Audit Report & Certificate

Q.1 To whom audit report is submitted and what important point’s are to be included in this report?
Ans After completing audit, auditor is required to submit audit report along with his certificate in which he expresses sum and substance of job performed by him. In it, he expresses mutual integrity of company.
Audit report is important to the following:- For Share Holder:- They are owners but they do not directly manage the company as they are located far of from the head office of the company .As owners they are interested in this report. For Directors:- They lay down broad policies and hence they are interested to know how far their policies were followed through this audit report. For Creditors: - Audit report reveals correct financial status and hence creditors are also interested in the audit report. For Income Tax Officers:- They find it easy to assess tax on the basis of audited financial statement. For the Govt.: To ensure that company is being run according to Companies Act and share holders of the company are not being exploited. Further company is not violating or working against govt. policies and programmes.

Facts/Points to be included in the Audit Report

As per section 227 of Indian companies Act 1956, an auditor has to submit his audit report to members of the company. This audit report shall include the following:-
RelevantRelevent
Section No. Particulars of the matter to be included
227(2) Reflection of true & fair view by B/s & P&L Auditor on the basis of information & explanation given, the B/S exhibit & fair view of company’s affairs at the end of financial year and P&L shows correct profit or loss for the year.
227(3) various points about audit whether Auditor received all information/explanation required for the purpose of audit. Proper books as required have been maintained and proper returns received from branches. Report on branches was received and now they were included in preparing final report. B/S & P&L are in agreement with books. B/S & P&L are in compliance with relevant accounting standers as per section 211(3-e) Directors are not disqualified from being appointed. Cess payable under section 441A has been paid, details of cess not paid.
227 (4A)Compliance of Govt. order in case of specific type of companies.
According to Govt. order, to include those points in the audit report in respect of companies for which such order have been issued.
227(5) Matters not to be disclosed in B/S & P&L
Mention those provisions due to which company has not disclosed points in B/S & P &L There provisions may be of companies act or other act.
211 Compliance of accounting standard-:
B/S & P&L have to comply accounting standards prescribed by ICAI/central Govt.

228 Branch Accounts:-
Auditors doing audit of a branch have to submit their report to the company's auditor who would appropriately include the same in the company's audit report .
229- Signatures on the audit report:-
Auditor appointed by company would sign the report. In case of firm, a partner practicing in India would sign the report.
230 Reading & Inspection of Audit Report
Audit report would be read in the general body meeting and would be subject to inspection by any member of the company.
In brief the audit report would contain following points:-
(i) Audit report is to be presented to members.
(ii) Accounts have been maintained as prescribed under schedule VI of Indian companies act.
(iii) B/S for the end of year & P&L for the year show true and fair view of affairs of company. Many aspects are to be seen in this regard such as proper accounting of adjustment entries, verification & valuation of assets etc.
(iv) Company is maintaining proper books at its registered office particularly for recording receipts and expenses, purchases and sales, assets and liabilities and on this basis he will form his opinion as to whether B/S & P&L shows true and fair view.
(v) He has received all information's/explanation required for the purpose of audit.
(vi) He has received proper returns from branches for inclusion in final report.
(vii) Proper signature of auditor on the audit report.
Further, central govt. is empowered to issue points to be included in the audit report of:
- Manufacturing companies
- Mining or processing companies
- Service company
- Trading company
- Finance, investment, chit fund, auditor mutual fund company.

The directions issued by govt. are also to be included by auditor in respect of above companies.
Q.2 What do you understand by qualified & unqualified report?
Ans
Types of Audit Report:-
(i) Clear or Unqualified Report:- If auditor is fully satisfied on various points to be mentioned in audit report(as mentioned in preceding pages) he will submit a clear or unqualified report on final accounts. It means that he does not find any irregularities in books, there is no complaint and auditor has no suspicion about being true and fair. This clean report is based on:
- Adequate examination of books
- Follow up of generally accepted principles of auditing
- Adoption of necessary procedure as demanded by circumstances.
- Use of reasonable care and skill.
(ii) Qualified Report: if auditor is not satisfied about various points to be mentioned in the audit report, he must mention his dissatisfaction in the report and such report is called qualified report. Following reasons may be mentioned for this qualified report:-
(i) Auditor could not adopt necessary procedure in examination of accounts for want of evidences in the form of vouchers documents.
(ii) Generally accepted principles of auditing have been violated.
(iii) Auditor could not receive adequate information & explanation
sought by him due to incomplete accounting system.
(iv) Inconsistency in principles of accounting adopted by the company from year to year-e.g. changes in valuation of closing stock change may not be acceptable to the auditor.
(v) Any other reason due to which auditor may be dissatisfied.

Case Study No. 4

On Qualified Audit Report

Following problems were faced by you during audit, of a company.
1. You wanted to see general ledger for some checking but you were told that this book has been destroyed under the directions of Managing Director.
2. You were refused access to minutes book in which you wanted to see decision of heavy purchases of plants & machinery.
3. You wanted to see the title deeds of building shown at Rs. 1 crore in balance sheet but they were not produced before you.
4. There was a closing stock of Rs. 2 crores at the end of year and its overvaluation was done by management. Stock registers of such goods were not produced for audit.
5. Contingent liability on account of pending cases of employees in there but it was not properly reflected.
How you would deal each of above problem while drafting audit report and audit certificate?