This may occur for various
reasons, such as the absence of appropriate financial records.

When this happens, the file auditor issues a disclaimer of opinion, stating that an opinion of
the firm’s financial status could not be determined.
3. Explain various advantages or importance or objectives of auditor’s report for
different groups?

Ans. Type of objective changes as per Type of Audit. Below is the list of 7 main types of
audits and their objectives: -

1. External – 

To check whether the Financial Statements prepared by the Management provide an

accurate and fair view. Financial Statements prepared are as per applicable Accounting and
Auditing Standards.

2. Internal – 

To Check Internal Control over financial reporting, compliance with Policies, compliance
with Legal Aspects such as the applicability of the Companies Act;

3. Forensic –

 Recognize fraud cases, Control and decrease instances of fraud through the application of
suggestions and recommendations and internal Audit control in the entity,

4. Statutory – 

To check that an entity is following the rules and regulations of the Act under which it is
registered, they have to appoint the statutory auditor to conduct the statutory audit.

5. Financial – 

To get reasonable assurance that the financial statements are free of material
misstatement.

6. Tax – 

Proper maintenance of the Books of Accounts and other records of similar nature and to
Maintain Proper records of Income and tax expenses and deductions of the Taxpayers.

7. Special Objective: 

Conducted as per Laws, and objectives vary as per laws.

Advantages

 Board can check whether the principles and policies formulated and designed by
them are implemented and followed by human resources or not.
 The management prepares financial Statements as per applicable financial
reporting and auditing standards.
 The internal audit team can verify whether the Policy of Internal Audit Control is
implemented or not designed by them.
 Recognize fraud Cases and decrease the % of fraud Cases through robust Internal
audit control.
 Provide a better representation of financial statements and give an accurate and fair
view.
 Evaluation of capacity and efficiency of all level management of the entity;
 The audit helps rehabilitate sick units, reconstruction of entities, mergers,
and amalgamation among the companies.
 An external audit can be fruitful if the internal auditor is not reliable.
 The audit protects the interest of the Owner of the Entity.

Limitations of Audit Objectives

 It does not cover the audit of many vital aspects of an entity, such as Management
efficiency, Finances, and Business ethics.
 Clever manipulation and fraud in books of accounts and accounting records etc., are
not disclosed by audit.
 An audit of Financial Statements does not provide explicit confirmation of additional
information and explanations which the auditor takes for an audit opinion.
 The design of Audit techniques and formulation of an Audit program for the
collection of evidence may not be the same as the nature of Business.
 Explanations, data, reports, and other information provided by the management
may not be correct and may affect the auditor for an audit opinion.
 Some audits govern as per laws. In such audits, auditors are appointed by regulating
authority, so auditors have no independence.
 Financial Statements are prepared on the basis of the number of judgments
depending on such elements, which may vary.
 An audit of Books of Accounts may not be entirely reliable as the evidence provided
by the management.
 Audited Financial statements may not provide an accurate and fair view and exact
position if the auditor takes faulty judgment/ Decision/ Opinion.
 Auditor can’t be an expert in all the verticals of the entity; he should believe in the
judgment of other experts like Valuers, Lawyers.
 Some entities can’t bear the expenses of the audit.