S21: Reporting

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S21 Reporting
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Audit Reporting

• The main objective is to ensure clear and
  informative reporting to the users of financial
  statements.
• Audit Reports should conform to the Reporting
  Standards of the CAG.
• Audit Report on Financial (Attest) Audit is about
  expression of Auditors Opinion on the Financial
  Statements. The opinion is expressed in a
  prescribed format.
• The present format certifies the accounts to be
  Correct in the case of Finance Accounts, and
  True and Fair in case of others (Govt
  companies, corporations, autonomous bodies etc.)

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Opinion and basis of accounting

• Properly presents i.e. correct- used when the
  financial statements have been prepared on a cash
  basis, reflecting the very low level of judgement
  required due to in preparing financial statements
  on a cash basis.
• Presents fairly - used when the financial
  statements have been prepared on a partial
  accruals basis and are not intended to give a
  true and fair view. This form of words reflects
  the fact that though some element of judgement
  has been used in preparing the financial
  statements, the audit opinion is distinct one on
  accounts which give a true and fair view.
• Presents true and fair view - used when the
  financial statements have been prepared on a full
  accruals basis and intended to give a true and
  fair view.

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Format of Audit certificate

• Normally, the audit reports on completion of
  financial audit will be in the form of audit
  certificates.
• However, in appropriate cases, a detailed report
  can be annexed to the audit certificate.
• In case the format of audit certificate is
  prescribed under the provisions of any law or
  engagement, such prescribed format shall be used.

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Audit opinion

• The audit opinion will also contain separate
  sections dealing with
• respective responsibilities of the executive and
  auditors
• the basis of the opinion expressed
• the opinion on the financial statements.

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Basis of Opinion

• The audit certificate should include a statement
  expressly setting out the basis of the audit
  opinion. This will include
• a statement certifying that the auditor has
  performed his examination in accordance with
  relevant legislative authority - where there is a
  legal requirement for him to certify
• a statement as to compliance or otherwise with
  Auditing Standards, together with the reasons for
  any departure therefrom
• a statement that the audit process includes
  examining, on a test basis, evidence relevant to
  the amounts, disclosures and regularity of
  transactions included in the financial
  statements and
• a statement that the audit is planned and
  performed so as to obtain reasonable assurance
  that the financial statements are free from
  material misstatement.

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Expression of opinion

• The audit certificates should contain a clear
  expression of opinion on both the truth and
  fairness/proper presentation/fair presentation
  (as appropriate) and the regularity of the
  transactions recorded in the financial
  statements.
• Truth refers to correctness of those matters
  capable of being determined with precision such
  as the balance of cash at bank etc.
• The concept of fairness is linked with a set of
  standards which provide a framework within which
  judgment can be exercised to report on the
  entitys financial status in fairness.

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Unqualified opinion

• An unqualified opinion is given when, in the
  judgement of the Auditor, the financial
  statements properly present receipts and payments
  or give a true and fair view and have been
  prepared in accordance with relevant accounting
  requirements.

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Qualified opinion- I

• The audit opinion should be qualified where the
  Auditor is unable to satisfy himself that the
  financial statements are free from material
  misstatement whether caused by fraud, error or
  other irregularity.
• E.g. For Appropriation Accounts a qualified
  opinion is also given on all Excess votes.
• Three types of opinion can be given as qualfied
  opinions - except for, adverse and
  disclaimer of opinion.

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Types of Audit Opinion
Type of opinion Signal Interpretation
Unqualified Favourable True and fair view
Except for Favourable with a qualification True and fair view, but for certain items
Adverse Unfavourable Not true and fair, misleading
Disclaimer of Opinion Neither favourable nor unfavourable Unable to express any opinion at all
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Some important points about Certificate

• The audit certificate should be positioned
  immediately before the financial statements and
  immediately after the statement of executives
  (directors' or managements) responsibilities.
• The Auditor should not sign the certificate
  and/or express audit opinion until the financial
  statements and all other financial information
  contained in a report of which the audited
  financial statements form a part have been
  approved by the accounting officer, board, or
  equivalent persons and he has considered all
  necessary available evidence.
• The date of a certificate on financial statements
  is the date on which the auditor signs the report
  expressing his opinion on those statements.

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Management Letter -I

• In addition to expressing an opinion on the
  financial statements, the auditor but issues a
  Management Letter to the auditee for improving
  their financial management and controls.
• The recommendations to the auditee towards
  improvement in their financial management and
  controls would be auditors value addition in the
  overall financial management.
• A Management Letter to the top management of the
  entity include audit findings other than those
  which have been considered material enough to be
  taken to the Audit Certificate.

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Management Letter -II

• The Management Letter is distinct from and does
  not replace the inspection reports issued after
  the completion of transaction audit.
• Audit must ensure that nothing communicated to
  the auditee entity is inconsistent with the audit
  opinion.
• If audit considers that the audit certificate
  should be qualified or should include an
  explanatory paragraph, a report to management
  cannot be regarded as a substitute.
• Omitting a significant comment on the basis of
  contemplated corrective action is not acceptable.