Audit Report - Basics, Format and Content

Download as pdf or txt
Download as pdf or txt
You are on page 1of 2

Products

Business compliance
keeping you awake?
Cleartax's wide range of compliance
services is here for you

Explore Now

HOME ACCOUNTS AN… STANDARDS ON…

AUDIT REPORT …

Audit Report – Basics,


Format and Content
Updated on: Mar 30th, 2021 | 8 min read

CONTENTS [ Show ]

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.

NOTE: The threshold limit of Rs 1 crore for a


tax audit is proposed to be increased to Rs
5 crore with effect from AY 2021-22 (FY
2020-21) if the taxpayer’s cash receipts are
limited to 5% of the gross receipts or
turnover, and if the taxpayer’s cash
payments are limited to 5% of the
aggregate payments.

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
Title
‘Independent Auditor’s
Report’.

Should mention clearly


as to whom the report
is being given to. For
example Members
oMentions that it is the
Addressee 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 express an
Auditor’s
unbiased opinion on
Responsibility
the financial
statements and issue
an audit report.

Should mention the


overall impression
obtained from the
audit of financial
Opinion
statements. For
example Modified
Opinion, Unmodified
Opinion

State the basis on


which the opinion as
Basis of the reported has been
Opinion achieved. Facts of the
basis should be
mentioned.

If any other reporting


responsibility exists, the
Other same should be
Reporting mentioned. For
Responsibility example Report on
Legal or Regulatory
requirements

The engagement
Signature of
partner (auditor) shall
the Auditor
sign the audit report.

Place of The city in which audit


Signature report is signed.

Date of Audit Date on which the


Report 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:

Unmodified Opinion (also called


Unqualified report)

Modified Opinion (also called


Qualified report)

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.

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:

Adverse Opinion

Qualified Opinion

Disclaimer of Opinion

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:

In case of the Balance Sheet, of the


state of affairs of the company as at
March 31, XXXX;

In case of Profit and Loss Account, of


the profit/loss for the year ended on
that date; and

In case of the Cash Flow Statement, of


the cash flows for the year ended on
that date.

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:

In case of the Balance Sheet, of the


state of affairs of the company as at
March 31, XXXX;

In case of Profit and Loss Account, of


the profit/loss for the year ended on
that date; and

In case of the Cash Flow Statement, of


the cash flows for the year ended on
that date.

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.

Get an expert at affordable


price
For ITR, GST returns, Company
Registration, Trademark
Registration, GST Registration

Get an Expert

BROWSE BY TOPICS

Income Tax e-Filing

Last Date To File ITR For 2022-23

Income Tax Slabs FY 2023-24

Which Is Better: Old vs New Tax Regime For Salaried


Employees?

House Property

Business, Professional & Freelance

Which ITR Should I File?

Income Tax Refunds

Paying Tax Due

Salary Income

Capital Gains Income

Other income sources

Advance Tax

NRI

HUF

Income Tax Notices

Follow us on C O M PA N Y

About us

Contact us

Have a query? Careers

Media & Press


Support
User reviews

Engineering blog

Clear Library

FinTech glossary

ClearTax Chronicles

GST Product Guides

Trust & Safety

Cleartax(Saudi Arabia)

PRODUCTS

Individuals Income Tax Filing

Income Tax e Filing Income Tax App android

Tax Planning Income Tax

ClearInvestment Secion 80 Deductions

ClearServices Income tax for NRI

Mutual Funds & ITR e-filing


App

Mutual funds

ClearGST Enterprises

GST ClearGST

GST Login ClearE-Waybill

GST software e-Invoicing Software

New GST returns ClearTDS

e-invoicing eWay Bill Registration

Input tax credit

CAs SMEs

CA partner program ClearGST

ClearGST ClearOne

ClearTDS Billing Software

ClearTaxCloud Invoicing Software

ClearPro App Services for businesses

ClearOne App

ClearServices HSN Lookup

Tax filing for professionals HSN Code Finder

Tax filing for traders Cement HSN Code

Clear Launchpad Transport HSN Code

Trademark Registration Plastic HSN Code

Company Registration Cloth GST Rate

TDS returns Books GST Rate

MSME Registration

RESOURCES & GUIDES

GST Resources ITR Resources

GST Registration Income Tax Slab

GST Returns Form 26AS

GST Procedure What is Form 16

GST News & Salary Income


Announcement How to File TDS Returns
GSTR 9 Annual Returns New Income Tax Portal
GST Payments & Refunds Incometax.gov.in
Invoicing Under GST Income from Selling Shares
GSTR-2B Income Tax Due Dates
GSTR-3B

Mutual Fund Resources Business Resources

How to Invest in Mutual Memorandum of


Funds Understanding (MoU)

Mutual fund Types Mudra Yojana

ELSS Inflation & Deflation

SIP Mutual Funds Loan Agreement

Hedge Funds Succession Certificate

Debt Funds Solvency Certificate

NFO Debt Settlement

What is AMFI Agreement

What is NAV Rental Agreement

Letters Of Credit

TO O LS

Income tax calculator PPF Calculator

EMI Calculator GST number search

Mutual fund calculator IFSC Code Search

HSN Code Finder Generate rent receipts

SIP calculator Home Loan EMI Calculator

GST calculator NPS Calculator

HRA calculator Find HSN code

RD Calculator Tax Saving Calculator

FD Calculator Get IT refund status

Gold Rates Today Salary Calculator

Currency Converter EPF Calculator

Compound Interest GST Number Search by


Calculator Name

TRENDING MUTUAL FUNDS

ICICI Prudential Technology Fund Direct Plan


Growth

Tata Digital India Fund Direct Growth

Axis Bluechip Fund Growth

ICICI Prudential Technology Fund Growth

Aditya Birla Sun Life Tax Relief 96 Growth

Aditya Birla Sun Life Digital India Fund Direct Plan


Growth

Quant Tax Plan Growth Option Direct Plan

SBI Technology Opportunities Fund Direct Growth

Axis Long Term Equity Fund Growth

TO P A M CS

SBI Mutual Fund Nippon India mutual fund

HDFC Mutual Fund UTI mutual fund

Kotak Mahindra Mutual Fund

ICICI Prudential Mutual Fund

Aditya Birla Mutual Fund Axis mutual fund

STO CK M A R K E TS

Stock Market Live Yes Bank Share Price


SBI Share Price IRCTC Share Price

ITC Share Price TCS Share Price

Tata Motors Share Price Infosys Share Price

Idea Share Price HDFC Bank Share Price

BEST FUNDS

Best Mutual Funds

Best Tax Savings Mutual Funds

Best Index Funds Best Equity Mutual Funds

Clear offers taxation & financial solutions to individuals,


businesses, organizations & chartered accountants in India.
Clear serves 1.5+ Million happy customers, 20000+ CAs & tax
experts & 10000+ businesses across India.

Efiling Income Tax Returns(ITR) is made easy with Clear


platform. Just upload your form 16, claim your deductions and
get your acknowledgment number online. You can efile income
tax return on your income from salary, house property, capital
gains, business & profession and income from other sources.
Further you can also file TDS returns, generate Form-16, use our
Tax Calculator software, claim HRA, check refund status and
generate rent receipts for Income Tax Filing.

CAs, experts and businesses can get GST ready with Clear GST
software & certification course. Our GST Software helps CAs,
tax experts & business to manage returns & invoices in an easy
manner. Our Goods & Services Tax course includes tutorial
videos, guides and expert assistance to help you in mastering
Goods and Services Tax. Clear can also help you in getting
your business registered for Goods & Services Tax Law.

Save taxes with Clear by investing in tax saving mutual funds


(ELSS) online. Our experts suggest the best funds and you can
get high returns by investing directly or through SIP. Download
Black by ClearTax App to file returns from your mobile phone.

CLEARTAX IS A PRODUCT BY DEFMACRO


SOFTWARE PVT. LTD.

Company Policy Terms of use

ISO 27001
Data Center

SSL Certified Site


128-bit encryption

Request a demo
Privacy - Terms

You might also like