Company audit and report writing for intermediate
- 1. A company is an artificial person that exists separately from its owner or management. At the end of an accounting period, a company must prepare financial statements. These statements need to be properly examined by an auditor before being shared with users like shareholders or regulatory bodies. When an auditor checks the financial statements and gives their expert opinion, this process is called a Company Audit. According to Section 183(3) of the Companies Act 1994, a company’s balance sheet, profit and loss account (or income and expenditure account), and cash flow statement must be audited by the company’s appointed auditor. The auditor’s report must be attached to these financial statements and presented at the company’s general meeting.
- 2. Disqualifications of an Auditor 1. Any company or firm – Only a person (not a company) can be an auditor. 2. An officer or employee of the company – To avoid conflict of interest. 3. A partner or employee of the company’s officer or employee – Indirect links also disqualify. 4. If a person has taken a loan or owes more than 1,000 taka to the company, they are not allowed to become the auditor of that company. 5. Also, if a person has promised (guaranteed) to repay a loan taken by someone else from the company, they are also disqualified. 6. A director or member of a private company, or a partner in a firm that works as the company’s managing agent or treasurer. 7. A person who is a director or owns over 5% of the company’s shares – Too much control may affect fairness.
- 3. Duties of an Auditor 1. Check financial statements – Examine the company’s balance sheet, income statement, and cash flow statement. 2. Verify accounts – Make sure all accounts are accurate and properly recorded. 3. Check books of accounts – Ensure the company keeps proper books as required by law. 4. Detect errors and frauds – Look for any mistakes or possible fraud in the accounts. 5. Check compliance – Ensure the company follows laws, rules, and accounting standards. 6. Give audit report – Prepare and submit a report giving an expert opinion on the financial statements. 7. Report to shareholders – Present the audit report at the company’s general meeting. 8. Maintain confidentiality – Keep company information private and not misuse it. 9. Check internal control system – Review how well the company controls its internal financial processes. 10. Inform if not satisfied – Clearly mention in the report if any information is missing or doubtful.
- 4. Rights & powers of an auditor 1. Right to access books and records – The auditor can see all books, accounts, and documents of the company at any time. 2. Right to ask for information – The auditor can ask company officers or employees for any information needed for the audit. 3. Right to receive notice of meetings – The auditor has the right to get notices and attend general meetings where financial statements are discussed. 4. Right to speak at meetings – The auditor can speak at the general meeting on matters related to the audit. 5. Right to report – The auditor has the right to give an independent report to the shareholders. 6. Right to visit branches – If the company has branches, the auditor can visit and check their accounts. 7. Right to get explanations – The auditor can demand explanations from company staff if anything is unclear. 8. Right to sign the audit report – Only the appointed auditor has the right to sign and submit the audit report.
- 5. Meaning of audit report •An audit report is a report based on the checking of a company’s financial records and accounts. •It is a written statement that presents important facts in a clear and simple way, especially for people who do not know all the details. •Audit reporting means sharing the auditor’s final opinion after completing the audit work independently, following the audit plan. 5
- 6. Meaning of true and fair view •The term "true and fair view" means that the company’s annual financial accounts should be prepared in a way that accurately shows the company's financial situation. •It focuses on accuracy in presenting the financial information. •The accounts should include all the details required by the company rules and laws. •The phrase "true and fair view" is used instead of saying "true and correct view". •The balance sheet and profit & loss account should both show a true and fair view of the company’s financial position. 6
- 7. Basic element of an audit Report • Title – The report should have a clear title, like "Independent Auditor’s Report." • Introduction – The report begins by stating who is being audited and what financial statements are being reviewed. • Management’s Responsibility – Explains that it is the company's responsibility to prepare accurate financial statements. • Auditor’s Responsibility – Describes what the auditor is responsible for, such as checking the financial statements fairly and independently. • Opinion – The auditor’s final judgment on whether the financial statements are accurate and fair. The opinion can be: • Unqualified (clean) opinion (good) • Qualified opinion (some issues) • Adverse opinion (serious problems) • Disclaimer (unable to form an opinion) • Basis for Opinion – Provides the reasons for the auditor's opinion, including the audit process followed. • Other Information – Mentions any other important details that might affect the audit. • Auditor’s Signature – The report ends with the auditor’s signature, confirming the audit. • Date and Address – The date the report was completed and the location of the auditor.
- 8. Qualification of good report • Clarity – The audit report should be clear, concise, and easy to understand for all users, including shareholders, management, and regulators. • Accuracy – The financial information in the report must be accurate and free from errors or misstatements. • Compliance with Standards – The audit report should comply with applicable accounting and auditing standards, ensuring consistency and reliability. • Objectivity and Independence – The auditor must remain independent and unbiased, providing an opinion that is free from influence by the company or any stakeholders. • Completeness – The report must include all required details and information, ensuring a full picture of the company’s financial health. • Well-supported Opinion – The auditor should base their opinion on sufficient evidence gathered through thorough investigation and analysis of the company's financial records. • No Limitations (Unqualified Opinion) – A good audit report will provide an unqualified (clean) opinion, meaning the auditor does not have any reservations about the financial statements being accurate and fair. • Consistent Presentation – The audit report should be consistent with previous reports unless there are significant changes in accounting policies or circumstances. • Timeliness – The audit report should be issued in a timely manner, typically after the company’s financial year ends, ensuring that users receive current and relevant information. 8
- 9. Auditor’s opinion: The auditor’s opinion is the most important part of the audit report that is provided with company accounts. The auditor’s opinion may be Unqualified, Qualified, Disclaimer or Adverse. The auditor expresses his opinion about the financial information reported in annual statements of accounts. Auditor Report 9
- 10. Unqualified Opinion: •An unqualified or "clean" opinion means the auditor believes the financial statements are accurate and honest. They are free from major mistakes and follow the proper accounting rules. Qualified Opinion: •A qualified opinion means the auditor has some concerns about certain parts of the financial statements. There may be issues, such as disagreements with the company or limits on the audit work. However, these problems are not serious enough to give a bad or "adverse" opinion or to say "I cannot form an opinion". Auditor Report 10
- 11. Adverse Opinion: •An adverse opinion means the auditor clearly states that the financial statements are not accurate or do not follow the correct accounting rules. There are major mistakes, and the auditor will explain the reasons for this negative opinion in the report. Disclaimer: •A disclaimer means the auditor was hired to do an audit but cannot give an opinion on the financial statements. This could be because the auditor was not independent or there were limits on what they could examine during the audit. Auditor Report 11
- 12. When to Qualify an Audit Report: • The auditor should not give a qualified opinion for small or minor issues. They should only qualify the report if they have serious concerns. Here are some examples when an auditor should qualify the report: • No provision for depreciation – If the company hasn't set aside money for the depreciation of assets. • Inadequate provision for bad debts – If the company hasn’t made enough allowance for debts that may not be collected. • Overvaluing investments – If the company values investments at a higher price than their current market value. • Contingent liabilities not disclosed – If the company hasn’t mentioned potential future liabilities in their report. • Violation of company law – If the company has paid more money to managers than allowed by law without proper approval. 12
- 13. Auditor’s Report/ Report Writing To the Members of XYZ Limited, We have audited the financial statements on pages … to … following the approved auditing guidelines. Management's Responsibility: It is the responsibility of the company’s management to prepare the financial statements and ensure they are accurate. Auditor's Responsibility: It is the auditor’s job to check the financial statements and give an opinion on whether they are accurate and in line with accounting standards. Opinion: In our opinion, the financial statements accurately reflect the company’s financial position as of December 31, 2021, and show its profits and changes in financial position for the year. They are prepared following generally accepted accounting principles and are consistent with the previous year. Further Report (as required by the Companies Act 1994): 1.We have obtained all the necessary information and explanations for our audit. 2.The balance sheet and profit and loss account follow the legal requirements. 3.With some uncertainties mentioned above, the balance sheet gives a true and fair view of the company’s financial situation based on the best information we have. 4.The company has kept proper books of accounts as required by law. Dhaka, 15th July 2021 ABC and Co, Chartered Accountants