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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.

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