What is audit report?
Audit report is the communication of audit conclusion after the completion of the audit process according to the audit plan. It is the summarized expression of certain facts and findings, opinions regarding conducting audit and it is the final product of auditors to the users or clients of accounting information. It is a certificate about the accuracy and reliability of the financial statement of the company.
01) What are the components of an audit report?
Ans: Generally, the Audit Report contains the following contents:
1) Title
2) Address
3) Introductory paragraph
4) Scope paragraph
5) Opinion paragraph
6) Date of the report
7) Place of signature
8) Auditor’s signature.
They are being described below:
1) Title: The title indicates the name or nature of the report. It is entitled as “Auditor’s Report”.
2) Address: The auditor’s report should address the person to whom it is meant to be forwarded. It means the address of the employee or company. For example:
AB Bank Limited
38, Dilkush, Dhaka.
3) Introductory paragraph: It includes the identification of financial statements which have been audited by the auditor. Here also “the clarification of responsibility of the auditor means” auditor have been audited the financial statements but they do not prepare those.
4) Scope paragraph: It indicates that auditors are planned obtained the reasonable assurance whether the financial statements are materially misstatements. Generally, it includes:
(a) Examining on a test basis, nature of evidence, disclosures in financial statements.
(b) Assessing accounting principles used in the preparation of financial statements.
(c) Estimation made by management.
(d) Evaluating the overall financial statement presentation.
5) Opinion paragraph: It is the opinion of the auditor about the overall accuracy and reliability of the financial statements of the company.
6) Date of the report: It indicates the date on which the auditor signs his report.
7) Place of signature: The town or the auditor’s full address in which the audit report is signed should be indicated.
8) Auditor’s signature: The report should be signed by the auditor in his personal name.
02) What is a clean report?
Answer: A clean or unqualified report is issued by the auditor when he is fully satisfied about the financial statements of the company. In this report, he concluded that, the financial statements give true and fair view in accordance to financial reporting framework used in preparing the financial statements. Generally, this type of report indicates that:
(a) The financial statements have been prepared using the generally accepted accounting principle (GAAP).
(b) The financial statements have been prepared complying the relevant statutory requirements and regulations.
(c) The financial statements disclosed all the material matters relevant to the proper presentation of financial information.
(d) Statement of changes in accounting methods and policies.
3. What are “other than unqualified” opinions?
Ans: Other than unqualified opinion: On the other hand, when the auditor is not satisfied in material respects with matters concerning proper and consistent application of accounting policies, conventions, adherence to disclosure-requirement specified in the Act, truth and fairness of financial information reported in the statements, or compliance to the provisions of stature memorandum of association or articles of association, he may give ‘other than unqualified opinion’ are categorized into
(a) Limitations in scope of audit (b) Disagreement with management (c) Uncertainty affecting financial statements (IAG13). For example, the accounting system or records may not be adequate for the auditor to conduct the audit in a manner which he feels necessary and thereby his scope of work may have to be curtailed. Or the auditor cannot agree with the management in certain respects concerning financial information. The selection of particular accounting policy or estimate made for provisions, or the manner of disclosing information in financial statements by the management-in such of those matters, for instance, the auditor may have valid grounds to disagree with the view points of management. Similarly the financial information disclosed in statements may be subject to serious uncertainty which will be cleared in future only. Therefore, when the auditor is not satisfied with the financial statements in respect of matters of reporting in material respects due to limitation of scope of audit work, disagreement with management or uncertainty, he giver ‘other than an unqualified opinion’. Depending on the nature if circumstance forcing forming up of an other than unqualified opinion, the opinion may be “qualified” or “disclaimer”.
04) When a qualified opinion is and is not sufficient?
Ans: Modified opinion for emphasis and not affecting auditor’s opinion:
Sometimes, the auditor may find it incorporate reference to certain matters which have been properly disclosed in the financial statements for the benefit of the readers. Such reference is indicated before opinion paragraph. The mentioning of such matters in auditor’s report is to highlight the importance of such facts the conjoint reading of which will be beneficial for the better understanding of the report. It is no to be taken as any reservation on the part of auditor in relation to the opinion he expresses beneath. AAS requires two items to be highlighted as modified opinion for emphasis. When there is “going concern problem”* (*i. e generally accounts are prepared based on the concept of going concern. That is, the entry will be carried out in future. This implies current assets are held for realization and hence are to be valued at lower of cost or market price; fixed assets are held for carrying operations on them and hence they are to be valued at cost less deprecation. But when the going concern concept is impaired due to imminent threat to continuity of the entity, the accounting of transactions and balances would require consequent changes. For e, g all asset are to be valued at realizable values). And it is not resolved as to the appropriateness or otherwise of the going concern, the fact should be indicated in the report about the doubt. Again, when there is an uncertainty about a matter, which has been disclosed in the financial statements and about the effect of which, it is not possible to determine and which is beyond the control of the management, the same should be emphasized in the audit report. But if the effects of uncertainties are of multiple nature and the magnitude may be such (of course uncertain) as to vitiate the opinion, the auditor may choose, instead of reporting it as a matter of emphasis, to mention it by way of declaimer.
The auditor issues qualified opinion when
(a) He is satisfied in material respects with matters concerning the areas of his repot. (i. e truth
and fairness of financial information, proper disclosure of information, compliance to
provisions of stature etc.).
(b) His non-satisfaction is due to circumstances such as limitations imposed on his scope of audit work, disagreement with management or uncertainty over financial information.
(c) The effect of his disagreement, uncertainly or limitation is not so material as to compel the auditor to give an adverse opinion or to state a disclaimer.
The auditor must be very clear as to when he should qualify his report and how he should qualify the report. The directors sometimes, try to persuade the auditor to desist from giving qualified report as it is a slur on the work of the directors for the year under review. Moreover, a qualified report leads to bad consequences e. g., fall in value of shares in the market, non-renewal of appointment of directors, appointment of investigation etc. Unconcerned to these, the auditor must set out his qualifications to the report if it is necessary according to his professional Judgment of circumstances.
5. When a qualified opinion is not sufficient, but an adverse opinion is necessary?
Ans: A qualified opinion should be expressed when the when the auditor concludes that an unqualified cannot be expressed but the effect of disagreement with management is not so material. If the disagreement with management is material and pervasive as to require an adverse opinion then a qualified opinion is not sufficient. In this case an adverse opinion is necessary. Because An adverse opinion is expressed when the effect of disagreement is so material and pervasive to the financial statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements.
06) What is the significance of dating of the report?
Ans: Significant of the dating of the report: Significant of the dating report means the importance of the date of the report. The date of the report indicates that the date on which the auditor signs his report. It indicates that the auditor has considered the effect on the financial statement and also on his report of event occurred unto that date. Again this date should not precede the date on which the financial statements were approved by the management. Because the auditor responsibility to express opinion on the financial statements as prepared by the management.
07) Distinguish between the scope portions of the report from opinion portion
Ans : Scope portion: The scope portion specifies the work performed by auditor .scope portion indicate that auditors have plant and obtained the reasonable assurance weather the financial statements are materially misstatement generally includes:
·Examining on test basis, evidence to support the accounts, disclosure in financial statement.
·Assessing accounting principles used in the preparation of financial statement.
·Assessing the significant estimates made by management in preparation of financial statement.
·Presentation of financial statement.
Opinion portion: It is the opinion of the auditor about the overall accuracy and reliability of the financial statement of the company. The opinion portion of the report should indicate the financial reporting framework used to prepare the financial statement. In addition to the opinion on the true and fair view of the financial statements, the auditor may be express opinion on specific matter required by statue.
08) What is a modified opinion without affecting auditor’s opinion?
Ans: The auditor may find it useful to incorporate reference to certain matters which have been properly disclosed in the financial statement for the benefit of the readers. Such reference is indicated before opinion paragraph. The mentioning of such matter in auditor’s report is highlight the importance of such facts the conjoint reading of which will be beneficial for the better understanding of the report. It is not to be taken as any reservation on the part of auditor in relation to the opinion he expresses beneath AAS requires two items to be highlighted as modified opinion for emphasis. When there is “going concern problem” (i.e. generally accounts are prepared basis on the concept of going concern. That is, the entity will be carried out in future. This implies current assets are held for realization and hence are to be valued at lower of cost or market price fixed assets are held for carrying operation on them and hence the are to be valued at cost depreciation. But when the going concern concept is impaired due to imminent threat to continuous of the entity, the accounting of transaction and balances would require consequent changes. Fixed (e.g. all assets are to be valued at realizable values. ) and it is not resolved as to the appropriateness or otherwise of the going concern, the fact should be indicated in the report about the doubt. Again when there is an uncertainty about a matter, which has been disclosed in the financial statement and about the effect of which, it is not possible to determine and which is beyond the control of the management, the same should be emphasized in the audit report. But if the effects of uncertainties are of multiple nature and the magnitude may be such (of course uncertain) as to vitiate the opinion the auditor may choose, instead of reporting it as a matter of emphasis, to mention it by way disclaimer.
09) Distinguish a qualified opinion from an adverse opinion.
Ans: A qualified opinion should be expressed when the auditor concludes that an unqualified cannot be expressed but that the 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 disclaimer of opinion. A qualified opinion is expressed as being “except for’’ the effect of the matter to which the qualification relates. An adverse opinion is expressed when the effect of disagreement is so material and pervasive to the financial statement that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statement.
Audit report is the communication of audit conclusion after the completion of the audit process according to the audit plan. It is the summarized expression of certain facts and findings, opinions regarding conducting audit and it is the final product of auditors to the users or clients of accounting information. It is a certificate about the accuracy and reliability of the financial statement of the company.
01) What are the components of an audit report?
Ans: Generally, the Audit Report contains the following contents:
1) Title
2) Address
3) Introductory paragraph
4) Scope paragraph
5) Opinion paragraph
6) Date of the report
7) Place of signature
8) Auditor’s signature.
They are being described below:
1) Title: The title indicates the name or nature of the report. It is entitled as “Auditor’s Report”.
2) Address: The auditor’s report should address the person to whom it is meant to be forwarded. It means the address of the employee or company. For example:
AB Bank Limited
38, Dilkush, Dhaka.
3) Introductory paragraph: It includes the identification of financial statements which have been audited by the auditor. Here also “the clarification of responsibility of the auditor means” auditor have been audited the financial statements but they do not prepare those.
4) Scope paragraph: It indicates that auditors are planned obtained the reasonable assurance whether the financial statements are materially misstatements. Generally, it includes:
(a) Examining on a test basis, nature of evidence, disclosures in financial statements.
(b) Assessing accounting principles used in the preparation of financial statements.
(c) Estimation made by management.
(d) Evaluating the overall financial statement presentation.
5) Opinion paragraph: It is the opinion of the auditor about the overall accuracy and reliability of the financial statements of the company.
6) Date of the report: It indicates the date on which the auditor signs his report.
7) Place of signature: The town or the auditor’s full address in which the audit report is signed should be indicated.
8) Auditor’s signature: The report should be signed by the auditor in his personal name.
02) What is a clean report?
Answer: A clean or unqualified report is issued by the auditor when he is fully satisfied about the financial statements of the company. In this report, he concluded that, the financial statements give true and fair view in accordance to financial reporting framework used in preparing the financial statements. Generally, this type of report indicates that:
(a) The financial statements have been prepared using the generally accepted accounting principle (GAAP).
(b) The financial statements have been prepared complying the relevant statutory requirements and regulations.
(c) The financial statements disclosed all the material matters relevant to the proper presentation of financial information.
(d) Statement of changes in accounting methods and policies.
3. What are “other than unqualified” opinions?
Ans: Other than unqualified opinion: On the other hand, when the auditor is not satisfied in material respects with matters concerning proper and consistent application of accounting policies, conventions, adherence to disclosure-requirement specified in the Act, truth and fairness of financial information reported in the statements, or compliance to the provisions of stature memorandum of association or articles of association, he may give ‘other than unqualified opinion’ are categorized into
(a) Limitations in scope of audit (b) Disagreement with management (c) Uncertainty affecting financial statements (IAG13). For example, the accounting system or records may not be adequate for the auditor to conduct the audit in a manner which he feels necessary and thereby his scope of work may have to be curtailed. Or the auditor cannot agree with the management in certain respects concerning financial information. The selection of particular accounting policy or estimate made for provisions, or the manner of disclosing information in financial statements by the management-in such of those matters, for instance, the auditor may have valid grounds to disagree with the view points of management. Similarly the financial information disclosed in statements may be subject to serious uncertainty which will be cleared in future only. Therefore, when the auditor is not satisfied with the financial statements in respect of matters of reporting in material respects due to limitation of scope of audit work, disagreement with management or uncertainty, he giver ‘other than an unqualified opinion’. Depending on the nature if circumstance forcing forming up of an other than unqualified opinion, the opinion may be “qualified” or “disclaimer”.
04) When a qualified opinion is and is not sufficient?
Ans: Modified opinion for emphasis and not affecting auditor’s opinion:
Sometimes, the auditor may find it incorporate reference to certain matters which have been properly disclosed in the financial statements for the benefit of the readers. Such reference is indicated before opinion paragraph. The mentioning of such matters in auditor’s report is to highlight the importance of such facts the conjoint reading of which will be beneficial for the better understanding of the report. It is no to be taken as any reservation on the part of auditor in relation to the opinion he expresses beneath. AAS requires two items to be highlighted as modified opinion for emphasis. When there is “going concern problem”* (*i. e generally accounts are prepared based on the concept of going concern. That is, the entry will be carried out in future. This implies current assets are held for realization and hence are to be valued at lower of cost or market price; fixed assets are held for carrying operations on them and hence they are to be valued at cost less deprecation. But when the going concern concept is impaired due to imminent threat to continuity of the entity, the accounting of transactions and balances would require consequent changes. For e, g all asset are to be valued at realizable values). And it is not resolved as to the appropriateness or otherwise of the going concern, the fact should be indicated in the report about the doubt. Again, when there is an uncertainty about a matter, which has been disclosed in the financial statements and about the effect of which, it is not possible to determine and which is beyond the control of the management, the same should be emphasized in the audit report. But if the effects of uncertainties are of multiple nature and the magnitude may be such (of course uncertain) as to vitiate the opinion, the auditor may choose, instead of reporting it as a matter of emphasis, to mention it by way of declaimer.
The auditor issues qualified opinion when
(a) He is satisfied in material respects with matters concerning the areas of his repot. (i. e truth
and fairness of financial information, proper disclosure of information, compliance to
provisions of stature etc.).
(b) His non-satisfaction is due to circumstances such as limitations imposed on his scope of audit work, disagreement with management or uncertainty over financial information.
(c) The effect of his disagreement, uncertainly or limitation is not so material as to compel the auditor to give an adverse opinion or to state a disclaimer.
The auditor must be very clear as to when he should qualify his report and how he should qualify the report. The directors sometimes, try to persuade the auditor to desist from giving qualified report as it is a slur on the work of the directors for the year under review. Moreover, a qualified report leads to bad consequences e. g., fall in value of shares in the market, non-renewal of appointment of directors, appointment of investigation etc. Unconcerned to these, the auditor must set out his qualifications to the report if it is necessary according to his professional Judgment of circumstances.
5. When a qualified opinion is not sufficient, but an adverse opinion is necessary?
Ans: A qualified opinion should be expressed when the when the auditor concludes that an unqualified cannot be expressed but the effect of disagreement with management is not so material. If the disagreement with management is material and pervasive as to require an adverse opinion then a qualified opinion is not sufficient. In this case an adverse opinion is necessary. Because An adverse opinion is expressed when the effect of disagreement is so material and pervasive to the financial statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements.
06) What is the significance of dating of the report?
Ans: Significant of the dating of the report: Significant of the dating report means the importance of the date of the report. The date of the report indicates that the date on which the auditor signs his report. It indicates that the auditor has considered the effect on the financial statement and also on his report of event occurred unto that date. Again this date should not precede the date on which the financial statements were approved by the management. Because the auditor responsibility to express opinion on the financial statements as prepared by the management.
07) Distinguish between the scope portions of the report from opinion portion
Ans : Scope portion: The scope portion specifies the work performed by auditor .scope portion indicate that auditors have plant and obtained the reasonable assurance weather the financial statements are materially misstatement generally includes:
·Examining on test basis, evidence to support the accounts, disclosure in financial statement.
·Assessing accounting principles used in the preparation of financial statement.
·Assessing the significant estimates made by management in preparation of financial statement.
·Presentation of financial statement.
Opinion portion: It is the opinion of the auditor about the overall accuracy and reliability of the financial statement of the company. The opinion portion of the report should indicate the financial reporting framework used to prepare the financial statement. In addition to the opinion on the true and fair view of the financial statements, the auditor may be express opinion on specific matter required by statue.
08) What is a modified opinion without affecting auditor’s opinion?
Ans: The auditor may find it useful to incorporate reference to certain matters which have been properly disclosed in the financial statement for the benefit of the readers. Such reference is indicated before opinion paragraph. The mentioning of such matter in auditor’s report is highlight the importance of such facts the conjoint reading of which will be beneficial for the better understanding of the report. It is not to be taken as any reservation on the part of auditor in relation to the opinion he expresses beneath AAS requires two items to be highlighted as modified opinion for emphasis. When there is “going concern problem” (i.e. generally accounts are prepared basis on the concept of going concern. That is, the entity will be carried out in future. This implies current assets are held for realization and hence are to be valued at lower of cost or market price fixed assets are held for carrying operation on them and hence the are to be valued at cost depreciation. But when the going concern concept is impaired due to imminent threat to continuous of the entity, the accounting of transaction and balances would require consequent changes. Fixed (e.g. all assets are to be valued at realizable values. ) and it is not resolved as to the appropriateness or otherwise of the going concern, the fact should be indicated in the report about the doubt. Again when there is an uncertainty about a matter, which has been disclosed in the financial statement and about the effect of which, it is not possible to determine and which is beyond the control of the management, the same should be emphasized in the audit report. But if the effects of uncertainties are of multiple nature and the magnitude may be such (of course uncertain) as to vitiate the opinion the auditor may choose, instead of reporting it as a matter of emphasis, to mention it by way disclaimer.
09) Distinguish a qualified opinion from an adverse opinion.
Ans: A qualified opinion should be expressed when the auditor concludes that an unqualified cannot be expressed but that the 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 disclaimer of opinion. A qualified opinion is expressed as being “except for’’ the effect of the matter to which the qualification relates. An adverse opinion is expressed when the effect of disagreement is so material and pervasive to the financial statement that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statement.
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