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AUDITING:AUDITING:Audit Report &Audit Report &Related MattersRelated Matters

Prof. Dr Safdar A. ButtProf. Dr Safdar A. Butt

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Importance of Audit ReportImportance of Audit Report Report is culmination of all audit effort.Report is culmination of all audit effort. All the stakeholders of the company depend on All the stakeholders of the company depend on

this report.this report. Most stakeholders do not have access to the Most stakeholders do not have access to the

records of the company; hence the audit report records of the company; hence the audit report is their only assurance of reliability of is their only assurance of reliability of financial statements.financial statements.

Legal implications.Legal implications.

ClassificationClassification Audit ReportsAudit Reports

Give only opinionGive only opinion May be statutory or voluntaryMay be statutory or voluntary

Audit CertificatesAudit Certificates Confirm the findings as correct and true.Confirm the findings as correct and true. May be statutory or voluntaryMay be statutory or voluntary

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Audit Report on Audit Report on Annual AccountsAnnual Accounts

Audit Report for partnerships and sole Audit Report for partnerships and sole proprietorsproprietors

Audit Report under Companies ActAudit Report under Companies Act Special Purpose AuditsSpecial Purpose Audits

Fraud InvestigationsFraud Investigations Purchase due diligencePurchase due diligence Liquidation proceedingsLiquidation proceedings

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Types of Audit ReportsTypes of Audit Reports Clean ReportClean Report Qualified ReportQualified Report Adverse ReportAdverse Report No ReportNo Report

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Contents of Audit ReportContents of Audit Report It states that:It states that:

Auditor examined the financial statements and related Auditor examined the financial statements and related recordsrecords

He obtained or did not get all the necessary informationHe obtained or did not get all the necessary information Gives auditor’s opinion on:Gives auditor’s opinion on:

Accounting policies of the companyAccounting policies of the company state of accounting recordsstate of accounting records conformity of financial statements with accounting recordsconformity of financial statements with accounting records state of financial statementsstate of financial statements

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Clean Audit ReportClean Audit Report The auditor has examined all the accounting and The auditor has examined all the accounting and

related records;related records; He obtained all the information needed for his work He obtained all the information needed for his work

(i.e. to form a professional opinion);(i.e. to form a professional opinion); In his opinion, proper accounting records have been In his opinion, proper accounting records have been

maintained in accordance with laws;maintained in accordance with laws; The financial statements are correctly based on the The financial statements are correctly based on the

accounting recordsaccounting records The financial statements show a true and fair view of The financial statements show a true and fair view of

the company’s profit or loss and its financial position.the company’s profit or loss and its financial position.

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Qualified ReportQualified Report The audit report is given with one or more The audit report is given with one or more

qualifications indicating areas where auditor was not qualifications indicating areas where auditor was not satisfied.satisfied.

Qualification is generally about:Qualification is generally about: the state of accounting records, the state of accounting records, or state of financial statements,or state of financial statements, or their conformity to each other.or their conformity to each other.

Qualifications are generally of a nature that do not Qualifications are generally of a nature that do not render the financial statements wholly unreliable.render the financial statements wholly unreliable.

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Adverse ReportAdverse Report Here the auditor is categorical that: Here the auditor is categorical that:

the accounting records have not been kept the accounting records have not been kept properly, and/orproperly, and/or

the financial statements do not conform to the the financial statements do not conform to the accounting statementsaccounting statements

He therefore gives an opinion that:He therefore gives an opinion that: the financial statements do not reflect a true and the financial statements do not reflect a true and

fair view of the company’s profit or loss or its fair view of the company’s profit or loss or its financial statement.financial statement.

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No ReportNo Report Here the auditor declines to give an opinion on Here the auditor declines to give an opinion on

the financial statements because:the financial statements because: He did not get all the information needed by him, He did not get all the information needed by him,

and/orand/or The accounting and related records were not The accounting and related records were not

complete or in ordercomplete or in orderthereby making it impossible for him to form a thereby making it impossible for him to form a

meaningful opinion.meaningful opinion.

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Special ReportsSpecial Reports Contents depend on the nature of assignment.Contents depend on the nature of assignment. Statutory ReportsStatutory Reports

At time of issue of certificate of incorporation of a At time of issue of certificate of incorporation of a public companypublic company

At time of share issue to general public, to be At time of share issue to general public, to be included in prospectusincluded in prospectus

Special audit of specialized companies, e.g. Special audit of specialized companies, e.g. insurance companies, or banks.insurance companies, or banks.

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Special Reports 2Special Reports 2 Assignment Reports:Assignment Reports:

Findings of an investigation (e.g. fraud, tax Findings of an investigation (e.g. fraud, tax evasion)evasion)

Details of a study (e.g. cost audit, due diligence Details of a study (e.g. cost audit, due diligence report)report)

Report on financial projectionsReport on financial projections Recommendations (e.g. systems analysis)Recommendations (e.g. systems analysis) Status of a task carried out (e.g. liquidation Status of a task carried out (e.g. liquidation

proceedings)proceedings)

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Rights of an AuditorRights of an Auditor Right to access of the books of accounts and Right to access of the books of accounts and

related records.related records. Right to require information and explanations Right to require information and explanations

from the directors and officers of the company.from the directors and officers of the company. Right to attend the general body meeting of the Right to attend the general body meeting of the

company.company. Rights of an auditor cannot be compromised by Rights of an auditor cannot be compromised by

any agreement with the companyany agreement with the company

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Duties of an AuditorDuties of an Auditor To give a report to the shareholders.To give a report to the shareholders. To exercise due professional diligence and To exercise due professional diligence and

care.care. To complete his contractual tasks.To complete his contractual tasks. To assist the legal authorities in the event of a To assist the legal authorities in the event of a

need for it.need for it.

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Liabilities of an AuditorLiabilities of an Auditor Liability is principally for not doing his duty, Liability is principally for not doing his duty,

i.e. negligence.i.e. negligence. Under Common Law (commonly civil liability)Under Common Law (commonly civil liability) Under Companies Act (could be criminal liability Under Companies Act (could be criminal liability

if the auditor has acted improperly)if the auditor has acted improperly) Defined by assignment (e.g. tax evasion audit, Defined by assignment (e.g. tax evasion audit,

or liquidation proceedings)or liquidation proceedings)

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Thank youThank you

Dr Safdar A ButtDr Safdar A Butt