What is an audit report and what are the types?

An audit report could be either summarized or lengthy. It may also be in a letter or a statement form. Irrespective of the structure, the auditor addresses the audit report to the shareholders of the company in question. As the shareholders of a company usually hire auditors, they are answerable to the shareholders of the company, and they must safeguard the interest of the shareholders.

A standard audit report should be made up of matters in Section 227 of Companies Act, 1956. While you may be wondering what is in Section 227 of Companies Act, 1956, we have solved the problem in the next section.

Contents of Audit Report

 In line with Section 227 of Companies Act, 1956, the audit report should have the following:

·        If the company is keeping proper books and records or not.

·        If financial explanations are being received from the company staff or not.

·        If the balance sheet gives a fair and true view or not.

·        If the profit and loss account gives a fair and true view or not.

·        If statements from branch auditors under Sec. 228 are being received properly or not (in a case where the company has branches)

·        If financial statements are being prepared in line with the requirements of companies act or not.

Types of Audit Reports

There are two types of audit reports—clean report (unconditional report) and qualified report (conditional report). In a case where there are no forms of dis-satisfactory points, an auditor simply issues a clean report. In a case where there are dis-satisfactory points, the auditor gives a qualified report. 

Here are some conditions that will make an auditor give a qualified report:

·       When the concepts of accounting are not rightly followed

·       When the provision for bad and doubtful debt is not sufficient

·       When the provision for case of depreciation is not sufficient.

·       When the company does not act in line with the provisions made by the companies’ act.

Sample of Clean Report

 To

The Share holders,

XYZ Ltd.,

After having audited the balance sheet of the above named company as on _________________ and Profit and Loss account of the same for the period ended _________________ and we hereby report the following:

1. The company is keeping proper books.

2. We received proper explanations from staff of the company.

3. Financial statements are prepared in line with the requirements of the companies act.

4. Balance sheet gives true and fair view.

5. Profit and Loss account gives true and fair view.

 Location:

Date:

(Signature)

Chartered Accountant

Sample of Qualified Report

 To

The Share holders,

XYZ Ltd.,

After having audited the balance sheet of the above named company as on _________________ and Profit and Loss account of the same for the period ended _________________ and we hereby report the following:

1. The company is keeping proper books.

2. We received proper explanations from staff of the company.

3. Financial statements are prepared in line with the requirements of the companies act.

4. Balance sheet gives true and fair view.

5. Profit and Loss account gives true and fair view. 

However, the above stated report is subject to following conditions:

·        The provision for depreciation on the factory equipment was insufficient.

·        Provision made for bad and doubtful debts was not sufficient.

·        Stock was valued at market price which was above the cost price.

·        The factory manager has received an allowance from the company without the permission of the company’s Central Government. 

Location:

Date:

(Signature)

Chartered Accountant