In this presentation, the topics covers are Audit Reports, Audit Certificate, Qualification to become an Auditor, Disclaimers, Adverse Opinion & CARO 2020

1. AUDITING LECTURE 8
AUDIT REPORT

2. Topic to be Covered:
• Audit Reports
• Audit Certificates
• Qualifications
• Disclaimers
• Adverse Opinion
• CARO

3. Audit Report
• The Auditor is appointed to verify the accounts of an organization. After verifying the accounts
the auditor gives a brief description of the work done by him, which is signed by him. The
description is known as Audit Report.
• Joseph Lancaster has defined audit report as follows, “Report is a statement of collected and
considered facts, so drawn up as to give clear and concise information to the person who are
not already in possession of full facts of the subject matter of the report.”
• From the above definition following characteristics of audit report has been observed:
1) Report is a summary of verification conducted by an auditor
2) The report also gives details of all the conclusions which the auditor concludes after
the verification activities
3) if required, the auditor also gives his views along with the issues in the report
4) The report has to be signed by the auditor
5) Concrete and precise information is received from the report

4. Importance of Audit Report
Investors
Shareholders
Directors
Creditors
Government
Taxation Officer

5. Types of Audit Reports
AUDIT REPORTS
Classification according to
Work
Classification according to
Work
• Partial Report
• Interim Report
• Final Report
• Clean Report
• Qualified Report

6. Partial Report
• If the auditor is not appointed to verify all accounts, but only some books of
accounts and the auditor issues a report, then it is known as Partial Report.
• While writing this report the auditor should keep in mind that a person reading
the report should not take it as a full report. Therefor, in such kind of report the
auditor should mention that he has been appointed for partial verification and
the report is a partial verification.
• If the auditor does not specify the fact that it is a partial report he will be held
guilty of negligence.

7. Interim Report
• When an auditor issues a report in the middle of the year on certain special issues then such a
report is known as an Interim Report.
• Normally such a report is presented on declaring interim dividend or when the CG issues an
order
Find Report
• When the auditor issues a report after the completion of the audit for the entire business year
then such a report is known as a Final Report.
• Normally an auditor issues such a report only.
• This report plays an important part in the life of a company. Therefore special care should be
exercised in framing this report.

8. Clean Report
• If the auditor after verifying the books of accounts comes to the conclusion that the
book of accounts have been appropriately maintained, there are no mistakes,
inadequacies and frauds, the profit and loss as shown by Profit& Loss A/c and
financial position shown by Balance Sheet are correct which means that the auditors
have no complains and suspicions, then in such a situation, the report issued by him
is called a Clean Report.
• Also known as unqualified report
• Every businessman tries to maintains the account in such a manner, so that a clean
report can be obtained from the auditor. The goodwill of an organization is increased
from such report.

9. Qualified Report
• If during the audit the auditor finds any discrepancies, irregularities, frauds
or other deficiency in the books of accounts, i.e., he is not fully satisfied
about the accuracy of the Profit & Loss A/c and Balance Sheet of the
organization, then he should write in his report the various points which
make the accounts of the organizations inaccurate
• The auditor writing this is a qualification in itself.
• A report which has such qualification is known as a qualified report. A
qualify report does not certify the truth and correctness of the accounts.

10. Audit Certificates
• Specific information and issues are declared in certificate. The responsibility
of an auditor for them is much more direct.
• A certificate is used in those situations where the auditor wants to show the
existence and truthfulness of certain issues, i.e., certificate is the evidence of
absolute truth of any issue.
• In some circumstances it is essential to issue an audit certificate. Such
circumstances are as follows:
(1) For Statutory Report:
In statutory report an audit certificate is essential for number of shares,
the amount received on those shares and other receipts and payments.
Without this a statutory report hold no meaning.

11. (2) For Prospectus:
If an existing company issues a prospectus for issuing new shares, then along with the
prospectus it has to attach an auditor’s certificate certifying the profit or loss, assets and
liabilities and dividend paid of the previous 5 years.
(3) For Liquidation:
Details about the solvency of a company given by the directors at the time of liquidation
holds relevance only if it is accompanied by an audit certificate.
(4) For Import License:
Certain rules for import license are such that make it essential to attach an auditor’s
certificate along with the application for license. Without this an import license cannot be
received.
(5) For Other Purpose:
Audit Certificate is also required for computing the amount of tax obtaining loans from
financial institution etc. It is also required to establish the truthfulness of accounts of the
organization.

12. Audit Certificate v/s Audit Report
Basis Audit Certificate Audit Report
Nature In this specific information is
given by the auditor
In this views are expressed by
the auditor
Approach In this the auditor made a
declaration regarding existing
In this the auditor presents his
critical view points
Liability The auditor has more liability in
this regard
In this the liability of an auditor
is comparatively less
Purpose It is required only for financial
regarding, prospectus, import
license and company liquidation
An audit report is presented at
the end of each audit

13. Qualifications of Audit Report
• All the qualification should be shown together in the report
• The effect of such qualifications on the financial details should be shown
Essential for the auditor to issue a qualified report in following cases:
• When the directors or other officials refused to give important information and clarification to the
auditor
• When the company does not maintain the necessary books as required by the Co. Act, 2013
• When adequate information is not received by the auditor from the branches audited by him
• When the report of the audit of the accounts of the branch of the company done by another auditor
has not received by the auditor
• When the Balance Sheet and P&L A/c does not disclose the information as required by the
Companies Act, 2013
• When the B.S & P&L A/c of the Co. are not according to the accounts of the Co.
• When the B.S and P&L A/c do not show ‘true & fair’ view of the financial position and the profit &
loss

14. • When insufficient provision has been made for depreciation, bad debts and
contingent liabilities
• When the accounting principles have not been followed on a consistent basis
• When a fair valuation of assets is not done or a significant change is made in the
method of valuation
• When default is made in following the provisions of Co. Act such as giving
remuneration to directors against the provisions of the Act.
• When the examination of the books of accounts is not up to the generally
accepted level of auditing.
• When secret reserve is created

15. Disclaimers of Opinion
On some occasions, an auditor is unable to complete an accurate audit report. This
may occur for a variety of reasons, such as an absence of appropriate financial
records. When this happens, the auditor issues a disclaimer of opinion, stating that
an opinion of the firm's financial status could not be determined.
Adverse Opinion
An adverse opinion is a professional opinion made by an auditor indicating that a
company's financial statements are misrepresented, misstated and do not
accurately reflect its financial performance and health.

16. Companies Audit Report Order (CARO), 2020
https://cleartax.in/s/caro-companies-auditors-report-order-2020
CARO 2020 is a new format for issue of audit reports in case
of statutory audits of companies under Co. Act 2013. CARO 2020
has included additional reporting requirements after consultations
with the National Financial Reporting Authority (NFRA). NFRA is an
independent regulatory body for regulating the audit and
accounting profession in India. The aim of CARO 2020 is to
enhance the overall quality of reporting by the company auditors.

17. Applicability of CARO, 2020
CARO 2020 is applicable for all statutory audits commencing on or after 1 April 2020 corresponding
to the financial year 2019-20. The order is applicable to all companies which were covered by CARO
2016. Accordingly, the order applies to all the companies except the following companies specifically
excluded from its purview:
• One person company
• Small companies (Companies with paid up capital less than/equal to Rs 50 lakh and with a last
reported turnover which is less than/equal to Rs 2 crore)
• Banking companies
• Companies registered for charitable purposes
• Insurance companies
The following private companies are also exempt from the requirements of CARO, 2020:
– Whose gross receipts or revenue (including revenue from discontinuing operations) is less than or
equal to Rs 10 crore in the financial year
– Whose paid up share capital plus reserves is less than or equal to Rs 1 crore as on the balance
sheet date (i.e. usually at the end of the FY)
– Not a holding or subsidiary of a Public company
– Whose borrowings is less than or equal to Rs 1 crore at any time during the FY

18. Reporting Requirements under CARO, 2020
The auditor’s report (CARO 2020) shall include a statement on the following
matters, namely:
• Details of tangible and intangible assets
• Details of inventory and working capital
• Details of investments, any guarantee or security or advances or loans
given
• Compliance in respect of a loan to directors
• Compliance in respect of deposits accepted
• Maintenance of costing records
• Deposit of statutory liabilities
• Unrecorded income
• Default in repayment of borrowings
• Funds raised and utilization
• Fraud and whistle-blower complaints
• Compliance by a Nidhi

19. • Compliance on transactions with related parties
• Internal audit system
• Non-cash dealings with directors
• Registration under section 45-IA of RBI Act, 1934
• Cash losses
• Resignation of statutory auditors
• Material uncertainty on meeting liabilities
• Transfer to fund specified under Schedule VII of Companies Act, 2013
• Qualifications or adverse auditor remarks in other group companies
In a case where the auditor’s answer to any of the requirements mentioned above is unfavorable
or negative, then the auditor’s report shall also state the basis for such unfavorable or qualified
answer.
Also, in a case where the auditor is unable to express any opinion on any specified matter, the
report shall indicate such fact along with the reasons as to why it is not possible for the auditor
to give an opinion on the same.

20. THANK
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