The auditor’s report includes the following basic elements, ordinarily, in the following layout:
1.Title; 2.Addressee; 3.Opening or introductory paragraph
- identification of the financial statements audited;
- a statement of the responsibility of the entity’s management and the responsibility of the auditor;
4. Scope paragraph (describing the nature of an audit)
- a reference to the auditing standards generally accepted in India;
- a description of the work performed by the auditor;
5. Opinion paragraph containing
- a reference to the financial reporting framework used to prepare the financial statements; and
- an expression of opinion on the financial statements;
6. Date of the report;
7. Place of signature; and
8. Auditor’s signature.
A measure of uniformity in the form and content of the auditor’s report is desirable because it helps to promote the reader’s understanding of the auditor’s report and to identify unusual circumstances when they occur. A statute governing the entity or a regulator may require the auditor to include certain matters in the audit report or prescribe the form in which the auditor should issue his report. In such a case, the auditor should incorporate in his audit report, the matters specified by the statute or regulator and/or report in the form prescribed by them.
1.Title: The auditor’s report should have an appropriate title. It may be appropriate to use the term “Auditor’s Report” in the title to distinguish the auditor’s report from reports that might be issued by others, such as by the officers of the entity, the board of directors, or from the reports of others.
2. Addressee: The auditor’s report should be appropriately addressed as required by the circumstances of the engagement and applicable laws and regulations. Ordinarily, the auditor’s report is addressed to the authority appointing the auditor.
3. Opening or Introductory Paragraph: The auditor’s report should identify the financial statements of the entity that have been audited, including the date of and period covered by the financial statements. The report should include a statement that the financial statements are the responsibility of the entity’s management and a statement that the responsibility of the auditor is to express an opinion on the financial statements based on the audit. An illustration of these matters in an opening (introductory) paragraph is: “We have audited the attached Balance Sheet of ………. (Name of the entity) as at 31st March 2XXX and also the Profit and Loss Account for the year ended on that date annexed thereto. These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audit.”
4. Scope Paragraph: The auditor’s report should describe the scope of the audit by stating that the audit was conducted in accordance with auditing standards generally accepted in India. The reader needs this as an assurance that the audit has been carried out in accordance with established
standards. The Auditing and Assurance Standards issued by the Institute of Chartered Accountants of India establish the auditing standards generally accepted in India. The report should include a statement that the audit was planned and performed to obtain reasonable assurance whether the financial statements are free of material misstatement. The auditor’s report should describe the audit as including:
- examining, on a test basis, evidence to support the amounts and disclosures in financial statements;
- assessing the accounting principles used in the preparation of the financial statements;
- assessing the significant estimates made by management in the preparation of the financial statements; and
- evaluating the overall financial statement presentation.
The report should include a statement by the auditor that the audit provides a reasonable basis for his opinion.
An illustration of these matters in a scope paragraph is: “We conducted our audit in accordance with the auditing standards generally accepted in
India. Those Standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.”
5.Opinion Paragraph: The opinion paragraph of the auditor’s report should clearly indicate the financial reporting framework used to prepare the financial statements and state the auditor’s opinion as to whether the financial statements give a true and fair view in accordance with that financial reporting framework and, where appropriate, whether the financial statements comply with the statutory requirements. The term used to express the auditor’s opinion, “give a true and fair view”, indicates, amongst other things, that the auditor considers only those matters that are material to the financial statements. An illustration of these matters in an opinion paragraph is: “In our opinion and to the best of our information and according to the explanations given to us, the financial statements give a true and fair view in conformity with the accounting principles generally accepted in India:
- in the case of the Balance Sheet, of the state of affairs of the ………… (name of the entity) as at 31st March 2XXX; and
- in the case of the Profit and Loss Account, of the profit/loss for the year ended on that date.”
6.Date of Report: The date of an auditor’s report on the financial statements is the date on which the auditor signs the report expressing an opinion on the financial statements. The date of report informs the reader that the auditor has considered the effect on the financial statements and on the report of the events and transactions of which the auditor became aware and that occurred up to that date. Since the auditor’s responsibility is to report on the financial statements 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 management.
7. Place of Signature: The report should name specific location, which is ordinarily the city where the audit report is signed.
8.Auditor’s Signature: The report should be signed by the auditor in his personal name. Where the firm is appointed as the auditor, the report should be signed in the personal name of the auditor and in the name of the audit firm. The partner/proprietor signing the audit report should also mention the membership number assigned by the Institute of Chartered Accountants of India.
