ASSGINMENT ON AUDIT REPORT

Subject:

Advance Auditing
Submitted to:
Prof. Itrat Naz
5th Semester
By
Fezan Akhtar
MBAP-F13-19
Faisal Saeed
MBAP-F13-07
Hina Shaheen
MBAP-F13-10
Ammara Ch
MBAP-F13-24

MASTERS IN BUSINESS ADMINISTRATION

Faculty of Management Sciences
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THE SUPERIOR UNIVERSITY LAHORE

Campus, Okara, Pakistan
Introduction:
Section 233(3) requires that the financial statement of a company shall be audited by the auditor
and the Auditors Report shall be attached thereto. The auditor of a company is required to make
a report to the members of the company on the accounts examined by him under section 255(3)
of Companies Ordinance 1984.
Under section 233(4), every company is required to send a copy of the audited Financial
Statement together with the Auditors and Directors report to every member at his registered
address, at least 21 days before the meeting at which these are to be presented.
Section 242 requires every Public Company to file with the Registrar five copies of financial
statement together with the auditor report.
AUDIT REPORT:
Auditor's independent opinion regarding the account examined by him is called audit report.
Report writing is very important function which is performed by the senior auditor. After
conduction and audit the auditor of a company has to write a report to the shareholders. It is from
the auditor to his client.

Basic Elements:
The Auditors Report includes the following basic elements:
1. Title
2. Addressee
3. Opening or Introductory Paragraph
4. Scope Paragraph
5. Opinion Paragraph
6. Date of Report
7. Auditors Address
8. Auditors Signature

1. Title:

The auditors report shall have an appropriate Title.

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It may be appropriate to use the term Independent Auditor in the title to distinguish the
Auditors Report from the reports that might be issued by others, such as by Board of
Directors, Internal Auditor.

2. Address:

The auditors 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 statement are being audited.

3. Opening Paragraph:

The auditors report should identify the financial statement of the entity that have been
audited, including the date of the period covered by the financial statement.

The report should include a statement that the financial statements are the responsibility
of the entitys management and a statement that the responsibility of the auditor is to
express an opinion on the financial statement based on audit.

4. Scope of Paragraph:

Scope refers to the auditors ability to perform the audit procedures deemed necessary in
the circumstances.

The auditors report should describe the scope of the audit by stating that the audit was
conducted in accordance with the ISAs or in accordance with the relevant National
Standards or Practices as appropriate.

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

The report should include a statement by the auditor that the audit provides a reasonable
basis for the opinion.

5. Opinion Paragraph

The auditors report should be clearly state the auditors opinion as to whether the
financial statement give a true and fair view (or are presented fairly, in all material
respects) in accordance with the financial reporting framework and, where appropriate,
whether the financial statement comply with statutory requirements.

Both terms indicate, amongst other things, that the auditor considers only material
matters.

The financial reporting framework is determined by ISAs, rules issued by Professional

Bodies and the development of general practice within a country.

6. Date of Report:

The auditor should date the report as of the completion date of the audit.

Since the auditors responsibility is to report on the financial statement 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 the management.

7. Auditors 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.

8. Auditors Signatures:

The report should be signed in the name of the audit firm, the personal name of the
auditor or both, as appropriate.

Types of Report
The auditor of a company is required to make a report to the members of the company on the
accounts examined by him in the following two types:
1. Unqualified Report
2. Qualified/Modified Report

Unqualified Report:
Unqualified report/opinion should be expressed when the auditor concludes that the
financial statements give a true and fair view in accordance with the Identified Financial
Reporting Framework.
It also indicates that any changes in accounting principles or in the method of their
application, and the effects thereof, have been properly determined and disclosed in the
financial statement.

Qualified Opinion:
An auditor's statement that he/she is unable to render a full opinion about a company's
finances, or a portion thereof, because the company's accounting does not meet the
Generally Accepted Accounting Principles or because the information was for some
reason incomplete.
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 Annual report of the auditors which contains previous discrepancies or errors discovered
by the auditors during the audit is called Qualified Report."
In simple words we can say that audit report which contains objections is called qualified
report.

Unqualified Report Or Clean Report

When auditor is fully satisfied about the account matters and legal requirements. He can issue the
clean report. In other words, it is a true and fair view of the financial statement. He may say that
clean report is audit report which contains no objection.
FEATURES OF UNQUALIFIED REPORT:
Following are the features of unqualified report :

1. All Informations:
In the report auditor declares that he has obtained all types of informations related to business
which were needed for the purpose of audit.

2. According To Company Ordinance:

Auditor declares that balance sheet and profit and loss accounts have been draw in conformity
with the above ordinance and these agree with the books of account.

3. Expenditure:
Auditor has also to give his opinion that expenditure incurred during the year was for the purpose
of company's business.

4. Proper Books:
In this report auditor also declares that proper books of accounts as required by the company
ordinance were kept by the company.

5. Investment:
It is also declared by the auditor that investment made during the financial year was also made
according the business object of the company.

6. Opinion About Balance Sheet:

In the balance sheet auditor also declares that the balance sheet presents a true and fair view of
the company's affair and financial position.

SPECIMEN OF UNQUALIFIED REPORT

To,
The share Holders.
Gul Tax Company Ltd
Lahore.
Gentleman;
We have examined the balance sheet of Gul Tax Company Ltd, Lahore as at December 31, 2015
and the profit and loss account and the statement of changes in financial position for the year
ended. on that date.
We have obtained all the informations to best of our knowledge for the audit purpose. In our
opinion:
1. All the books of account required by the company ordinance have been kept by the
company.
2. We have obtained all the necessary informations and expenditure for the purpose of
audit.
3. The balance sheet and profit and loss accounts have been drawn up in conformity
with the companies ordinance and with the books of accounts.
4. Expenditure was incurred for the company's business purpose during the year.
5. Business conducted during the year was according the objects of the company.
6. According to the best of our knowledge, the said accounts of the company give the
informations required by the companies ordinance. The said accounts give a true and
fair view of the company's affairs as at December 31, 2015.

QUALIFIED REPORT
Annual report of the auditor which contains previous discrepancies or errors discovered by the
auditor during the audit is a called qualified audit.
In case of qualified report auditor is not satisfied with the information and explanations given to
him.
This report may be in respect of the many points like the following:
1. Provisions made for bad debts and depreciation are not sufficient.
2. Investment have been valued at cost price which is in excess of market prices.
3. The stock in trade has been valued at market price which is more than the cost price.

REASONS / FEATURES OF QUALIFIED REPORT

Following are the important reasons of presenting the qualified report:

1. Proper Books Not Available:

If proper books of accounts have not been kept by the business concern, it induces the auditor to
mention this fact in the report. Because according the law these books should be maintained.

2. No Access to Record:
If it is refused to show the books and record to the auditor, then he is unable to collect the
information for the audit purpose. So the auditor will present the qualified report.

3. Changes in Policies:
There should be no change in the accounting policies from year to year. For example, the change
in depreciation rate and change in provision of bad debts can distort the financial statement. The
auditor can mention these changes.

4. Wrong Payment:
If expenses incurred other than business objective these are wrong payments. These can be
mentioned by the auditor in the report.

5. Misuse of Powers:

If management misuses the powers of doing the business and do not follow the law, then auditor
present qualified report. For example, if the payment of dividend is made out of capital.

6. Figures Do Not Match:

If financial statement figures do not tally with figures of journal and ledger, it is objectionable
the auditor can present qualified report.

7. Against Memorandum:
If investment do not meet the requirement of the company's Memorandum of Articles, then it can
be informed by the auditor to the shareholders.

8. Incomplete Information:
If auditor fails to obtain the full information, he can present the facts to the owners.

9. Informal Statements:
The format is provided for the financial statement by the law. If companies do not prepare the
statements according to schedule, the auditor can mention it in the report.

10. Poor Control System:

The auditor can check the internal control system. If auditor feels that this system is very poor
and creates hurdles to verify various items, he may submit qualified report.

11. Provision of Bad Debts:

If the provision made for bad debts is not sufficient, auditor can mention it in his report. On other
side if the amount set aside for meeting bad debts is insufficient even then he can present
qualified
report.

12. Court Disputes:

In case of court and tax disputes auditor has right to report the matters to the shareholders.
Because these have greater effect on the financial statement of the company.

13. Stock in Trade:

If stock in trade has been valued at market price which is excess of cost price, it can be
mentioned by the auditor in the report.

14. Investment:
If the investment has been valued at cost price which is excess of market price, it can become the
cause of qualified report.
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SPECIMEN OF QUALIFIED REPORT

To,
The Shareholders,
Ali Brothers Company Ltd,
Faisalabad.
Gentleman!
We have examined the profit and loss accounts and the annexed balanced sheet of Ali brothers
company Ltd for the year ended June30, 2015 and report that.
Inadequate provision has been made for plant and machinery.
Investments have been valued cost price which is in excess of market price by Rs.
2,50,000/=
We have not seen the title deeds of land shown in these accounts at a total cost Rs.
90,000/- to depreciation, subject to the above:
1. We have obtained all the informations and explanations which are required.
2. The profit and loss account and balance sheet are prepared in conformity with law.
3. The books of accounts have been kept report proper by the company according the
companies act in our opinion.
4. Balance sheet exhibits the true and correct view of the state of the company's affairs
according to the best of our informations given to us and shown to us.
5. In our opinion expenditure was incurred for the company's business purpose.
6. Business conducted during the year was according the objects of the company.