Write short note on Auditor’s Report.

An Auditor’s report is a statement of facts collected by the auditor during the course of his audit of financial statement and accounts of the client. An auditor’s report is a report to the owner / shareholders and represents an opinion on the financial statements. An auditor’s report is important to owners / Shareholders to known about the state of affairs of the business where they are not directly related to the business.

According to Joseph Laucaster: An Auditor’s report report is a statement of collected and considered facts, so drawn up as to give clear and concise information to persons who are already in possession of the full facts of the subject matter of the report?

Under Sec. 143 of the Companies Act, 2013, it is the duty of an auditor to report to the shareholders of the company on the accounts examined by him and on every financial statements which are required by or under this Act to be laid before the company in general meeting, shown a true and fair view of the said accounts and financial statement and company’s affairs as at the end of the financial year.

Thus, auditor’s report is nothing but a statement of facts and opinion in clear and concise words. The auditor should convey to his client the material facts known to him.

Under Sec 143(2), an auditor is required to make report to the members of the company.

• On the accounts examined by him.
• On the financial statements i.e., Balance Sheet and the Profit & Loss
  statement.
• On every other document annexed to the financial statement.

The auditor’s report shall also state:

• 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.
• Whether, in his opinion, proper books of accounts as required by law have been kept by the company.
• Whether the company’s Balance Sheet and Profit and Loss account dealt with in the report are in agreement with the books of accounts and returns.
• Whether, in his opinion, the financial statements comply with the accounting standards.
• Any observation, resonation or comments on financial transactions or on
  matter relating to maintenance of accounts and other matters connected
  there with which have any adverse effect on the functioning or operating
  effectiveness of the company.
• Whether any director is disqualified for appointment as director.
• Whether the company has adequate internal financial control system in place and the operating effectiveness of such control.

Types of Report: Auditors, report maybe of three types-

Clean or unqualified Report: When an auditor is fully satisfied that there is nothing Objectionable in the books of accounts or there is no qualification, reservation or exception seen during the course of audit, he gives a clean report. It means, he is satisfied that-

• The financial statement present a true and fair view of financial position of the company and operational results, and
• Financial statement are prepared in accordance with the generally accepted
  principles and standards.

Qualified Report: Opposite to clean report, when auditor’s report contains any exception, reservation, or qualification, it is said a Qualified Report. The financial statements of the company do not exhibit the time and fair view of the state of affairs of the company. However, the overall impact of such reservation or qualifications is not so serious that can vibrate the true and fair view of the state of affairs.

Before the auditor gives a qualified report, he should discuss the points with the directors. If the directors are unable to clear the exceptions, the auditor should in corporate those points to the report very clearly and un ambiguously. A qualified report may be in respect of the following matters.

• Proper books of accounts are not kept as per law.
• Contravention of the provision of Articles of Association.
• Where accounting principles are violated.
• Inadequate provisions for depreciation or bad and doubtful debts.
• Investments are valued at cost price even it is more than market price.
• Stock-in-trade has been valued at market price which is more than the cost.

Adverse or Negative Audit Report: The auditor gives a negative or adverse report where the auditor is satisfied that books or accounts and other records are not kept satisfactorily to form an opinion that they show a true and fair view of the financial condition and results of operation. This type of report is given when the effect of disagreement is so material that it misleads the people.