BACT 311 AUDITORS REPORTS- BASWETI

EXTERNAL AUDITORS REPORTS AND OTHER REPORTS

Introduction
 The audit report is the final stage in the process of an audit.
 The terms ‘true and fair’ ‘Present fairly’ have special significance in the audit report.
 At this level you will be required to draft unmodified and modified audit reports in
accordance with ISA 700

Basic Elements of the Auditor’s Report

The auditor’s report includes the following basic elements, ordinarily in the following layout:

(a) Title;
(b) Addressee;
(c) Opening or introductory paragraph
(i) Identification of the financial statements audited;
(ii) A statement of the responsibility of the entity’s management and the responsibility of
the auditor;
(d) Scope paragraph (describing the nature of an audit)
(i) A reference to the ISAs or relevant national standards or practices;
(ii) A description of the work the auditor performed;
(e) Opinion paragraph containing:
(i) A reference to the financial reporting framework used to prepare the financial
statements (including identifying the country of origin3 of the financial reporting
framework when the framework used is not International Accounting Standards);
and
(ii) An expression of opinion on the financial statements;
(f) Date of the report;
(g) Auditor’s address; and
(h) Auditor’s signature.

A measure of uniformity in the form and content of the auditor’s report is desirable because it
helps to promote the reader’s understanding and to identify unusual circumstances when they
occur.

(a) Title
The auditor’s report should have an appropriate title. It may be appropriate to use the term
“Independent Auditor” in the title to distinguish the auditor’s report from reports that might be
issued by others, such as by officers of the entity, the board of directors, or from the reports of
other auditors who may not have to abide by the same ethical requirements as the independent
auditor.

(b) Addressee
The auditor’s report should be appropriately addressed as required by the circumstances of the
engagement and local regulations. The report is ordinarily addressed either to the shareholders or
the board of directors of the entity whose financial statements are being audited.

(c) Opening or Introductory Paragraph

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The auditor’s report should identify the financial statements of the entity that have been audited,
including the date of and period covered by the financial statements.
The report should include a statement that the financial statements are the responsibility of the
entity’s management4 and a statement that the responsibility of the auditor is to express an
opinion on the financial statements based on the audit.

Financial statements are the representations of management. The preparation of such statements
requires management to make significant accounting estimates and judgments, as well as to
determine the appropriate accounting principles and methods used in preparation of the financial
statements. This determination will be made in the context of the financial reporting framework
that management chooses, or is required, to use. In contrast, the auditor’s responsibility is to
audit these financial statements in order to express an opinion thereon.

(d) Scope Paragraph

The auditor’s report should describe the scope of the audit by stating that the audit was
conducted in accordance with ISAs or in accordance with relevant national standards or practices
as appropriate. “Scope” refers to the auditor’s ability to perform audit procedures deemed
necessary in the circumstances. The reader needs this as an assurance that the audit has been
accordance with established standards or practices. Unless otherwise stated, the auditing
standards or practices followed are presumed to be those of the country indicated by the auditor’s
address.

The report should include a statement that the audit was planned and performed to obtain
reasonable assurance about whether the financial statements are free of material misstatement.

(e) The auditor’s report should describe the audit as including:

(a) Examining, on a test basis, evidence to support the financial
statement amounts and disclosures;
(b) Assessing the accounting principles used in the preparation of the
financial statements;
(c) Assessing the significant estimates made by management in the preparation of the
financial statements; and
(d) Evaluating the overall financial statement presentation.

(f) The report should include a statement by the auditor that the audit provides a
reasonable basis for the opinion.
An illustration of these matters in a scope paragraph is:

“We conducted our audit in accordance with International Standards on Auditing (or refer to
relevant national standards or practices). Those Standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit
provides a reasonable basis for our opinion.”

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(g) Opinion Paragraph

The opinion paragraph of the auditor’s report should clearly indicate the financial reporting
framework used to prepare the financial statements (including identifying the country of origin
of the financial reporting framework when the framework used is not International Accounting
Standards) and state the auditor’s opinion as to whether the financial statements give a true and
fair view (or are presented fairly, in all material respects) in accordance with that financial
reporting framework and, where appropriate, whether the financial statements comply with
statutory requirements.

The financial reporting framework is determined by IASs, rules issued by recognized standard
setting bodies, and the development of general practice within a country, with an appropriate
consideration of fairness and with due regard to local legislation. To advise the reader of the
context in which the auditor’s opinion is expressed, the auditor’s opinion indicates the
framework upon which the financial statements are based. The auditor refers to the financial
reporting framework in such terms as: “… in accordance with International Accounting
Standards (or [title of financial reporting framework with reference to the country of origin])
….”

In addition to an opinion on the true and fair view (or fair presentation, in all material respects),
the auditor’s report may need to include an opinion as to whether the financial statements
comply with other requirements specified by relevant statutes or law.

An illustration of these matters in an opinion paragraph is:

“In our opinion, the financial statements give a true and fair view of (or present fairly, in all
material respects) the financial position of the Company as of December 31, 20X1, and of the
results of its operations and its cash flows for the year then ended in accordance with
International Accounting Standards (or [title of financial reporting framework with reference to
the country of origin]) (and comply with ...).”

(h) Date of Report

The auditor should date the report as of the completion date of the audit. This informs the reader
that the auditor has considered the effect on the financial statements and on the report of events
and transactions of which the auditor became aware and that occurred up to that date.
Since the auditor’s responsibility is to report on the financial statements as prepared and
presented by management, the auditor should not date the report earlier than the date on which
the financial statements are signed or approved by management.

(i) Auditor’s Address

The report should name a specific location, which is ordinarily the city where the auditor
maintains the office that has responsibility for the audit.

(j) Auditor’s Signature

The report should be signed in the name of the audit firm, the personal name of the auditor or
both, as appropriate. The auditor’s report is ordinarily signed in the name of the firm because the
firm assumes responsibility for the audit.

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TYPES OF EXTERNAL AUDITORS OPINION

(a) Unqualified opnion
(b) Qualified opinion
(c) Disclaimer of opinion
(d) Adverse opinion

The Auditor's Report to Shareholders

The Content and Meaning of Unqualified and Modified Audit Repots

The audit report is usually the only channel of communication between the auditor and the
shareholders of the company whose financial statements have been subject to audit. As such the
report acts as a bridge taking the large volume of information possessed by the auditors and
conveying it to the shareholders in a much abbreviated form.

In order to convey information in a succinct from the audit report has become extremely
formalized group of phrases, each of which has special significance. Any deviation from the
standard format is regarded by an accountant as being significant and may provide important
extra data.

The possibilities are as follows:

(a) an unqualified audit report

(b) a modified audit report which required an audit qualification
(c) a modified audit report which, although the opinion is unqualified, may require additional
detail emphasizing particular matters contained within the financial statements.

IFAC has issued ISA 700 The Auditor’s Report on Financial Statements in order to reduce the
differences which previously existed in the method of reporting so that shareholders and other
users of financial statements could grasp more easily the standardized message which the auditor
is intending to convey.

It is important that you recall from your earlier studies that auditors do not ‘guarantee’ or
‘certify’ that financial statements are ‘correct’, they express opinions on the matters required by
ISA 700 i.e.

(a) Whether they give a true and fair view

(b) Whether they are properly prepared in accordance with the financial reporting
framework.

Where appropriate, the auditor will also report whether the financial statements comply with
relevant local statutory requirements such as the companies Act Cap 486

As an alternative to the phrase ‘true and fair view’ the auditor may report that the financial
statements are ‘presented fairly in all material respects’. These two expressions are equivalent
and emphasize that the auditor is only concerned with material items.

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The content of the auditor's report is governed by the Companies Act, Seventh Schedule to
The Companies Act and the ISA 700, The Auditor’s Report on Financial Statements

The Companies Act lays down no specific requirements as to the wording to be used in the audit
report so long as all the matters as mentioned in the Seventh Schedule are specifically mentioned in
the auditor's report. The auditing standard seeks to provide guidance on the form of wording that is
acceptable.

The auditing standard requires the auditor to:

a) Identify those to whom his report is addressed i.e. the members of the company;
b) The auditor should identify the financial statements on which he is reporting, this is
done by numbering the pages of the accounts;
c) The auditor should refer expressly to whether the financial statements have been
audited in accordance with the approved auditing standards;
d) The auditors must state expressly whether in their opinion the financial statements give
a true and fair view of the state of affairs, profit and loss, and where applicable source
and application of funds;
e) The auditor should refer expressly to any matters described by relevant legislation or
any other requirements.

8.23 Circumstances in Which Qualification Is Necessary

When the auditor has no reservations on the matters required by the Seventh Schedule, he issues a
clean report. If he has any reservations, he may issue a qualified report. The circumstances which
cause auditors to introduce qualifying statements into their reports where the matters at issue are
material include the following

a) If the auditors are unable to obtain all the information and explanations they consider
necessary for the purposes of their audit, for example, if they are unable to obtain satisfactory
evidence:

i. of the existence of ownership of material assets or of the amounts at which they

have been stated on the basis adopted;
ii. of the validity of payments;
iii. That the records properly reflect all transactions of the business because the
evidence has been lost or destroyed or is otherwise not forthcoming or has never
existed.

b) If in the opinion of the auditors:

i. Proper books of accounts have not been kept in accordance with the Companies
Act;
ii. Proper returns adequate for their audit have not been received from branches nor
visited by them;

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iii. The balance sheet and the profit and loss account are not in agreement with the
accounting books and returns.

c) If in the opinion of the auditors the accounts though based on proper books of
account fail to give the information required by the act for example, a failure to
comply with specific disclosure requirements of the Companies Act in material
respects.

d) If in the opinion of the auditors the accounts though otherwise complying with the
disclosure requirements fail to disclose a true and fair view for example:

i Because in the auditor's opinion the underlying accounting policies do not

conform to accounting principles appropriate to the circumstances and nature
of the business;
ii Because they are prepared on principles inconsistent with those previously
adopted and without adequate explanation and disclosure of the effects of the
change;
iii Because the auditors are unable to agree with the amounts at which an asset or a
liability is stated;
iv Because the auditors are unable to agree with the amount at which income or
expenditure or profit is stated;
v Because the accounts do not disclose information though not specifically
required by the companies act, is necessary for the presentation of a true and
fair view;
vi Because additional information given in a note or in the director's report
materially alters the view otherwise given by the accounts.

e) If in the case of a holding company submitting group accounts it is the opinion of the auditors
that the group accounts have not been properly prepared in accordance with the provisions of the
act so as to give a true and fair view of the profit and loss of the company and its subsidiaries so far
as it concerns the members of the company.

More than one of the circumstances in which qualification is necessary may be present in any
particular case. Where the auditor has these reservations, he must inform the shareholders in
his audit report.

Principles of Qualifying Reports

A qualified report is not necessary unless the amounts at issue are material. If a qualified report is
called for the auditors must decide:

a) To which specific matters their reservations apply;

b) Whether they actively disagree or on the other hand lack sufficient evidence to enable
them form an opinion as regards material items in the accounts;

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c) Whether in either event the matters in question are so material as to affect the
presentation of a true and fair view.

If for instance the items in doubt or disagreement are limited and therefore not so material as
to cast doubt on the views shown by the accounts as a whole, the auditors will be able to
report that in their opinion subject to specific reservations or with specific exemptions the
accounts present a true and fair view. There may however be cases where the substantial
items or those in disagreement are so material that the audits must report stating their reason
either:

i. that they are unable to form an opinion whether the accounts present a true and fair
view or;

ii. that in their opinion the accounts do not present a true and fair view. A qualification in
this extreme term is only made in rare circumstances.

The Companies Act lays down no specific requirements as to the manner in which auditors should
when they judge it necessary, qualify their report. This can only be decided in the circumstances
of each particular case. It would be undesirable to suggest standard forms of working that might be
appropriate to the variety of circumstances in which it may be necessary for auditors to give a
qualifying report. The guiding principle is that it is the duty of an auditor to convey information
not merely to arouse inquiry.

Before qualifying their report, auditors should discuss the accounts with the company's
management and make their views clear. This enables the directors to examine the matter at issue
and as far as they judge it practical and appropriate they may take steps to provide the missing
information or to amend the accounts in such a way as to enable the auditors give a report without
qualification. A qualifying statement should be direct and informative. It should be phrased as to
leave the reader in no doubt as to its meaning. Therefore, it should:

a) Be as concise as is consistent with clarity;

b) Be specific as to the items and facts as far as possible the amounts involved;
c) Within the limits of the information available to the auditors make clear its
effects on the accounts and;
d) Express the auditor's opinion without the possibility of misinterpretation.

The object is to give in clear and unequivocal terms so far as circumstances permit such
information in augmentation of that provided by the accounts and notes thereto as will in the
auditor's opinion provide the information required by the acts and ensure that the accounts will
then give a true and fair view. It must be emphasised that the fact that the auditors judge it
necessary to include qualifying statements in their report does not necessarily impute the financial
integrity of a company's directors who are ultimately responsible for the form and presentation of
the accounts and the information they contain. It is the duty of the auditors to exercise their
judgement and express their opinion, their obligation is inescapable. It would be wholly
inappropriate for instance for auditors to seek to avoid qualifying their reports by resigning before
the expiry of their term of office simply because they are dissatisfied with the position disclosed by

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their audit.

i. it identifies the nature of circumstances and recognises only two which are uncertainty
and disagreement.

Uncertainty
The auditor may be unable to express an opinion on a set of accounts as a result of
uncertainty. This would seem to imply that to some extent he has been unable to
obtain all the information and explanation which he deemed necessary for the purposes
of the audit. These can be as a direct intervention or lack of cooperation by the
management or the management can give him all the help he needs but he is still
unable to express an opinion due to circumstances beyond a management's control and
limitations from the available information. The standard recognizes that uncertainty
can arise as a result of limitations in the scope of the audit and as a result of inherent
uncertainties.

Uncertainty can be of two levels, material and not fundamental and fundamental. An
uncertainty is material but not fundamental if the auditor has reservations on only a
particular aspect of the accounts and not on the accounts as a whole. In this situation
the auditor is able to form an opinion on the accounts as a whole with particular
reservations on a specific matter. He therefore disclaims opinion on only an aspect of
the accounts and not the accounts taken as a whole.

An uncertainty becomes fundamental when its impact on the accounts taken as a whole is to make
them meaningless for any decision making purposes and to reduce their informational value. In
this situation, the auditor is unable to form an opinion on the accounts taken as a whole and he
therefore disclaims his opinion altogether by stating that he is unable to form an opinion as to
whether the financial statement gives a true and fair view.

Disagreement
The ISA gives circumstances in which disagreement could arise between the auditor and the
management.

These are:

• Departures from accepted accounting practices where (i) there has been failure to
comply with the relevant IAS and the auditor does not concur (ii) an accounting
policy not the subject of a IAS is adopted which in the opinion of the auditor is
not appropriate to the circumstances of the business or (iii) exceptionally a IAS
has been followed with the result that the financial statements do not present a
true and fair view.

• Disagreement as to the facts or amounts included in the financial statement.

• Disagreement as to the manner or extent of disclosure of facts or amounts in the

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financial statements.

• Failure to comply with the relevant legislation or other requirements.

Where the auditor disagrees with the management on just an aspect of the accounts, he
will indicate in his report that he has exceptions as against reservations noted under
uncertainty and he will mention in his report that to the extent of the exceptions the
accounts do not give a true and fair view. This is where the disagreement is material
but not fundamental. A disagreement becomes fundamental where its impact on the
financial statements is to make them misleading as a whole. In this situation the
auditor will state that the accounts taken as a whole do not give a true and fair view.

Materiality
The auditors will not clutter their opinion with trivial matters and therefore their audit is carried out
with emphasis on matters that could have material impact on the report. A matter generally is held
to be material if its disclosure or non-disclosure would affect the view given by the accounts.
Materiality may be considered in the context of the financial statement as a whole, the balance
sheet, the profit and loss account, or individual items within the financial statement. In addition,
depending upon the nature of the matter materiality may be considered in relative or absolute
terms. If therefore the auditor concludes that, judged against criteria he believes to be most
appropriate in the circumstances, the matter does not materially affect the view given by the
financial statements he should not qualify his opinion.

Materiality is essentially a matter of professional judgement and therefore an individual item can
be judged material if knowledge of that item could reasonably be deemed to have influence on the
users of the financial statement. The issue of materiality arises in two situations:
(i) determining the extent to which detailed audit work should be performed in specific
areas and (ii) determining whether errors or other mis-statements have affected the true
and fair view.

An amount is not material solely by reason of its size. Other factors including those set out below
must be considered in making decisions as to materiality: (a) the nature of the item i.e. whether it is
a factor entering into the determination of net income, unusual or extra-ordinary, contingent upon
an event or condition, determinable based upon existing facts and circumstances and required by
statute or regulation (b) the amount itself in relation to the financial statements taken as a whole,
the total of the amount of which it forms or should form a part, related items (e.g. if the figure
under review is the doubtful debt provision then debtors would be related items), the corresponding
amounts in previous years or the expected amounts in future years. It has been found that it is
possible to have quantitative guidelines as to materiality and these range between 5 and 10 percent
when compared to an appropriate base. Below 5% would not normally be material unless it is one
of those transactions which must be disclosed by statute e.g. directors emoluments.

ii. Fundamentality
When a matter is fundamental then it is considered so crucial to the view given by the accounts that
it can render them totally misleading or meaningless. This usually arises in very rare
circumstances. Remember that an uncertainty ceases to be just material and becomes fundamental

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when its impact on the financial statements is to make them meaningless. A disagreement ceases
to be just material and becomes fundamental if its impact on the financial statements taken as a
whole is so great as to make them totally misleading. It would appear that failure to comply with
IAS and the requirements of legislation would automatically make a disagreement fundamental
because compliance with the IAS and Companies Act is necessary for accounts to give a true and
fair view.

When the auditor is faced with a situation of uncertainty whether it is limitation of scope or
inherent but it is only restricted to an item in the accounts and not the accounts as a whole then he
should use a "subject to" form of report.
Where the uncertainty is considered fundamental then the auditor should use a disclaimer of
opinion.
When it is a situation of disagreement on an aspect of the accounts then the auditor uses an "except
for" opinion.
When the disagreement is fundamental, then he gives an adverse opinion

Emphasis of matter
The standard states as a general principle, the auditor issuing an unqualified opinion should not
make reference to specific aspects of the financial statements in the body of his report as such a
reference may be misconstrued as being a qualification. In rare circumstances the reader will
obtain a better understanding of the financial statements if his attention is drawn to important
matters. These situations arise when there is an unusual event, an unusual accounting policy, or an
unusual condition and it is felt that awareness of such a situation is fundamental to the
understanding of the financial statement, therefore to avoid being misconstrued as being a
qualification reference which are intended to be of emphasis of matter should be minimal and
should be made not in the opinion paragraph of the report but in a separate and subsequent
paragraph introduced with the phrase "Without qualifying our opinion above, we draw attention
to....",

The format of the unqualified audit report

Here is the illustrative unqualified report from ISA 700

Auditor’s Report

(APPROPRIATE ADDRESSEE)

We have audited the accompanying balance sheet of the ABC Company as of December
31, 20x1, and the related statements of income, and cash flows for the year then ended.
These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing (or refer
to relevant national standards or practices). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes

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assessing the account principles used in significant estimates made by the management,
as well as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the financial statements give a true and view of (or ‘present fairly, in all
material respects,’) the financial position of the Company as of December 31, 20x1 and
of results of its operations and its cash flows for the year then ended in accordance with
… (and comply with ….)

AUDITOR

Date

Address’

Footnotes:
1. Reference may be by page numbers
2. Indicate IASs or relevant national standards
3. Refer to relevant statues or law

Modifies Reports
There are four situations in which the auditor will depart from the form of report given above.
Matters that do not affect the auditor’s opinion
(a) Emphasis of a matter

Matters that do affect the auditor’s opinion

(e) Qualified opinion
(f) Disclaimer of opinion
(g) Adverse opinion

(a) Emphasis of Matter

An emphasis of matter is an extra paragraph inserted in the report to draw attention to a
significant matter affecting the financial statements which is explained more fully in a note to the
financial statements.
An emphasis of the matter paragraph should follow the opinion paragraph and will normally
refer to the fact that the auditor’s opinion is not qualified.

(b) Going Concern

The auditor should modify the auditor’s report by adding a paragraph to highlight a matter
regarding a going concern problem.

(c) Significant Uncertainty

The auditor should consider modifying the auditor’s report by adding a paragraph if there is a
significant uncertainty (other than a going concern problem), the resolution of which is
dependent upon future events and which may affect the finical statements. An uncertainty is a

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matter whose outcome depends on future actions or events not under the direct control of the
entity but that may affect the financial statements.

The qualified opinion, disclaimer or opinion and adverse opinion

These three modifications to the auditor’s report are used when there is either:

(a) a limitation on the scope of the auditor’s work or;

(b) disagreement with management regarding the acceptability of the accounting policies
selected, the method of their application or the adequacy of financial statement
disclosures.

The effect of these circumstances can be material or fundamental. The qualified report is used for
material problems.

If a limitation on scope or a disagreement is so material and pervasive that a simple qualification

is not sufficient, one of the two stronger forms are used.

(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 management, or
limitation on scope is not so material and pervasive as to require an adverse opinion or a
disclaimer of opinion. A qualified opinion should be expressed to being ‘except for’ the effects
of the matter to which the qualification relates.

(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 has not been able to obtain sufficient
appropriate audit evidence and accordingly is unable to express an opinion on the financial
statements.

Some of the major firms are now including a disclaimer paragraph in an attempt to restrict
liability to third parties. ‘We do not, in giving this opinion, accept or assume responsibility for
any other purpose or to any other person to whom this report is shown or in whose hands it may
come, save where expressly agreed by our prior consent in writing.’

(c) An adverse opinion should be expressed whet 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 not adequate to disclose the misleading or incomplete nature of the financial statements.

Whenever the auditor expresses an opinion that is other than unqualified, a clear description of
all the substantive reasons should be included in the report and unless impracticable, a
quantification of the possible effect(s) on the financial statements. Ordinarily, this information
would be set out in a separate paragraph preceding the opinion or disclaimer or opinion and may
include a reference to a more extensive discussion, if any, in a note to the financial statements.

Regulations governing Audit Reports in Kenya

 The requirements of the Companies Act Cap 486
 International Financial Standards (IFRSs)

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 International Standards on Auditing (ISAs)

The Requirements of the Companies Act

The seventh schedule to the Companies Act give the matters which must be expressly
stated in the AUDITOR'S REPORT
1. Whether they have obtained all the information and explanations which to the best of
their knowledge and belief were necessary for the purposes of their audit.
2. Whether, in their opinion, proper books of account have been kept by the company, so
far as appears from their examinations of those books, and proper returns adequate for
the purposes of their audit have been received from branches not visited by them.

3. i. Whether the company's balance sheet and (unless it is framed as a consolidated

profit and loss account) profit and loss account dealt with by the report are in
agreement with the books of account and returns.

ii. Whether, in their opinion and to the best of their information and according to
the explanations given them, the said accounts give the information required by
this Act in the manner so required and give a true and fair view:

a) In the case of the balance sheet, of the state of the company's affairs as at
the end of its financial year; and

b) In the case of the profit and loss account, of the profit or loss for its
financial year, or as the case may be, give a true and fair view thereof
subject to the non-disclosure of any matters (to be indicated in the report)
which by virtue of Part III of the Sixth Schedule are not required to be
disclosed.

4. In the case of a holding company submitting group accounts whether in their opinion, the
group accounts have been properly prepared in accordance with the provisions of this Act so as to
give a true and fair view of the state of affairs and profit or loss of the company and its subsidiaries
dealt with thereby, so far as concerns members of the company, or, as the case may be, so as to
give a true and fair view thereof subject to the non-disclosure of any matters (to be indicated in the
report) which by virtue of Part III of the Sixth Schedule are not required to be disclosed.

The Meaning of Proper Books of Accounts

S.147 of the Companies Act requires every company to keep in the English language proper books
of accounts with respect to:

a) All sums of money received and expended by the company and the matters
in respect of which the receipt and expenditure takes place. Hence, most
companies will have a cash book to comply with this requirement but note
that the Companies Act does not specifically call for a cash book nor does
it lay down any hard rules on what form these records should take.
b) All sales and purchases of goods by the company: Most companies comply with

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this requirement by maintaining sales and purchases journals or day books.

Again, the Companies Act does not specify the form which these records should
take.
c) Assets and Liabilities: Most companies comply with this requirement by
maintaining personal and general ledgers with regard to assets and liabilities of
the company and changes therein.

The books of accounts generally speaking can be kept anywhere the directors deem fit and are
open to inspection by the directors at any time. The Companies Act also requires that a company
keeps the following statutory books.
1. A register of directors and secretaries
2. A register of charges, fixed and floating
3. Minute Book of meetings of the company, meeting of its directors
4. An indexed register of accounts
5. An indexed register of each director's shareholding

It also requires that public companies must keep a register of major shareholders, thus an interest of
5% or more in the nominal value of the voting share capital is a major holding.
Proper books of accounts are such books that are necessary to give a true and fair view of the state
of affairs and to explain its transactions. The auditor’s interest in the statutory books is:
a) They are usually concerned with accounts;
b) They are audit evidence in their findings and details of items in the accounts;
c) Failure to maintain proper books of accounts casts doubt upon the accuracy and
reliability of the books generally.

The Companies Act principles require that where a company has branches, then returns must be
received from those branches that can explain its transactions as for the main company.

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BASWETI