Audit Report Bcom Notes

Audit Report Bcom Notes

Audit Report Bcom Notes:- In this post, I am giving you the notes of Bcom 3rd Year auditing, which is going to be very useful in your examination and you should share this post to all friends and all your groups so that your friends also read this post. Could. Audit Report Bcom Notes

Audit Report

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.


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

(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.


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 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.


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.


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.

(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.


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.


Audit Report Bcom Notes
Audit Report Bcom Notes


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