Auditors Report.

The companies Act 2007, requires that the Auditors report shall state, whether in the auditors opinion, the financial statements; a) Have been properly prepared in accordance with the Act. b) Give a True and Fair view The auditors job is straight forward. They carry out test and inquire and evaluate evidence received with the purpose of drawing an audit opinion. They communicate that opinion in the form of an Audit Report. The communication problem is caused by a number of different problem that can be identified under three headings, Such as 1. Understandability 2. Reasonability 3. Availability.

1. Understandability In practice it is surrounded by auditing standards and guidance. It also involves relevant language, that non auditors may not understand. Communication is the Audit opinion in away, that people can understand it as challenge. 2. Reasonability Connected with the problem of what the audit is, and what the opinion means, is a problem of what the auditors are responsible for. The law is concerned auditors have restricted number of duties professional standards and other bodies. Such as SriLanka Accounting Standards and SriLanka Auditing Standards monitoring board and Central Bank of SriLanka put other duties on authors. 3. Availability. A significant number of people use audited accounts had just been mentioned. Audit Reports are publically available, as they are often held public record under the provision of the companies act.

Essential Requirements
These financial statement also comply with the requirements of the Companies Act No.07 of 2007. a) Have been properly prepared in accordance with Act. b) Give a true and fair view. The auditor must state these matters in his report. The auditing standards requires the auditor to auditor to state clearly.

 Form and content of this section of the auditors report will vary depending on the nature of the auditors other reporting responsibilities. The financial statements audited. The auditing standards followed which means in accordance with auditing Standards. The audit opinion any other information or opinions prescribed by statutory or other requirements.

The identity of the auditor.

Auditors signature Date of the auditors report Auditors address

Basic elements of an audit report.

The auditors reports include the following basis elements, ordinarily in the following layout. A) Title : Auditors report should have an appropriate title. B) Address : Auditors report should be appropriately addressed to the shareholders or the board of Directors of the entity whose financial statements are being audited. C) Opening of the introductory paragraph. Auditors Report should give 1. Identity the financial statements audited. 2. state a statement of the responsibility of the entitys management and the responsibility of the auditor.

D) Scope paragraph : Auditors Report should give, A reference to the SLAus A description of the work the auditors has performed. E) Opinion paragraph. F) Date of the report. The auditor should date the report as of the completion date of the Audit. This informs the readers that the auditor has considered the effect on the financial statements which has occurred up to that date. Since the auditors responsibility is to report on the financial statements as prepared and presented by the management, the auditor should not date the report earlier than the date on which the financial statements are signed or approved by the management.

G) Auditors address The report should name the specific location which is ordinarily the city where the city where the auditors maintains the office that has responsibility for the audit.
H) Auditors signature The report should be signed in the Name of the audit firm, since the firm assumes responsibility for the audit.

Types of audit opinion.

1. Unqualified Audit opinion Report 2. Qualified Audit opinion Report

3. Disclaimer of opinion Report 4. Adverse opinion Report

1.Unqualified Audit opinion Report

The most frequent type of report is referred to as the Unqualified Opinion. This type of report is issued by an auditor when the financial statements presented are free of material misstatements and are represented fairly in accordance with the Generally Accepted Accounting Principles(GAAP). Which in other words means that the companys financial condition, position, and operations are fairly presented in the financial statements. It is the best type of report an auditee may receive from an external auditor.

The report consists of a title and header, a main body, the auditors signature and address, and the reports issuance date. Traditionally, the main body of the unqualified report consist of three main paragraph, each with distinct standard wording and individual purpose, however certain auditors have since modified the arrangement of the main body in order to differentiate them selves from other audit firms.

The following is an example of a standard Unqualified Auditors Report on financial statements Alliance Finance Co. Ltd. Auditors: M/s H.L.B Edirisinghe & Co.
The company had not provided for the diminution in value (other than temporary) of shares in two companies held as investment securities in its financial statements for the year ended 31st march 2000. The auditors had not qualified their report in this respect. As a result of the inquiries made by the Board, the company agreed to provide for the diminution in value amounting to Rs.5 Million and to reflect the same in financial statements for the year ended 31st March 2001.

2.Qualified Audit opinion Report

A Qualified Audit opinion Report is issued when the auditor encountered one of two types of situations which do not comply with generally accepted accounting principles, however the rest of the financial statements are fairly presented. This type opinion is very similar to an unqualified or clean opinion, but the report states that the financial statements are fairly presented with a certain exception which is otherwise misstated.

The two types of situations which would cause an auditor to issue this opinion over the Unqualified opinion are:
Single deviation from GAAP :- This type of qualification occurs when one or more areas of the financial statements do not conform with GAAP (e.g:- are misstated), but do not affect the rest of the financial statements from being fairly presented when taken as a whole.
Limitation of scope :- This of qualification occurs when the auditor could not audit one or more areas of the financial statements, and although they could not be verified, the rest of the financial statements were audited and they conform GAAP.

The following is an example of a standard qualified auditors report on financial statements. Auditors Report to the members of Asian Hotels Corporation Ltd. We have audited the accounts on pagestoin accordance with the Auditing Standards. In our opinion the accounts give a true and fair view of the state of affairs of the company at 31st December 2009 and of its profit and source and application of funds for the year then ended and have been properly prepared in accordance with the companies Act 2007.
K.P.M.G Ford, Rhodes Chartered Accountant, Thornton & Co, 28th March 2010.

3. Adverse opinion Report.

An adverse opinion is issued when the auditor determines that the financial statements of an auditee are materially misstated and, when considered as a whole, do not conform with GAAP. It is considered the opposite of an unqualified or clean opinion, essentially stating that the information contained is materially incorrect, unreliable, and inaccurate in order to assess the auditees financial position and results of operations. Investors, lending institutions, and governments very rarely accept an auditees financial statements if the auditor issued an adverse opinion, and usually request the auditee to correct the financial statements and obtain another audit report. In our opinion, because of the situations mentioned above (in the explanatory paragraph), the financial statements referred to in the first paragraph do not present fairly, in all material respects, the financial position of

Generally, an adverse opinion is only given if the financial statements pervasively differ from GAAP. The wording of the adverse report is similar to the qualified report. The scope paragraph is modified accordingly and an explanatory paragraph is added to explain the reason for the adverse opinion after the scope paragraph but before the opinion paragraph. However, the most significant change in the adverse report from the qualified report is in the opinion paragraph, where the auditor clearly states that the financial statements are not in accordance with GAAP, which means that they, as a whole, are unreliable, inaccurate, and do not present a fair view of the auditees position and operations. the financial statements referred to in the first paragraph do not present fairly, in all material respects, the financial position of

Disclaimer of opinion Report

A Disclaimer of Opinion, commonly referred to simply as a Disclaimer, is issued when the auditor could not form, and consequently refuses to present, an opinion on the financial statements. This type of report is issued when the auditor tried to audit an entity but complete the work due to various reasons and does not issue an opinion.
Certain situations where a disclaimer of opinion may be appropriate. A lack of independence, or material conflict(s) of intrest exist between the auditor and the auditee (SAS No. 26). There are significant scope limitations, whether intentional or not, which hinder the auditors work in obtaining evidence and performing procedures SAS No 58). There is a substantial doubt about the auditees ability to continue as a going concern or, in other words, continue operating. There are signifant uncertainties within the auditee

A disclaimer of opinion differs substantially from the rest of the auditors reports because it provides very little information regarding the audit itself, and includes an explanatory paragraph stating the reasons for the disclaimer. Although the report still contains the letterhead, the auditees name and adress, the auditors signature and address, and the reports issuance date, every other paragraph is modified extensively, and the scope paragraph is entirely omitted since the auditor is basically stating that an audit could not be realized.

Reference
.Fundamental Analysis: The Auditor Report by investopedia.com . Principle of Auditing- 20th edition by Leslie R Howard. . Auditing- An instructional manual for accounting students- 50th edition by AH Millichamp .The SriLanka Accounting and Auditing Standards Monitoring Board.