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Types of Audit Reports

Updated on February 7, 2018

It is the statutory duty of a company auditor to give report after completion of audit work by expressing his opinion. Audit report may be lengthy or summarized. It may be in the form of a letter or a statement. Whatever the form may be, it must be addressed to share holders. As he is appointed by share holders, he is answerable to share holders and he has to safeguard the interest of shareholders. Audit report should contain the matters in Section 227 of Companies Act, 1956.

Contents of Audit Report

Section 227 of Companies Act, 1956: Duty to give report. The audit report should contain;

  • Whether company is maintaining proper books and records or not.
  • Whether financial explanations from company staff are received or not .
  • Whether financial statements are prepared are prepared in accordance with requirements of companies act or not.
  • Whether balance sheet is giving true and fair view or not.
  • Whether profit and loss account is giving true and fair view or not.
  • If there are branches, whether statements from branch auditors under Sec. 228 are properly received or not.

Types of Audit Reports

Audit Reports are of two types namely clean report which is unconditional report and qualified report which is conditional report. In case, there are no dis-satisfactory points an auditor will issue a clean report and in the presence of any dis-satisfactory points the auditor will issue a qualified report. The following are some situations where an auditor will issue a qualified report;

  • When provision for depreciation is insufficient.
  • When provision for bad and doubtful debts is insufficient.
  • When company behaves contrary to provisions of the companies act.
  • When accounting concepts and conventions are not properly followed.

Sample of Clean Report

To

The Share holders,

ABC Ltd.,

We have audited the balance sheet of the above company as on _________________ and Profit and Loss account of the same for the period ended _________________ and we are willing to report as follows;

  1. The company is maintaining proper books.
  2. Proper explanations were received from staff of the company.
  3. Financial statements are prepared in accordance with requirements of the companies act.
  4. Balance sheet is giving true and fair view.
  5. Profit and Loss account is giving true and fair View.

Location:

Date:

(Signature)

Chartered Accountant

Sample of Qualified Report

To

The Share Holders

XYZ Ltd.,

We have audited the balance sheet of the above company as on _________________ and profit and loss account of the same for the period ended ________________ and we are willing to report as follows;

  1. The Company is maintaining proper books.
  2. Proper explanations were received from the staff of the company
  3. Financial statements are prepared in accordance.
  4. Balance sheet and profit and loss account are giving true and fair view.

Subject to following conditions:

  • The provision for depreciation on plant and machinery was insufficient.
  • Provision for bad and doubtful debts was insufficient.
  • Stock was valued at market price which was greater that cost price.
  • One of the directors has taken a loan from the company without Central Government's permission.

Location:

Date:

(Signature)

Chartered Accountant

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