The Categories Of Audit Report Accounting Essay


True and fair view (TFV) concept is the paramount in the presentation in company's financial statements and reports. This accounting principle suggests every single company should provide a true and fair view about its operating results and financial conditions conformity with generally accepted accounting principles (GAAP). An audit process is about gathering sufficient evidence required to verify whether the company's claim of profits are true and fair. The auditor will make an Auditor's Report, based on the evidence gathered, to sets out their opinion, based on the truth and fairness of the company's financial statements.

Under Section 174 (2)(a) of the Companies Act 1965, an auditor shall, in a report, state whether the accounts in accordance with the provisions of this Act so as to give a true and fair view of the company's affairs. The 'true and fair view' is legislative requirement on financial statements; however, there is no authoritative definition of this phrase. TFV principle is flawed and has limitations (McEnroe & Martens, 2003). This concept is bringing considerable debate on its meaning. Under law, lawyers interpret 'true and fair view' by its ordinary meaning and treat it as a legal concept. Yet, accounting professions suggest this phrase is an accounting concept and has its own technical meaning.

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Auditors used 'true and fair view' term to convince the stakeholders that the company's audited financial statements are truth and free from error. According to Walton (1993), 'true and fair view' defined by current accounting practice, it is a concept used to give an opinion by auditors on a company's financial statements.

H. Explain the categories of audit report.

After the audit process where the auditor gather evidence to verify the 'true and fair' view of a company's financial statement, a written report- audit report is going to be prepare. This audit report however, is just an opinion on whether the information in the statements presented by the company is correct and free from material misstatements, company's stakeholders should make their own decision. Audit report is issued by an internal or external auditor as a formal opinion or disclaimer to evaluate a company's financial statements. There are four categories of audit reports.

When an auditor gives the financial statements a true and fair view opinion, it is said to be an unqualified opinion or a clean report. This is the best type of audit report that an auditee may received from the external auditor. Most audit reports is classified as unqualified report where it is a report without any reservation on part of the auditor. However, an unqualified opinion does not mean it is completely accurate because auditor can only provide reasonable evidence to proof that there is no any material misstatement in the company's financial statements. Everything in the financial statements should presents fairly in accordance with Generally Accepted Accounting Principle (GAAP) and free form material misstatements. To meet the unqualified opinion requirements, one's financial statements will have to comply with the relevant statutory requirements and regulations. There are three types of unqualified opinions, which is the standard unqualified, unqualified with modified wording and unqualified with ending explanatory paragraph.

Qualified opinion or modified opinion will be reported when an auditor gives an opinion subject to certain reservations. This type of audit report will be use when the auditor having an opinion that the overall financial is not fairly stated. Qualified reports are somewhat similar to unqualified reports. It is usually expressed if there are departures from the accounting standards or other mandatory requirements. It reports as certain records of the statements may be missing or some parts of the information may not be up with GAAP. Qualified opinion will be given when the auditor encountered one of the two conditions which the financial statement is materially misstated and inability to obtain sufficient appropriate audit evidence where there is a limitation of scope. There are some examples when audit report is qualified. When there are no proper books, unable to obtain information, not agreeing with books, non-disclosure of prescribed information and wrong accounting policies.

An adverse opinion is the worst that will be issued to the audit reports when the auditor gives a negative response in result of the company's record are uninformative and not in comply with GAAP as a whole. Other than that, the records have been counterfeit or in other ways erroneous should be also reports as this type of audit reports. With an adverse opinion report, the information contained is materially incorrect, inaccurate and unreliable. This report mean the financial statement do not present a true and fair view of the company's financial positions. Adverse opinion is generally unacceptable by the investors, lenders, governments, and other relating parties. So, the company must re-prepare their financial statement and send it to re-audit.

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The forth types of audit reports is disclaimer of opinion. This will be issued when an auditor is not able to complete an accurate audit report, where he or she does not want to or cannot give an opinion on audited financial statement. Sometimes, it is due to lack of sufficient evidence to proof the financial statements. Statements on Auditing Standards (SAS) claims certain situation where a disclaimer of opinion report may be appropriate, includes, lack of independence between auditor and the auditee. When there are significant scope limitations that hinder the auditor's evidence collecting and task performing, disclaimer of opinion can be issued. Besides, if there is any significant uncertainty within the auditee, auditor can issue a disclaimer of opinion, and stating that the company's financial status couldn't be determined.