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Title Addressee Opening or Introductory Paragraph Scope Paragraph Opinion Paragraph Date of the Report Place of signature Auditors signature.
Scope Paragraph
It covers the followings: Describing the scope of audit by standing that audit was conducted in accordance with AAS. Requirement of AAS that auditor should obtain reasonable assurance that the financial statements are free of material misstatement. Auditors believing that their audit provides a reasonable basis for their opinion.
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Opinion Paragraph It covers the followings aspects: Auditors opinion about true and fair view of financial statements. Reporting on various matters required by law.
Unqualified
Modified
Disclaimer of Opinion
Affect Opinion
Qualified
Adverse
Unqualified Reports
An opinion is said to be unqualified when the auditor concludes that the financial statements give a true and fair view in accordance with the financial reporting framework used for the preparation and presentation of the financial statements.
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Unqualified Report
An Unqualified Report indicates the followings: Financial Statements have been prepared using the generally accepted accounting principles. Financial Statements comply with relevant statutory requirements and regulations. All material matters have been adequately disclosed. Effect of any change in the accounting policies have been properly determined and disclosed in the financial statements.
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Modified Reports
An Report other than unqualified is said to be MODIFIED. As per AAS 28, an auditors report is considered to be modified when it includes: (a) Matters that do not affect the auditors opinion with emphasis of matter (b) Matters that do affect the auditors opinion Qualified Reports and adverse Reports
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The circumstances in which the modified report may be issued are: Where the going concern question is not resolved & adequate disclosures have been made in the financial statements. There is a significant uncertainty (other than going concern) the resolution of which depends upon future events & which may affect the financial statements.
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Auditor is unable to obtain necessary information & explanations. Proper books of account have not been kept by the company. Balance Sheet and Profit and Loss Account are not in agreement with the books of account and returns. Profit and Loss account & the balance sheet do not comply with the Accounting Standards. If there is contravention of the provisions of Companies Act having a bearing on the accounts and transactions of the company.
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Disclaimer of Opinion
The auditor while performing his work may come across several instances where he fails to obtain sufficient information to warrant an expression of opinion, and thus, is unable to form an opinion, he issues a disclaimer of opinion. Accordingly, the auditor may state that he is unable to express an opinion because he has not been able to obtain sufficient and appropriate audit evidence to form an opinion.
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CARO, 2004
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whether the company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets; whether these fixed assets have been physically verified by the management at reasonable intervals; whether any material discrepancies were noticed on such verification and if so, whether the same have been properly dealt with in the books of account; and if a substantial part of fixed assets have been disposed off during the year, whether it has affected the going concern.
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whether physical verification of inventory has been conducted at reasonable intervals by the management; are the procedures of physical verification of inventory followed by the management reasonable and adequate in relation to the size of the company and the nature of its business. If not, the inadequacies in such procedures should be reported; and whether the company is maintaining proper records of inventory and whether any material discrepancies were noticed on physical verification and if so, whether the same have been properly dealt with in the books of account.
has the company granted any loans, secured or unsecured to companies, firms or other parties covered in the register maintained u/s 301 of the Act. If so, give the number of parties & amount involved in the transactions; whether the rate of interest & other terms of loans given by the company, are prima facie prejudicial to the interest of the company; whether receipt of the principal amount & interest are regular; if overdue amount is more than Rs. 1,00,000, whether reasonable steps have been taken by the company for recovery of the principal & interest;
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has the company taken any loans, secured or unsecured from companies, firms or other parties covered in the register maintained u/s 301 of the Act. If so, give the number of parties & amount involved in the transactions; whether the rate of interest and other terms of loans taken by the company, are prima facie prejudicial to the interest of the company; and whether payment of the principal amount & interest are also regular.
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CARO 2004 Internal Control Is there an adequate internal control system commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and services? Whether there is a continuing failure to correct major weaknesses in internal control system.
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whether the particulars of contracts or arrangements referred to in section 301 of the Act have been entered in the register required to be maintained under that section; and whether transactions made in pursuance of such contracts or arrangements have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time;
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CARO 2004 Cost Records Where maintenance of cost records has been prescribed by the Central Government under clause (d) of subsection (1) of section 209 of the Act, whether such accounts and records have been made and maintained.
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is the company regular in depositing undisputed statutory dues including PF, Investor Education and Protection Fund, ESI, Income-tax, Sales-tax, Wealth tax, Service tax, Custom Duty, Excise Duty, cess and any other statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as at the last day of the financial year concerned for a period of more than 6 months from the date they became payable. in case taxes have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending shall be mentioned.
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Nov. 02 (4 + 4 Marks) Q. No. 1: State your views on the following: The Auditor does not agree with affirmations made in the financial statements. Q. No. 2: State your views on the following: The auditor fails to obtain sufficient information to form an overall opinion on the matters contained in the financial statements.
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May & Nov. 03 (3 Marks) Q. No. 3: Comment: No cost accounting records are maintained though the company is required to maintain the same. Q. No. 4: Comment on the following: ABC Ltd. has not deposited provident fund contributions of Rs.20 lakhs to the authorities, but accounted in the books.
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Nov. 05 (4 Marks)]
Q. No. 5: As an auditor, comment on the following: SK Ltd. has fully computerised its accounting operations. The stock records are maintained up to date with timely entries passed for all receipts and issues. The company has hired a professional security agency, which monitors and implements a close vigilance over the operations of the company. As such, the company had dispensed with the practice of taking stock of their inventories at the year end as in their opinion the exercise is redundant, time consuming and intrusion to normal functioning of the operations.
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May 06 (5 Marks)
Q. No. 6: As an auditor, comment on the following situations/statements: X Ltd., to whom Companies (Auditors Report) Order, 2003 is applicable, has issued 9% Debenture of Rs. 5 crores, redeemable after 5 years and used the proceeds of issue for payment of Sundry Creditors and other Current Liabilities of Rs. 2.80 crores.
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Nov. 06 (4 Marks)
Q. No. 7: As an Auditor, comment on the following situations/statements: JKT Ltd. having Rs. 40 lacs paid up capital, Rs. 9.50 lacs reserves and turnover of last three consecutive financial years, immediately preceding the financial year under audit, being Rs. 4.90 crores, Rs. 4.50 crores and Rs. 6 crores, but does not have any internal audit system. In view of the management, internal audit system is not mandatory.
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