Audit report

There are mainly four (4) types of audit reports. These are clean or unqualified report, qualified report, adverse or negative report and disclaimer report.

This report contains an opinion given by the auditor after being satisfied that the financial statements do represent a true and fair view and they are prepared in conformity with the applicable accounting principles and statutory requirements.

This is a report issued by the auditor in any of the following two circumstances:

1. When the auditor having gathered sufficient audit evidence, concludes that there is a misstatement, though material, it is not pervasive; or
2. When the auditor is unable to gather sufficient, appropriate audit evidence but concludes that the possible effect of undetected misstatement if any, could be material but not pervasive.

In these cases the auditor will state that, the financial statements show true and fair "except for…".

The qualified report is given when:

1. The financial statements do not represent the true and fair view of the state of affairs and results of the operations, due to lack of conformity with the accounting standards, principles and statutory requirements.
2. The auditor is not able to verify the value and existence of certain assets.
3. The information requested by the auditor is not furnished.
4. Proper books of account are not maintained as required by law.

This report is issued when the auditor having gathered sufficient audit evidence concludes that there is a misstatement in the financial statement, which is material and pervasive. In this case the auditor clearly states that the financial statements do not show true and fair view of the affairs of the organisation. The circumstances to issue this report or opinion are the opposite of those for issuing unqualified opinion. The adverse or negative report will be given on the following grounds:

1. When the auditor is satisfied that the financial statements do not show true and fair view of the affairs of the business.
2. The preparation of the financial statements do not conform to the accounting and reporting standards.
3. When there are mistakes, discrepancies and material misstatement in the financial statements which are pervasive.
4. When there is omission of a material disclosure.

This report is issued when the auditor does not have sufficient information on which to base his/her opinion. In the scope and opinion paragraph, the auditor should give disclaimer information. This may happen on the following grounds:

1. The auditor has not been able to obtain sufficient information to form the opinion.
2. The audit examination is not adequate to form an opinion.
3. There are some material undetermined item in audit examination.

Audit report is made up of the following components:

Title

The title of audit report should help the reader to identify the report. It should disclose the name of the client. The title distinguishes the audit report from other reports.

Addressee

The addressee normally refers to the person who appoints the auditor. If a company appoints the auditor, the addressee should be shareholders. As per law, the complete address of the addressee is required. Addressee for the statutory audit shall be shareholders and in case of special audit, it is central government.

Introductory paragraph

The introductory paragraph should specify that it is the auditor's opinion on financial statements audited by him/her. The period covered by financial statements should be stated with exact dates.

Opinion

The auditor's opinion on the books of account and financial statements examined based on evidence gathered.

The auditor has to give his/her opinion:

1. On whether the financial statements are arithmetically correct and correspond to the figures recorded in the books of accounts.
2. In case of unqualified opinion, whether the financial statements represent a true and fair view of the state of affairs and the results of operations.
3. In case of qualified opinion, if the financial statements do not present a true and fair view, the reasons for that and where is wrong.

Signature

The signature part should include the signature of the auditor. The personal name and signature of the auditor should be given. If the auditor is a firm, the signature in the personal name and firm name should be given.

Address of the auditor

This should include the location of the auditor or the audit firm, which is ordinarily their city.

Date of the report

The date of completion of the audit work should be mentioned in this section.