Auditing and secretarial practices

A project file submitted to

Rayat college of law

In partial fulfillment of the requirement of course

B.Com LLb (Hons). For Semester six

Subject : Audit report

Under the supervision of :- Submitted by :-

Nitika mam Devansh Modgil
professor in law Bcom LLB (hons)
Rayat college of law 6th semester
Railmajra roll no 17657

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 ACKNOWLEDGMENT

The feeling of acknowledge and expressing it in words are two things apart. It is weakness,
but I honestly admit when I truly wish to express my warm gratitude and indebtedness
towards somebody, I am always at loss of words.

The project could not have completed without support extended to me by Nikita mam , she
guided me during the preparation of the project and every time when I reached out for him
with my difficulties, he welcomed them which helped me to successfully complete the
project. I express my heartfelt gratitude with great pleasure and a sense of obligation to Ms.
Manpreet, for his timely support and supervision.

I would also like to thank Dr. Mahender Singh, my Vice Principal. He was always there with
his support and those wonderful insights whenever they were eagerly needed.

I would also like to thank Dr. Monika Sharma honorable Principal of my college whose
continued cooperation and support in making this project a success.

And, finally a word of gratitude to my family and friends who were always there with their
support and encouragement.

Regards
Devansh Modgil

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Contents
 Meaning of auditor’s report
 Content of audit reports of companies
 Types of audit reports
 Format of audit report
 Sample of audit report
 Advantages and disadvantages of audit reports

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 Introduction

Meaning of Auditor’s Report

An auditor is appointed by the client to check the accounts of his

business and submit to him a report on his findings. The auditor’s
report is the end product of every audit. It is the medium through
which an auditor expresses his opinion on the financial statements. It
is an important part of audit process, since it summarises the results of
the examination work conducted by the auditor. The report shows the
scope of the work done and the responsibility assumed by the auditor
regarding the fairness or otherwise of the financial statements. The
auditor draws appropriate conclusions by examining the various
statements and accounts which he conveys through the audit Report.
The wording of the audit report is of prime importance as the
auditor’s legal responsibility rests on it.

According to J. Lancaster, “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 the
subject matter of the report.”

A report is nothing but a statement of facts. After findings the auditor

has to present his report. It is his duty to inform the client as to what
he has done with its result.

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 Contents of the Audit Report of Companies

According to Section 227 (3) of the Act, the auditor’s report shall
state:

(1) Whether, in his opinion and to the best of his information and
according to the explanation given to him, the accounts give the
information required by the Act and give a ‘true and fair’ view of the
state of the company’s affairs in the case of (a) balance sheet as at the
end of the financial year, and in the case of (b) profit and loss account
of profit or loss for its financial year.

(2) Whether he has obtained all the information and explanation

which to the best of his knowledge and belief were necessary for the
purpose of his audit.

(3) Whether in his opinion, proper books of account as required by

law have been kept by the company so far as it appears from the
examination of those books and proper returns adequate for the
purpose of his audit have been received from branches not visited by
him.

(4) Whether the report on the accounts of any branch office audited
under section 228, by a person other than the company’s auditor has
been forwarded to him and how he had dealt with the same in
preparing the auditor’s report and

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(5) Whether the company’s balance sheet and profit and loss account
dealt with by the report are in agreement with the books of accounts
and returns.

If any of the matters answered in the negative or with a qualification,

the auditor has to state in his report the reasons for such adverse
remarks.

Types of Audit Report

Audit report can be categorised on the following two basis:

I. On the Basis of Scope

(1) Final Report: The report which is submitted by the auditor

after completing the whole work is known as final report.
This is an importamt report, hence utmost care must be taken
while drafting the report.

(2) Interim Report: The report which is to be submitted by the

auditor in the middle of year for some special matters is
known as Interim Report. Generally this type of report is
submitted to declare interim dividend

.
(3) Partial Report: When the auditor is appointed not to
examine all the books of accounts, but is appointed to
examine some books of accounts, the report so submitted is
termed as partial report. In such report, the auditor should
make clear that his appointment was made for partial
examination and this is a partial report.

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II. On the Basis of Nature:

(i) Clean or Unqualified Report: When the auditor is satisfied as

to the fairness of the balance sheet and profit and loss account, he
will give a clean report. In other words, if the auditor makes the
various statutory affirmations without reservations, he is said to
have given an unqualified report on the financial statements of the
company.
(ii) Qualified Report: Whenever the auditor of a company is not
satisfied with any explanation and information given to him or if he
thinks that the Profit and Loss Account and the Balance Sheet do
not exhibit a true and fair view of the state of the company’s affairs
or if the accounts presented by the directors call for further
elucidation, he must ask the directors to set the matters asight and
if he is unsuccessful in pursuading the directors to do so, he must
mention that fact in his Report. Such a report is called “Qualified
Report” as distinct from a “Clean Report”.

A Qualified Report may be in respect of the following matters and

the auditor should use appropriate words or phrases:

(a) Insufficient provision has been made for depreciation.

(b) No provision for depreciation has been made on fixed assets on

the ground that the assets have been efficiently. maintained by
heavy repairs and renewals.

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(c) Inadequate provision has been made for bad and doubtful debts.

(d) Investments have been valued at cost price which is in excess

of the market price.

(e) The stock in trade has been valued at market price which is
more than the cost price.

(f) There is a contingency liability in respect of bills discounted

amounting to Rs. 5,00,000 which have not matured.

(g) No provision has been made for taxes payable to the extent of
Rs……..

There may be so many other points. If the auditor wishes to report

on any of these points, he should write a separate report below the
balance sheet.

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Format or content of an audit report
Section/Heading Description
Title Independent Auditor’s Report. The title of the audit report
should be simple and include the word “independent”.
This indicates that the audit was performed by an external,
independent, and unbiased third party.
Addressee The report will clearly state to whom it is addressed. 
Example: To The Shareholders Of Company Name or The
Directors
Introduction This would be a statement that states the name of the
company that is being audited, the dates of the financial
period that the audit covers, which is usually the fiscal
year.
Responsibilities of This section clearly states the responsibilities of the
directors and auditors directors of the company being audited, and the
responsibilities of the auditor. It states that the
management and directors of the company accept the duty
of providing the auditor with all the financial
documentation required for the audit. It also states that the
documentation provided is true and accurate to the best of
the director’s knowledge. It is stated that the auditor’s role
is to audit the financial statements given by the company.
It also states that the auditor must form his opinion based
on the information provided.
Opinion This section clearly states the auditor’s opinion.
Basis of opinion The section states that the audit was conducted in
compliance with the standards and describes the audit
process and resources. This section may be longer than the
rest.
Other reporting If there are any other reporting responsibilities such as
responsibility legal or regulatory requirements they are mentioned here.
Signature of the Signed by the auditor
auditor
Date And place The date and city where the report was signed by
the auditor.

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Sample format of audit report
Given below is an example of a clean audit report.

Independent Auditors' Report

To the Board of Directors and The Shareholders,

Company ABC,

Address.

Report On The Financial Statements

We XYX have audited the accompanying balance sheets of ABC Company as of December
31, 20X2, 20X1 and 20X0, and the related statements of income, earnings, and cash flows for
the years then ended, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for …

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with ...

Opinion

In our opinion, the financial statements referred to previously present justly, in all material
respects, the true financial position of ABC Company as of December 31, 20X2, 20X1 and
20X0, and the results of its operations and its cash flows for the years then ended in
conformity with the accounting principles that are generally accepted in the United States of
America.

(Signature)

(Date)

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 Importance of Auditor’s Report

The auditor’s report is very important for all the persons and concerns
who are related with the company directly or indirectly. Beneficial
groups from the auditor’s report are as follows:

(1) Shareholders: In the case of a company, the shareholders cannot

by themselves inspect the books of accounts on the basis of which the
financial statements of the company are prepared. Thus, they appoint
an auditor to thoroughly check the accounts of the company and
submit a report to them about the financial affairs of the company. It
is an extremely significant document as it will acquaint the
shareholders with the true and fair state of the company’s affairs. It
will also indicate how the interests of the shareholders is being looked
after by the management.

2) Creditors: Auditor’s report is also important for the viewpoints of

creditors. With the help of auditor’s report they have to know about
the security of their amount. A favourable report create faith to the
creditors about the company.

(3) Investors: Every person wants to invest his funds in the company

where he gets more earning along with the safety of amount.
Auditor’s report increases the faith of the investors and accordingly
they take decision for investment
.
(4) Directors: It is not possible for the directors to conduct all
company’s functions themselves. Their main function is to make the
business policies on the basis of which workers perform the functions.
In such a case, with the help of auditor’s report. They have come to

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know upto what extent employees’ fulfil their duties with honesty and
reliability.

(5) Tax Authorities: Tax authorities such as income-tax officer,

sales-tax officer, production-tax officer also rely on the audited
accounts and take their decisions without depth examination of
accounts. Tax is also a important source of revenue for government,
thus it is also important for the government.

Disadvantage / limitations of audit reports

 Sometimes management does not provide auditor full access to

the audit evidence. As per the auditing standards, management
should provide all the information that is demanded by the
auditor, but in real life, the management may prevent the auditor
get access to sensitive information as they may have doubts
about the confidentiality of the auditor. These kinds of problems
may affect the quality of the auditor’s opinion.

 It is required that the auditor should be independent of their

client. But sometimes the client may influence the auditor,
which results in the issuance of the incorrect report by the
auditor.

 Time constraint is again an issue faced by the auditor. In real

practice, the auditor does not get enough time to perform their
audit procedures; as a result, there is a chance that errors and
frauds remained undetected.

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 Point to be kept in mind while drafting a
Qualified Report:
While drafting a qualified report the auditor should bear in mind the
following points:

1. It should be clear and unambiguous so that the readers

understand what the auditor wants them to know and they
are left in no doubt as to the implications of the report.
2. It should be concise but conciseness should not sacrifice
clarity.
3. It should be specific and to the point. The amount
involved, if any, should be clearly stated.
4. He should state the effect of the matter under report on the
accounts.
5. The opinion of the auditor expressed in the report should
not be capable of misinterpretation. stoti The auditors
always try to pursuade the auditor to desent from giving a
qualified report as it is slur on the performance of the
directors for the year under review. A qualified report may
lead to fall in the value of shares in the market, non-
renewal of the appointment of the directors, appointment
of investigators and so on. But he is thereto safeguard the
interests of the shareholders. If he fails to do so and not
perform his duty honestly he may be held liable civilly and
criminally. Infact under such circumstances, the whole of
the object of the appointment of the auditor will be
frustiated.

The auditor should be very careful while drafting his report that he
should not omit to mention the facts required by the Companies Act
to be included in the audit report.

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Conclusion
For the companies, it is mandatory to get their financial
statements audited. As discussed above, the auditor,
after performing audit procedures, issues an audit report, which
can be one out of the four types of opinions depending upon the
nature of material misrepresentation or misstatement detected by
the auditor and if no misstatement is detected then the auditor
issues a clean report.

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 Biblography

1 www.wikipedia.com
2 www.waalstreetmojo.com
3 www.auditiingexplained.co.org
4 auditing for dummies
By marine laughran

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