Accounts Notes: The Auditor Report on Financial Statements

Friday 25 March 2011

The Auditor Report on Financial Statements

Basic elements of an Auditor’s Report
a. Title: It may be appropriate to use the term “Auditor” to distinguish the auditor’s report from report issued by others.
b. Addressee: The auditor’s report should be appropriately addressed as required by the circumstances of the engagement and applicable laws and regulations.
c. Opening or Introductory paragraph: The report should identify the financial statements that have been audited including the date and period covered by the financial statements. The report should include a statement of responsibility of the entity’s management and of the auditor.
d. Scope paragraph: The report should describe the scope of the audit by stating that the audit was conducted in accordance with the auditing standards generally accepted in India. The report should include a statement that the audit provides a reasonable basis for opinion.
e. Opinion paragraph: The report should clearly indicate the financial reporting framework used to prepare the financial statements and express an opinion on the true and fair view in accordance with that financial reporting framework and where appropriate the compliance with the statutory and /or regulatory requirements.
f. Date of the report: The report should be dated as of the completion date of the audit, which should not be earlier than the date on which the financial statements are signed or approved by the management.
g. Place of signature: The report should name the specific location which is ordinarily the city where the audit report is signed.
h. Auditor’s signature: The report should be signed in the name of the firm, the personal name of the both as appropriate. ¬
Auditor’s Report
The auditor should incorporate in his report, the matters specified by a statute or regulator and/or report in the form prescribed by them in addition to the requirements prescribed above.
An unqualified opinion should be expressed when the auditor concludes that the financial statements give a true and fair view in accordance with the financial reporting framework used for preparation and presentation of the financial statements.
Under following situations auditor’s report may have to be modified:
 Matters that do not affect the auditor’s opinion.
 Matters that do affect the auditor’s opinion including qualified opinion, disclaimer of opinion or adverse opinion.
In respect of matters that do not affect the auditor’s opinion, the auditor should modify the report by adding a paragraph to highlight a matter for example some uncertainty regarding a going concern problem which is unresolved ,or a significant uncertainty the resolution of which is dependent on future events and which may significantly affect the financial statements and the same has already been incorporated by management in financial statement. In such matters, the opinion paragraph would refer to the fact that the auditor’s opinion is not qualified in this respect.
Matters that do affect the auditor’s opinion: The AAS specifies that in respect of matters that do affect the auditor’s opinion
a. A ‘qualified opinion’ should be expressed when the auditor concludes that an unqualified opinion cannot be expressed but that the effect of any disagreement with the management is not so material and pervasive as to require a adverse opinion, or limitation on scope is not material and pervasive as to require a disclaimer of opinion.
b. A 'disclaimer' of opinion' should be expressed when the possible effect of a limitation on scope is so material and pervasive that the auditor is unable to obtain sufficient appropriate audit evidence and is hence unable to express an opinion on the financial statements.
c. An 'adverse opinion' should be expressed when the effect of a disagreement is so material and pervasive to the financial statements that the auditor concludes that a qualification of the report is inadequate to disclose the misleading or incomplete nature of the financial statements.
Opinion other than an unqualified opinion: Whenever the auditor requires an opinion other than unqualified, a description of all the substantive reasons should be included in the report and quantification of the possible effect(s), individually and in aggregate, on the financial statements should be mentioned in the report.
Limitation on Scope: The AAS also requires that in case there is a limitation on scope that requires expression of a qualified opinion or a disclaimer of opinion, the auditor's report should describe the limitation and indicate the possible adjustments that might have been necessary had the limitations not existed.