ANALYSIS OF AUDIT REPORT

AUDIT REPORT INTRODUCTION

The auditor's report is a formal opinion, or disclaimer thereof, issued by either an internal auditor or an independent external auditor as a result of an internal or external audit or evaluation performed on a legal entity or subdivision thereof (called an auditee). The report is subsequently provided to a user (such as an individual, a group of persons, a company, a government, or even the general public, among others) as an assurance service in order for the user to make decisions based on the results of the audit. An auditors report is considered an essential tool when reporting financial information to users, particularly in business. Since many third-party users prefer, or even require financial information to be certified by an independent external auditor, many auditees rely on auditor reports to certify their information in order to attract investors, obtain loans, and improve public appearance. Some have even stated that financial information without an auditors report is essentially worthless for investing purposes. It is important to note that auditor's reports on financial statements are neither evaluations nor any other similar determination used to evaluate entities in order to make a decision. The report is only an opinion on whether the information presented is correct and free from material misstatements, whereas all other determinations are left for the user to decide.

K . J . SOMAIYA COLLEGE OF SCIENCE AND COMMERCE

ANALYSIS OF AUDIT REPORT

Definition
An audit report is a written opinion of an auditor regarding whether an entitys financial present fairly its financial position. This 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. For example, the report may include a qualified opinion, depending upon the existence of any scope limitations that were imposed upon the auditor's work.

SIGNIFICANCE OF AUDIT REPORT

The significance of audit report are: 1. Gain a strong sense of internal control. 2. Identify key areas for improvement in a company. 3. Test out the performance of new technology. 4. Evaluate threats, economy, efficiency and quality. 5. Realise fraudulent occurrences in the business. 6. Analyse and understand a firms' financial data. 7. The public are protected from corruption.

K . J . SOMAIYA COLLEGE OF SCIENCE AND COMMERCE

ANALYSIS OF AUDIT REPORT

Types of Audit Reports

There are four common types of auditors reports, each one presenting a different situation encountered during the auditors work. The four reports are as follows:

I.

Unqualified Opinion

Often called a clean opinion, an unqualified opinion is an audit report that is issued when an auditor determines that each of the financial records provided by the small business is free of any misrepresentations. In addition, an unqualified opinion indicates that the financial records have been maintained in accordance with the standards known as Generally Accepted Accounting Principles (GAAP). This is the best type of report a business can receive. Typically, an unqualified report consists of a title that includes the word independent. This is done to illustrate that it was prepared by an unbiased third party. The title is followed by the main body. Made up of three paragraphs, the main body highlights the responsibilities of the auditor, the purpose of the audit and the auditors findings. The auditor signs and dates the document, including his address.

II.

Qualified Opinion

In situations when a companys financial records have not been maintained in accordance with GAAP but no misrepresentations are identified, an auditor will issue a qualified opinion. The writing of a qualified opinion is extremely similar to that of an unqualified opinion. A qualified opinion, however, will include an additional paragraph that highlights the reason why the audit report is not unqualified.

K . J . SOMAIYA COLLEGE OF SCIENCE AND COMMERCE

ANALYSIS OF AUDIT REPORT

III.

Adverse Opinion

The worst type of financial report that can be issued to a business is an adverse opinion. This indicates that the firms financial records do not conform to GAAP. In addition, the financial records provided by the business have been grossly misrepresented. Although this may occur by error, it is often an indication of fraud. When this type of report is issued, a company must correct its financial statement and have it re-audited, as investors, lenders and other requesting parties will generally not accept it.

IV.

Disclaimer of Opinion

On some occasions, an auditor is unable to complete an accurate audit report. This may occur for a variety of reasons, such as an absence of appropriate financial records. When this happens, the auditor issues a disclaimer of opinion, stating that an opinion of the firms financial status could not be determined.

K . J . SOMAIYA COLLEGE OF SCIENCE AND COMMERCE

ANALYSIS OF AUDIT REPORT

ANALYSIS OF AUDIT REPORT

1) The audit of ASHOK LEYLAND LIMITED is conducted under the keen observation of DELOITTE HASKINS & SELLS. A firm of Chartered Accountants by M.S KRISHNASWAMI & RAJAN, partners of the firm.

2) The company prepares and maintains proper books of accounts as per the provisions.

3) The Balance sheet as well as Profit & Loss A/c have been prepared vertically.

4) The Balance sheet as well as Profit & Loss A/c have been prepared on 31st March 2011.

5) For the purpose of audit the auditors had been given an opportunity to exercise all their rights as an auditor. The company follows mercantile system of accounting and recognizes income and expenditure on accrual basis except in case of uncertainties.

6) The company prepares and maintains proper books of accounts as per the provisions of section 209 of the Companies Act 1956. The audit reports shows that all significant accounting policies have been adopted in preparation and presentation of the financial statements and have been properly disclosed in the annual report.

K . J . SOMAIYA COLLEGE OF SCIENCE AND COMMERCE

ANALYSIS OF AUDIT REPORT

7) The comparative positions of each account of the balance sheet as on 31 March 2010 and March 2011 have also been disclosed.

8) The company has not made any allotment of shares to any concerned party.

9) The company has not raised any money by public issues during the year.

10) In the Balance sheet, Sources of funds = Application of funds, based on Dual aspect concept of accounting.

11) The Profits of the company have been increased substantially from 2010 to 2011 as evident from the comparative Profit and Loss A/c provided.

12) The Earning Per Share(EPS) (shares with face value Rs.1) has increased from Rs. 3.18 per share in 2010 to Rs.4.75 per share in 2011 as evident from the comparative Profit and Loss A/c provided. 13) As per the analysis of the auditors report, proper books of accounts have been maintained by the company and the financial statements dealt by the auditors are in agreement with the books of accounts.

14) On analyzing the Balance Sheet it can be found that investments worth Rs. 90516.49 lakhs have been purchased during the current year.

K . J . SOMAIYA COLLEGE OF SCIENCE AND COMMERCE

ANALYSIS OF AUDIT REPORT

15) According to the auditors report the balance sheet gives a true and fair view of the state of the affairs of the company and the profit and loss account gives the true and fair view of the profits of the company, and they comply with the accounting standards.

16) The Balance Sheet as well as Profit & Loss A/c has been signed by the preparers and the auditors respectively.

K . J . SOMAIYA COLLEGE OF SCIENCE AND COMMERCE

ANALYSIS OF AUDIT REPORT

WEBLIOGRAPHY
A. www.ashokleyland.com B. www.wikipedia.org C. www.blurtit.com

K . J . SOMAIYA COLLEGE OF SCIENCE AND COMMERCE