CLEAN AUDIT REPORT OR UNQUALIFIED REPORT:- If the auditor is satisfied that the accounts and balance sheet and profit & loss accounts do present a true and fair picture as per accounting principles and statutory requirements, he will give an unqualified or clean opinion.
Thus, if the auditor makes a statement in his report that “in our opinion and to the best of our information and according to the explanations given to us, the balance sheet and profit and loss account give a true and fair view of the state of affairs and the results of operations”, he will be said to have given an unqualified opinion and his report will be known as unqualified or clean report.
QUALIFIED REPORTS:- Whenever the auditor of a company is not satisfied with any information or explanation given to him or if he thinks that the profit and loss account and the balance sheet do not exhibit a true and fair view of the state of affairs of the company or if the accounts presented by the directors call for further clarification, he must ask the directors to do so. He must mention that fact in his report. This type of report is known as qualified report as distinct from a clean report.
Before the auditor gives a qualified report, he should discuss the points with the directors. They may give such information in light of which it may be found unnecessary to qualify the report. It should be specified and to the point. A qualified report may be in respect of the following matters and the auditors should use appropriate words:-
- The stock in trade has been valued at the market price which has been more than the cost price.
- If there is any contingent liability the extent of which has not been given.
- Inadequate provisions for depreciation has been made.
Keeping the above in view we must consider the following also:-
An Auditor is a Watchdog and Not a Bloodhound
- An auditor is not bound to be a detective or
- to approach his work with suspicion or
- with the foregone conclusion that there is something wrong.
He is a watch dog not a bloodhound. He is justified in believing the tried servants of the company and is entitled to rely upon their representation provided he take reasonable care.
An auditor is not an insurer. He does not guarantee that the books do correctly show the true position of the company’s affair.
The Auditor is to give information, not means of information:- The auditor is required to make a report to the members of the company:-
- on the accounts examined by him
- on every balance sheet and profit and loss account which are laid before the company in general meeting during his tenure of office
- on every document declared to be a part of or annexed to the balance sheet and profit and loss account.
The auditor’s report must state whether in his opinion and to the best of his information, and according to the explanations given to him, the said accounts give the information required by this act in the manner so required, and give a true and fair view:-
- in the case of the balance sheet, of the state of the company’s affairs as at the end of the financial year and
- in the case of the profit and loss account, of the profit or loss for the financial year.
If the report is not clean, it is qualified and the auditor expresses qualified opinion, then he is supposed t give the source of information otherwise not.
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