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May 29, 2021

Draft format of Statutory Audit report for FY 2020-21

by Mahesh Mara in Compliance Law, Corporate Law

Draft format of Statutory Audit report for FY 2020-21

An audit report is a written opinion of an auditor regarding an entity’s financial statements. An auditor’s report is a written letter attached to a company’s financial statements that expresses its opinion on a company’s compliance with standard accounting practices. However, an auditor’s report is not an evaluation of whether a company is a good investment. Also, the audit report is not an analysis of the company’s earnings performance for the period. Instead, the report is merely a measure of the reliability of the financial statements.

What are the various types of Audit opinion issued by the auditor?

The type of Audit opinion will be dependent on the findings by the auditor. Below are the most common types of audit opinion issued by the auditors for companies:

A. Unqualified opinion:

An unqualified opinion is expressed by the Auditor when he/she concludes that the financial statements supply a true and fair view of the company’s financial standing in accordance with the financial reporting framework deployed in the preparation and presentation of the financial statements. Further, an unqualified opinion also indicates that:

a. All accounting principles have been adopted properly, and the financial statement has been prepared using the generally accepted accounting principles;

b. The financial statements comply with relevant legal regulations and requirements;

c. There is adequate disclosure of all material matters relevant to the proper presentation of the financial information.

B. Qualified Opinion:

An audit report is said to be a qualified report or a modified report if the Auditors report is modified to add emphasis or highlight a matter affecting the financial statements. One of the main reason for qualifying an audit report or modifying an audit report is if there are concerns to the auditor regarding a going concern problem and the going concern question is not resolved, and relevant disclosures have not been made in the financial statements. Example of a modified report includes a phrase such as the following in the audit report:

c. Adverse Opinion:

If there is a limitation on the scope of the auditor’s work or if there is a disagreement with management regarding the usability of the accounting policies selected, the method of their utilisation or the adequacy of financial statement disclosure, then an adverse or disclaimer of opinion is issued. Whenever an auditor issues an audit opinion that is qualified or adverse or a disclaimer of opinion, a clear description of all the reasons is included in the audit report. A disclaimer of opinion is expressed by an Auditor when the possible effect of limitation on the scope of the audit is so material and pervasive that the auditor has not been able to obtain sufficient appropriate audit evidence.

d. Disclaimer of Opinion:

An adverse opinion is expressed when the possible effect of a disagreement with management is material and pervasive to the financial statements. Hence, the auditor concludes that the qualification of the audit report is not adequate to disclose the misleading nature of the financial statements. In case an adverse opinion is issued, the board of directors of the company are legally bound to submit an explanation to the members of the company. The explanation should inform the members the reason for the adverse opinion.

What are the various parts of Audit report?

The Audit report is divided in the following parts:

  1. Opinion
  2. Basis for Opinion
  3. Information other than the financial statements and auditors’ report thereon
  4. Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements
  5. Auditor’s Responsibilities for the Audit of the Financial Statements
  6. Report on Other Legal and Regulatory Requirements

Format of Audit report for FY 2020-21

Independent Auditor’s Report

To the Members of  _____________________ Pvt Ltd  

Report on the Audit of the Standalone Financial Statements

Opinion

We have audited the financial statements of  _____________________ Ltd, which comprise the balance sheet as at 31st March 2021, and the statement of Profit and Loss and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information.

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at 31st March, 2021, its profit/loss and its cash flows for the year ended on that date.

Basis for Opinion

We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Companies Act, 2013. Our responsibilities under those Standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the financial statements under the provisions of the Companies Act, 2013 and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Information other than the financial statements and auditors’ report thereon

The Company’s board of directors is responsible for the preparation of the other information. The other information comprises the information included in the Board’s Report including Annexures to Board’s Report but does not include the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained during the course of our audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Standalone Financial Statements

The Company’s Board of Directors is responsible for the matters stated in section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the accounting Standards specified under section 133 of the Act. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those Board of Directors are also responsible for overseeing the Company’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under section 143(3)(i) of the Companies Act, 2013, we are also responsible for expressing our opinion on whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

  1. As required by the Companies (Auditor’s Report) Order, 2016 (“the Order”), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Companies Act, 2013, we give in the ‘Annexure A’, a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
  2. As required by Section 143 (3) of the Act, we report that:
  • We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.
  • In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.
  • The Balance Sheet, the Statement of Profit and Loss and the Cash Flow Statement dealt with by this Report are in agreement with the books of account.
  • In our opinion, the aforesaid financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.
  • On the basis of the written representations received from the directors as on 31st March, 2021 taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2021 from being appointed as a director in terms of Section 164 (2) of the Act.
  • With respect to the adequacy of the internal financial controls with reference to financial statements of the Company and the operating effectiveness of such controls, refer to our separate Report in ‘Annexure B’.
  • With respect to the other matters to be included in the Auditor’s report in accordance with the requirements of Sec 197(16) of the Act as amended, we report that Section 197 is not applicable to a private company. Hence reporting as per Section 197(16) is not required.
  • With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:
    • The Company does not have any pending litigations which would impact its financial position.
    • The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses.
    • There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company.

For ______________________

Chartered Accountants

FRN: ______________

Sd/-

( Auditor Name)

Membership No. _____________

Place:- Mumbai

Date:

UDIN:

Annexure ‘A’

The Annexure referred to in paragraph 1 of Our Report on “Other Legal and Regulatory Requirements”.

We report that:

  1.  
  • The company has maintained proper records showing full particulars, including quantitative details and situation of its fixed assets.
    • As explained to us, fixed assets have been physically verified by the management at reasonable intervals; no material discrepancies were noticed on such verification.
    • The title deeds of immovable properties are held in the name of the company.
  • As explained to us, inventories have been physically verified during the year by the management at reasonable intervals. No material discrepancy was noticed on physical verification of stocks by the management as compared to book records. The Company is valuing inventory at lower of Cost or Market Value as on 31st March 2021.
  • According to the information and explanations given to us and on the basis of our examination of the books of account, the Company has not granted any loans, secured or unsecured, to companies, firms, Limited Liability Partnerships or other parties listed in the register maintained under Section 189 of the Companies Act, 2013.  Consequently, the provisions of clauses iii (a), (b) and (c) of the order are not applicable to the Company.
  • In respect of loans, investments, guarantees, and security, provisions of section 185 and 186 of the Companies Act, 2013 have been complied with.
  • The company has not accepted any deposits from the public covered under sections 73 to 76 of the Companies Act, 2013.
  • As per information & explanation given by the management, maintenance of cost records has not been specified by the Central Government under sub-section (1) of section 148 of the Companies Act, 2013.
  •  
  1. According to the records of the company, undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees’ State Insurance, Income-tax, Sales-tax, Service Tax, Custom Duty, Excise Duty, value added tax, cess and any other statutory dues to the extent applicable, have generally been regularly deposited with the appropriate authorities. According to the information and explanations given to us there were no outstanding statutory dues as on 31st of March, 2021 for a period of more than six months from the date they became payable.
  2. According to the information and explanations given to us, there is no amount payable in respect of income tax, service tax, sales tax, customs duty, excise duty, value added tax and cess whichever applicable, which have not been deposited on account of any disputes.
  • In our opinion and according to the information and explanations given by the management, we are of the opinion that, the Company has not defaulted in repayment of dues to a financial institution, bank, Government or debenture holders, as applicable to the company.
  • The company has not raised any money by way of initial public offer or further public offer (including debt instruments) or by way of term loans during the year.
  • According to the information and explanations given to us, we report that no fraud by the company or any fraud on the Company by its officers or employees has been noticed or reported during the year.
  • The company is a private limited company. Hence the provisions of clause (xi) of the order are not applicable to the company..
  • The company is not a Nidhi Company. Therefore, clause (xii) of the order is not applicable to the company.
  • According to the information and explanations given to us, all transactions with the related parties are in compliance with sections 177 and 188 of Companies Act, 2013 where applicable and the details have been disclosed in the Financial Statements etc. as required by the applicable accounting standards.
  • The company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review.
  • Provisions of section 192 of Companies Act, 2013 have been complied with in case of non-cash transactions entered by the company with directors or persons connected with him
  • The company has not incurred cash losses in the financial year and  in the immediately preceding financial year
  • There has been no instance of any resignation of the statutory auditors occurred during the year
  • No material uncertainty exists as on the date of the audit report that company is capable of meeting its liabilities existing at the date of balance sheet  as and when they fall due within a period of 1 year from the balance sheet date
  • The company is not required to be registered under section 45-IA of the Reserve Bank of India Act, 1934.

For ______________________

Chartered Accountants

FRN: ______________

Sd/-

( Auditor Name)

Membership No. _____________

Place:- Mumbai

Date:

UDIN:

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