Audit and Auditors under Companies Act

Auditor’s Report

An auditor’s report is an evaluation that provides the auditor’s opinion on the validity and reliability of an organization’s financial statements. When preparing financial statements for companies, they must contain an auditor’s report from an external accountant or auditor. This report evaluates the financial statement’s validity and reliability. The ultimate intention of the auditor’s report is to provide a reasonable assurance that there are no material errors exists within an organization’s financial statements.

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Auditor’s Report 

The auditor shall make a report to the members of the company on the accounts and financial statements examined by him. The auditor prepares the report after taking into account the provisions of the Companies Act, the accounting standards and auditing standards. Also, he lays the report before the company in the annual general meeting.

We need to consider the following points while drafting an auditor’s report

The auditor report should be based on the best of his information and knowledge. The auditor shall ensure that accounts and financial statements give a true and fair view of the state of the company’s affairs as at the end of its financial year. He shall comply with the auditing standards and sign the auditor’s report of the company. The auditor’s report shall also state the following facts –

  1. Whether he has obtained all the information and explanations which to the best of his knowledge were necessary for the purpose of his audit. If he is unable to collect any information, the details thereof and the effect of such information on the financial statements;
  2. Whether, in his opinion, proper books of account as required by law have been kept by the company. All information which is relevant for the purposes of his audit have been received from branches not visited by him;
  3. Whether the reports of all branches of a company which are audited by a person other than the company’s auditor has been sent to him. He should consider all of these reports while preparing his report;
  4. Whether the company’s balance sheet and profit and loss account dealt with in the report are according to the books of account and returns;
  5. Whether, in his opinion, the financial statements comply with the accounting and auditing standards;
  6. The auditor’s report most contains the observations or comments of the auditors on financial transactions or matters which have an adverse effect on the functioning of the company;
  7. Auditors should ensure, whether any director is disqualified from being appointed as a director.
  8. Any qualification, reservation or adverse remark relating to the maintenance of books of accounts of the company.

auditor's report

Other important considerations

  1. If any of the matters required to be included in the audit report is answered in the negative or with a qualification, the auditor’s report shall also state the reasons for the same.
  2. The observations or comments on financial transactions or matters, which have an adverse effect on the functioning of the company mentioned in the auditor’s report shall be read before the company by the auditor in general meeting. Any member of the company can inspect it.
  3. As per the Companies (Auditor’s Report) Order, 2015, an auditor should include a statement on the following matters in his report on the account of companies covered under this order:

(i) Fixed assets

(ii) Inventory

(iii) Granting of loans to certain parties

(iv) Internal control system

(v) Acceptance of deposits

(vi) Maintenance of cost records

(vii) Deposit of statutory dues

(viii) Accumulated Losses and Cash Losses

(ix) Default in repayment of dues

(x) Guarantee for loans taken by others from financial institutions

(xi) Application of term loans

(xii) Fraud Reporting

Browse more Topics under Audit Auditors Under Companies Act

Solved example for you

Question: What are the services that an auditor cannot render?

Ans: The auditor cannot render the following services directly or indirectly to the company or its subsidiary or its holding company:

  1. Internal audit
  2. The accounting and bookkeeping services
  3. Designing and implementation of a financial information system
  4. Management services
  5. Actuarial services
  6. Investment banking and advisory services


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