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Saturday, May 10, 2014

Qualified Audit Report

Meaning
A qualified report means an audit report which is not clean. In case auditor has any reservation in respect of certain methods mentioned in the financial statements he may qualify his report. A qualified opinion shall be expressed as being subject of or except for the effects of the matter to which the qualification matters. If the accounting standards issued by Institute of Chartered Accounts of India is not followed by the company the auditor may qualify his report.

In addition as per CARO the auditor may qualify in his report in respect of inventories, Fixed Assets, loan given or taken by the company, internal control procedures, internal audit system, acceptance of public deposits, maintenance of cost records, payment of statutory dues, transaction prejudicial to the interests of the company, etc.

Circumstances for Qualification of Audit Report: In following circumstances the auditor has to qualify his report:

(a) He cannot conduct audit satisfactorily due to non availability of certain books of accounts or records, information or explanations necessary for conduct of his audit.

(b) He finds that the Balance Sheet and Profit & loss Account have not been prepared in accordance with accepted accounting principles.

(c) He detects that provisions for Bad & Doubtful Debts, Depreciation etc. are not adequate.

(d) He detects that the company has created certain secret reserve.

(e) The stock in trade has been valued at market price which is more than cost price.

(f) He finds that the contingent liability for bills discounted has not been disclosed.

(g) If in his opinion provision for taxation made is not proper.

(h) When he finds any embezzlements of cash or misappropriation of goods or manipulation of accounts which considerably affects the financial position of the company.


Specimen of Qualified Audit Report:

Auditor’s Report
To the Members of ABC Ltd.
1. We have audited the attached balance sheet of ABC Ltd. as at March 31,………………………………………

2. We conducted our audit in accordance with auditing standards generally accepted in India……………

3. As required by the Companies (Auditor’s Report) Order, 2003 …………………………………………………..

4. Further to our comments in the Annexure referred to in paragraph 3 above, we report that :
(a) We have obtained all the information and explanations…………………………………..
(b) In our opinion, proper books of account as required ……………………………………………
(c) The Balance Sheet, Profit and Loss Account……………………………………………………….
(d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt………….
(e) On the basis of written representations received from the directors…………………………………….

5. Subject to the reservations noted below, in our opinion and to the best of our information and according to the explanations given to us the accounts give the information required by the Companies Act 1956, in the manner so required and give a true & fair view, in conformity with the accounting principles generally accepted in India.
(i) The sum of ` 20,00,000 has been advanced to a director of the company in contravention of the companies Act 1956.
(ii) The provision for bad & doubtful debts has been understated by ` 50,00,000
(iii) The contingent liability for bills discounted for ` 6,00,000 has not been disclosed.
(iv) The provision for I.Tax payable is made short by ` 19,00,000.

Gokul Sd/-
May 1 , 2014 DEF
Partner
XYZ & Co.

Chartered Accountants