S21: ReportingS21: Reporting

Audit ReportingAudit Reporting» The main objective is to ensure clear and The main objective is to ensure clear and

informative reporting to the users of financial informative reporting to the users of financial statements.statements.

» Audit Reports should conform to the Audit Reports should conform to the Reporting Standards of the CAG.Reporting Standards of the CAG.

» Audit Report on Financial (Attest) Audit is Audit Report on Financial (Attest) Audit is about expression of Auditor’s Opinion on the about expression of Auditor’s Opinion on the Financial Statements. The opinion is Financial Statements. The opinion is expressed in a prescribed format.expressed in a prescribed format.

» The present format certifies the accounts to The present format certifies the accounts to be “Correct” in the case of Finance Accounts, be “Correct” in the case of Finance Accounts, and “True and Fair” in case of others (Govt and “True and Fair” in case of others (Govt companies, corporations, autonomous bodies companies, corporations, autonomous bodies etc.)etc.)

Opinion and basis of Opinion and basis of accountingaccounting

» Properly presentsProperly presents i.e. i.e. correct-correct- used when the used when the financial statements have been prepared on a financial statements have been prepared on a cash basis, reflecting the very low level of cash basis, reflecting the very low level of judgement required due to in preparing financial judgement required due to in preparing financial statements on a cash basis.statements on a cash basis.

» Presents fairlyPresents fairly - used when the financial - used when the financial statements have been prepared on a partial statements have been prepared on a partial accruals basis and are not intended to give a true accruals basis and are not intended to give a true and fair view. This form of words reflects the fact and fair view. This form of words reflects the fact that though some element of judgement has that though some element of judgement has been used in preparing the financial statements, been used in preparing the financial statements, the audit opinion is distinct one on accounts the audit opinion is distinct one on accounts which give a true and fair view.which give a true and fair view.

» Presents true and fair viewPresents true and fair view - used when the - used when the financial statements have been prepared on a full financial statements have been prepared on a full accruals basis and intended to give a true and accruals basis and intended to give a true and fair view.fair view.

Format of Audit certificateFormat of Audit certificate

» Normally, the audit reports on Normally, the audit reports on completion of financial audit will be in completion of financial audit will be in the form of audit certificates. the form of audit certificates.

» However, in appropriate cases, a However, in appropriate cases, a detailed report can be annexed to the detailed report can be annexed to the audit certificate. audit certificate.

» In case the format of audit certificate is In case the format of audit certificate is prescribed under the provisions of any prescribed under the provisions of any law or engagement, such prescribed law or engagement, such prescribed format shall be used. format shall be used.

Audit opinionAudit opinion

» The audit opinion will also contain The audit opinion will also contain separate sections dealing with:separate sections dealing with:» respective responsibilities of the respective responsibilities of the

executive and auditorsexecutive and auditors» the basis of the opinion expressedthe basis of the opinion expressed» the opinion on the financial the opinion on the financial

statements.statements.

Basis of OpinionBasis of Opinion» The audit certificate should include a statement The audit certificate should include a statement

expressly setting out the basis of the audit opinion. expressly setting out the basis of the audit opinion. This will include:This will include:

» a statement certifying that the auditor has performed a statement certifying that the auditor has performed his examination in accordance with relevant his examination in accordance with relevant legislative authority - where there is a legal legislative authority - where there is a legal requirement for him to certify;requirement for him to certify;

» a statement as to compliance or otherwise with a statement as to compliance or otherwise with Auditing Standards, together with the reasons for any Auditing Standards, together with the reasons for any departure therefrom;departure therefrom;

» a statement that the audit process includes a statement that the audit process includes examining, on a test basis, evidence relevant to the examining, on a test basis, evidence relevant to the amounts, disclosures and regularity of transactions amounts, disclosures and regularity of transactions included in the financial statements; andincluded in the financial statements; and

» a statement that the audit is planned and performed a statement that the audit is planned and performed so as to obtain reasonable assurance that the financial so as to obtain reasonable assurance that the financial statements are free from material misstatement.statements are free from material misstatement.

Expression of opinion Expression of opinion » The audit certificates should contain a clear The audit certificates should contain a clear

expression of opinion on both the truth and expression of opinion on both the truth and fairness/proper presentation/fair fairness/proper presentation/fair presentation (as appropriate) and the presentation (as appropriate) and the regularity of the transactions recorded in regularity of the transactions recorded in the financial statements. the financial statements.

» ‘‘Truth’ refers to correctness of those matters Truth’ refers to correctness of those matters capable of being determined with precision capable of being determined with precision such as the balance of cash at bank etc.such as the balance of cash at bank etc.

» The concept of ‘fairness’ is linked with a set The concept of ‘fairness’ is linked with a set of standards which provide a framework of standards which provide a framework within which judgment can be exercised to within which judgment can be exercised to report on the entity’s financial status in report on the entity’s financial status in fairness.fairness.

UnqualifiedUnqualified opinionopinion

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

Qualified opinion- IQualified opinion- I

» The audit opinion should be qualified where The audit opinion should be qualified where the Auditor is unable to satisfy himself that the Auditor is unable to satisfy himself that the financial statements are free from the financial statements are free from material misstatement whether caused by material misstatement whether caused by fraud, error or other irregularity. fraud, error or other irregularity.

» E.g. For Appropriation Accounts a qualified E.g. For Appropriation Accounts a qualified opinion is also given on all Excess votes.opinion is also given on all Excess votes.

» Three types of opinion can be given as Three types of opinion can be given as qualfied opinions - ‘except for’, ‘adverse’ qualfied opinions - ‘except for’, ‘adverse’ and ‘disclaimer of opinion’. and ‘disclaimer of opinion’.

Types of Audit OpinionTypes of Audit Opinion

Type of Type of opinionopinion

SignalSignal InterpretationInterpretation

UnqualifiedUnqualified FavourableFavourable True and fair True and fair viewview

Except forExcept for Favourable Favourable with a with a qualificationqualification

True and fair True and fair view, but for view, but for certain itemscertain items

AdverseAdverse UnfavourablUnfavourablee

Not true and Not true and fair, misleadingfair, misleading

Disclaimer of Disclaimer of OpinionOpinion

Neither Neither favourable favourable nor nor unfavourablunfavourablee

Unable to Unable to express any express any opinion at allopinion at all

Some important points Some important points about Certificateabout Certificate

» The audit certificate should be positioned The audit certificate should be positioned immediately before the financial statements and immediately before the financial statements and immediately after the statement of executive’s immediately after the statement of executive’s (directors' or management’s) responsibilities.(directors' or management’s) responsibilities.

» The Auditor should not sign the certificate The Auditor should not sign the certificate and/or express audit opinion until the financial and/or express audit opinion until the financial statements and all other financial information statements and all other financial information contained in a report of which the audited contained in a report of which the audited financial statements form a part have been financial statements form a part have been approved by the accounting officer, board, or approved by the accounting officer, board, or equivalent persons and he has considered all equivalent persons and he has considered all necessary available evidence. necessary available evidence.

» The date of a certificate on financial statements The date of a certificate on financial statements is the date on which the auditor signs the report is the date on which the auditor signs the report expressing his opinion on those statements.expressing his opinion on those statements.

Management Letter Management Letter -I-I

» In addition to expressing an opinion on the In addition to expressing an opinion on the financial statements, the auditor but issues a financial statements, the auditor but issues a Management Letter to the auditee for improving Management Letter to the auditee for improving their financial management and controls. their financial management and controls.

» The recommendations to the auditee towards The recommendations to the auditee towards improvement in their financial management and improvement in their financial management and controls would be auditor’s value addition in the controls would be auditor’s value addition in the overall financial management.overall financial management.

» A Management Letter to the top management of A Management Letter to the top management of the entity include audit findings other than the entity include audit findings other than those which have been considered material those which have been considered material enough to be taken to the Audit Certificate. enough to be taken to the Audit Certificate.

Management Letter -IIManagement Letter -II» The Management Letter is distinct from The Management Letter is distinct from

and does not replace the inspection reports and does not replace the inspection reports issued after the completion of transaction issued after the completion of transaction audit.audit.

» Audit must ensure that nothing Audit must ensure that nothing communicated to the auditee entity is communicated to the auditee entity is inconsistent with the audit opinion.inconsistent with the audit opinion.

» If audit considers that the audit certificate If audit considers that the audit certificate should be qualified or should include an should be qualified or should include an explanatory paragraph, a report to explanatory paragraph, a report to management cannot be regarded as a management cannot be regarded as a substitute.substitute.

» Omitting a significant comment on the Omitting a significant comment on the basis of contemplated corrective action is basis of contemplated corrective action is not acceptable.not acceptable.