Audit Report

Definition: An audit report is a written opinion of an auditor regarding an entity's financial

statements. The report is written in a standard format, as mandated by generally accepted auditing
standards (GAAS). GAAS requires or allows certain variations in the report, depending upon the
circumstances of the audit work that the auditor engaged in. The following report variations may be
used:
A clean opinion, if the financial statements are a fair representation of an entity's financial

position.
A qualified opinion, if there were any scope limitations that were imposed upon the auditor's

work.

An adverse opinion, if the financial statements were materially misstated.

A disclaimer of opinion, which can be triggered by several situations. For example, the auditor
may not be independent, or there is a going concern issue with the auditee.

Qualified Report
A qualified report is one in which the auditor concludes that most matters have been dealt with
adequately, except for a few issues. An auditors report is qualified when there is either a limitation of
scope in the auditors work, or when there is a disagreement with management regarding application,
acceptability or adequacy of accounting policies. For auditors an issue must be material or financially
worth consideration to qualify a report. The issue should not be pervasive, that is, the issue should not
misrepresent the factual financial position. If issues are material and pervasive, the auditor issues a
disclaimer or adverse opinion. A qualified audit report does not mean that your business is suffering, and
it doesn't mean that your financial statement isn't transparent. It merely reflects the auditors inability to
give a clean report.

documentation : The auditor should maintain documentation of the important matters.

Integrity, Objectivity and Independence :
Auditor should be interest free. He must possess qualities such as honesty,
sincereness, fairness, objectivity, etc.
Skills and Competence : Auditor must have adequate training, competence and
experience.

Confidentiality : Auditor must not disclose any confidential information regarding his client to
any third party. However, he may disclose, if
(i) There is a specific permission of client or
(ii) Required by law.
Work performed by others : Auditor may rely on work done by others i.e. other auditors or
experts or his assistants provided he exercised due skill and care and there is nothing to
doubt.
Planning : For proper conduct of work in efficient and timely manner.
Audit Evidence : Sufficient and appropriate evidence should be obtained by performing
compliance and substantive procedures.
Accounting Systems and Internal Controls : Management is responsible for maintaining the
same. The auditor has to check their adequacy.
Conclusion and Reporting : Auditor is required to express opinion on financial information on
the basis of conclusions drawn from evidences. He is required to conclude whether (a) Financial information is prepared using consistent and acceptable accounting
policies.
(b) Financial statements comply with relevant regulations.
(c) There is adequate disclosure of all material matters.
There should be clear expression of opinion in report. If the report is other than unqualified,
auditor should state the reason for the same.

This Standard describes the overall objective and scope of the audit of general purpose financial statements of an
enterprise by an independent auditor. The Standards deals with the following important aspects of an audit:

Objective of an Audit: expression of opinion, the concept of true and fair view

Responsibility for Financial Statements: responsibility of the management vis a vis auditor

Scope of Audit: factors determining scope, reliability and sufficiency of audit evidence, disclosure aspects,
undiscovered
material
misstatements,
etc.
The Standard is effective for all audits relating to accounting periods beginning on or after April 1, 1985.

principle that the auditor should document matters which are important in providing evidence that the audit was
carried out in accordance with the generally accepted auditing standards in India. The Standard explains as to what
constitute working papers, need for working papers. The Standard also touches upon the following areas:

Form and Content: factors affecting form and content, quantum of working papers, permanent audit file,
current audit file.

Ownership

and

Custody

of

Working

Papers

The AAS is effective for all audits relating to accounting periods beginning on or after July 1, 1985. Issued in
July, 1985.

As the name indicates, the purpose of this AAS is to establish standards on the auditor's responsibility to consider
fraud and error in an audit of financial statements. The following would gives an overview of the contents of the AAS:

Fraud and error and their characteristics

Responsibility of those charged with governance

Responsibility of management

Responsibility of the auditor

Indication of possible misstatement

Evaluation and disposition of misstatements.

Effect on auditor's report

Documentation

Management representations

Communication

Auditor

unable

to

complete

engagement

The appendices to the AAS contain examples of risk factors relating to misstatements resulting from fraud/
error, examples of modifications in auditor's procedures, and indicators of possible fraud or error.
The AAS is effective for all audits relating to accounting periods beginning on or after April 1, 2003.

AAS-1

Basic Principals governing an Audit This Auditing and Assurance

Standard was the first standard on auditing issued by the Institute. As the

name suggests, it seeks to lie down and briefly explain the basic principles
which govern the auditors professional responsibilities and which should be
complied with whenever an audit is carried out. These principles are, namely,
integrity, objectivity and independence, confidentiality, skills and
competence, work performed by others, documentation, planning, audit
evidence, accounting system and internal control, and, finally, audit
conclusions and reporting.

AAS-2

Objective and Scope of the Audit of Financial Statements This

Standard describes the overall objective and scope of the audit of generalpurpose financial statements of an enterprise by an independent auditor. The
Standards deals with the following important aspects of an audit: Objective
of an Audit: expression of opinion, the concept of true and fair view
Responsibility for Financial Statements: responsibility of the management
vis-a-vis auditor Scope of Audit: factors determining scope, reliability and
sufficiency of audit evidence, disclosure aspects, undiscovered material
misstatements, etc.

AAS-3 Documentation Principle that the auditor should document matters

which are important in providing evidence that the audit was carried out in
accordance with the generally accepted auditing standards in India. The
Standard explains as to what constitute working papers, need for working
papers. The Standard also touches upon the following areas: Form and
Content: factors affecting form and content, quantum of working papers,
permanent audit file, and current audit file. Ownership and Custody of
Working Papers

AAS-4 (Revised) The Auditor's Responsibility to Consider Fraud and

Error in an Audit of Financial Statements As the name indicates,
the purpose of this AAS is to establish standards on the auditor's
responsibility to consider fraud and error in an audit of financial
statements. The following would give an overview of the contents
of the AAS:
Fraud and error and their characteristics
Responsibility of those charged with governance
Responsibility of management
Responsibility of the auditor

Indication of possible misstatement

Evaluation and disposition of misstatements.
Effect on auditor's report
Documentation
Management representations
Communication
Auditor unable to complete engagement
The appendices to the AAS contain examples of risk factors
relating to misstatements resulting from fraud/ error, examples of
modifications in auditor's procedures, and indicators of possible
fraud or error. Effective Date: -The AAS is effective for all audits relating to
accounting periods beginning on or after April 1, 2003.

AAS-5 Audit Evidence The purpose of this AAS is to establish

standards on the basic principle that the auditor should obtain
sufficient appropriate audit evidence through compliance and
substantive procedures to enable him to draw reasonable
conclusions there from on which to base his opinion on the
financial information. The AAS also explains the concept of
sufficient appropriate audit evidence, factors affecting it as also
the various types of assertions, internal vis-a-vis external
evidence. The Standard also deals with the methods of obtaining
evidence, namely, inspection, observation, inquiry and
confirmation, computation and analytical review.