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.

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.

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.
Audit Report – Basics, Format and Content
For any enterprise, the audit report is a key deliverable which shows the end results of the entire
audit process. The users of financial statements like Investors, Lenders, Customers, and others
base their decisions and plans on audit reports of any enterprise. An audit report is always critical
to influencing the perceived value of any financial statement’s audit.

The auditor should be careful in issuing the audit report as there is are a large number of people
placing reliance on such report and taking decisions accordingly. The report should be issued by
being unbiased and objective in discharging the functions.

Contents of an Audit Report

The basic structure of an audit report as prescribed by the Standards on Auditing is as follows:

Heading Brief of contents

Title should mention that it is an ‘Independent
Title
Auditor’s Report’.
Should mention clearly as to whom the report is being
given to.
Addressee For example Members oMentions that it is the
Management’s responsibility to Prepare the Financial
Statements. f the company, Board of Directors
Management’s Responsibility for Financial Statements
Mention that responsibility of the Auditor is to
Auditor’s Responsibility express an unbiased opinion on the financial
statements and issue an audit report.
Should mention the overall impression obtained from
Opinion the audit of financial statements.
For example Modified Opinion, Unmodified Opinion
 State the basis on which the opinion as reported has
Basis of the Opinion been achieved. Facts of the basis should be
mentioned.
If any other reporting responsibility exists, the same
should be mentioned.
Other Reporting Responsibility
For example Report on Legal or Regulatory
requirements
The engagement partner (auditor) shall sign the audit
Signature of the Auditor
report.
Place of Signature The city in which audit report is signed.
Date of Audit Report Date on which the audit report is signed.

Other headings being basic and self-explanatory in nature, we need to understand the about the
opinion part precisely. This part forms the basic crux of an audit report.

Opinion in an Audit Report

There are primarily two kinds of opinions issued by an auditor in his / her audit report:

1. Unmodified Opinion (also called Unqualified report)

2. Modified Opinion (also called Qualified report)

1. Unmodified Opinion

Issued for any audit where the auditor is satisfied that the financial statements present a true and
fair view of the operations and transactions in an enterprise during the period.

An audit report with an Unmodified Opinion is also known as a ‘Clean Report’. An Unmodified
report develops confidence among users of Financial statements and annual reports of an
enterprise.
It provides an impression that the financial statements are reasonably free from any misstatements
and results as appearing there are true and fair.

2. Modified Opinion

Whenever the auditor has specific findings during his / her audit and concludes that an Unmodified
Opinion cannot be issued due to the nature of findings, a Modified Opinion is issued in the audit
report.

There are two basic reasons due to which an auditor concludes on issuing a Modified Opinion:

 Based on the audit and evidence, finds out that the financial statements contain a certain
degree of material misstatements.
 Unable to obtain sufficient and appropriate evidences to conclude that the financial
statements are free from material misstatements.

There are three kinds of modified opinions which are issued according to the findings and
circumstances:

A. Adverse Opinion

B. Qualified Opinion

C. Disclaimer of Opinion

A. Qualified Opinion

A Qualified Opinion is given in a situation where:

 The auditor concludes that misstatements are material but the impact is not so high that it
would render the whole financial statements unacceptable; or
 The auditor is unable to obtain sufficient or appropriate audit evidence but concludes that
there are indications of misstatements in the financial statements (but the degree is not
high).
Example of a Qualified Opinion paragraph in audit report:

In our opinion, except for the incomplete disclosure of the information referred to in the Basis for
Qualified Opinion paragraph, the financial statements give the information required by the
Companies Act, 2013, in the manner so required and give a true and fair view in conformity with
the accounting principles generally accepted in India:

1. In case of the Balance Sheet, of the state of affairs of the company as at March 31, XXXX;
2. In case of Profit and Loss Account, of the profit/loss for the year ended on that date; and
3. In case of the Cash Flow Statement, of the cash flows for the year ended on that date.

B. Adverse Opinion

An Adverse opinion shall be issued by the auditor where he concludes that on the basis of evidence
obtained and procedures performed, there are material misstatements in the financial statements
and the impact of the same is high.

Example of a Qualified Opinion paragraph in audit report:

In our opinion, because of the omission of the information in the Basis for Adverse Opinion
paragraph, the financial statements do not give the information required by the Companies Act,
2013, in the manner so required and also, do not give a true and fair view in conformity with the
accounting principles generally accepted in India:

1. In case of the Balance Sheet, of the state of affairs of the company as at March 31, XXXX;
2. In case of Profit and Loss Account, of the profit/loss for the year ended on that date; and
3. In case of the Cash Flow Statement, of the cash flows for the year ended on that date.

C. Disclaimer of Opinion

A Disclaimer of Opinion is to be issued by an auditor in cases where the auditor concludes that he
/ she is not able to obtain sufficient and appropriate evidences. In such scenario, the auditor is not
able to form an opinion and thus, disclaims form providing an opinion on the financial statements.
The impact of material misstatements and degree of the same is high enough.
Example of a Draft Disclaimer of Opinion:

We were engaged to audit the financial statements of ABC Private Limited (“the entity”) which
comprises the Balance Sheet as at March 31, XXXX, the statement of Profit and Loss, (the
statement of changes in equity) and statement of Cash Flows for the year then ended, and notes to
the financial statements, including a summary of significant accounting policies.

We do not express an opinion on the accompanying financial statements of the entity. Because of
the significance of the matters described in the Basis for Disclaimer of Opinion section of our
report, we have not been able to obtain sufficient and appropriate audit evidence to provide a basis
for an audit opinion on these financial statements.

Emphasis of Matter paragraph in an Audit Report

In a situation where the auditor concludes that it is important to draw the attention of users of the
financial statement to a particular reported item, he/she may include an Emphasis of Matter
paragraph in his / her audit report. In this case, the auditor is not required to modify his / her
opinion. The paragraph is added when the issue is not a key audit matter and only requires
disclosure for a better understanding of the financial statements.

Example of circumstances where the auditor shall include Emphasis of Matter paragraph in
audit report:

 To inform users of financial statements that the same has been prepared under a special
purpose framework;
 The auditor discovers some facts after the date of an audit report and the auditor issues new
or amended audit report.
 Uncertainty about the future outcome of an ongoing litigation.