Notes-Qualified and Unqualified Audit Report

Q. Explain an Unqualified Annual Audit Report?
Discuss the Audit Work Involved in The

Submission of Such A Report. Give an Imaginary Specimen of Such A Report.
An unqualified audit report is one in which the auditor, after obtaining all information and necessary
explanations, expresses his complete satisfaction that the financial statements present true and fair view of
state of company’s affairs. It is also called a positive or clear report.
Steps involved in preparation of Audit Report:
Normally auditor is required to express his opinion on the following eight points in an unqualified audit
report.
1. Full information and explanation obtained and verified.

The auditor has an access to books of accounts and vouchers of the company. He may also obtain
from directors and other officers of the company for any further information and explanation as
may be necessary in the performance of his duties.
In an unqualified audit report the auditor of the company certifies that he has obtained full
information and explanations which was necessary for the purpose of the audit and has made due
verification of information and explanations so obtained.
2. Books of Accounts
The auditor has to state that the company maintains proper books of accounts according to the
requirements of the Company Act 2017. The books maintain should carry the following records:
• All Sums of money received and expended

• All Sales and Purchase of goods by the company
• All assets of the company
• All liabilities of the company
• Details of cost of production in case of a company engaged in production, processing,
manufacturing or mining activities.
3. Financial Statements as per the Company Act.

The auditor is to certify that the Balance Sheet and profit and loss account or Income & Expenditure
account have been drawn up in conformity with the Company Act 2017.
4. Financial Statements agree with accounts

Auditor is to express his satisfaction that financial statements are in agreement with the books of
accounts and also in accordance with the accounting policies consistently applied.
5. Expenditures pertaining to business

Auditor is required to report that that the expenditures incurred during the year were for the purpose
of company’s business.
6. Business is in accordance with Objectives

The auditor is also required to states that the business conducted, investments made and the
expenditures incurred during the year was in accordance with the object of the company. By
reviewing memorandum of association auditor should obtain reasonable assurance about it.
7. Financial Statements give True and Fair view.
Auditor expresses his opinion that according to the best of his information and according to the
explanations given to him, the balance sheet, the profit & Loss Account, the statements Showing
changes in financial position and notes forming part thereof, give the information as required by the
ordinance and give a true and fair view of the state of business affairs.
8. Deduction of Zakat
Auditor expresses his opinion that Zakat deductible at source under the Zakat and Usher Ordinance
1980 was deducted by the Company and deposited in the Capital Zakat Fund established under Sec
7 of that Ordinance.
Specimen of an unqualified Audit Report:
Auditor’s report to the members:
We have audited the annexed balance sheet of ABC Company Ltd as at June 30,2007 and the related profit
and loss account, cash flow statement and statement of changes in equity, together with the notes forming
part thereof, for the year then ended and we state that we have obtained all the information and explanations
which, to the best of our knowledge and belief, were necessary for the purpose of our audit and after due
verification thereof, we report that:
(a) in our opinion, proper books of accounts have been kept by the company as required by the
Company Act 2017;
(b) in our opinion:
(i) The balance sheet and profit and loss account together with the notes thereon
have been drawn up in conformity with the Company Act 2017, and are in
agreement with the books of accounts and are further in accordance with
accounting policies consistently applied.
(ii) The expenditure incurred during the year was for the purpose of the
company’s business;
(iii) The business conducted, investments made and the expenditure
incurred during the year were in accordance with the object of the company;
(c) In our opinion and to the best of our information and according to the explanations give to us, the
balance sheet, profit and loss account, cash flow statement and statement of changes in equity
together with the notes forming part thereof, give the information required by the Company Act
2017, in the manner so required and respectively give a true and fair view of the state of the
company’s affairs as at 30 June 2007 and of the profit / loss and the changes in financial position
for the year then ended: and
(d) In our opinion Zakat deductible at source under the Zakat and Ushr Ordinance 1980 was
deducted by the company and deposited in the Central Zakat Fund established under
section 7 of that ordinance.
15 October 2007 Kamran and Company

Lahore Chartered Accountants
Q. Explain a qualified annual Audit Report? Discuss the audit work involved in the
submission of such a report. Give an imaginary specimen of such a report.
Qualified Audit Report:
The auditor is appointed by the shareholders to check the accounts prepared by the directors so that he may
inform them that the accounts have been properly maintained and that the balance sheet and profit & loss
account exhibit true and fair view of the state of affairs of the company. He is there to safeguard the interest
of the shareholders. Whenever the auditor is not satisfied with any information or explanation given to him
or he thinks that profit & loss account and balance sheet do no exhibit a true & fair view of the state of
affairs of the company, he must ask the directors to take remedial action and if he is unsuccessful in
persuading the directors to do so, he must mention the fact in the report and such a report is called qualified
report.
“An audit report that contains objections or observations is called qualified report”.
Steps involved in preparation of Audit Report:
Normally auditor is required to express his opinion on the following eight points in his report.
1. Full information and explanation obtained or not

The auditor has an access to books of accounts and vouchers of the company. He may also obtain
any further information and explanation as may be necessary in the performance of his duties from
directors and other officers of the company.
In an qualified audit report the auditor of the company certifies that he has obtained or not full
information and explanations which was necessary for the purpose of the audit and has made due
verification of information and explanations so obtained. He floats his observation in case of his
dissatisfaction.
1. Books of Accounts
The auditor has to state whether proper books of accounts have been maintained or not. The books
maintained should carry the following records:
• All Sums of money received and expended
• All Sales and Purchase of goods by the company
• All assets of the company
• All liabilities of the company
• Details of cost of production in case of a company engaged in production, processing,
manufacturing or mining activities.
3. Financial Statements as per the Company Act or not

The auditor is to certify whether or not the Balance Sheet and profit and loss account or Income &
Expenditure account have been drawn up in conformity with the Company Act 2017.
4. Financial Statements agree with accounts or not

Auditor is to express his satisfaction whether or not financial statements are in agreement with the
books of accounts and whether or not the accounting policies consistently applied.
3. Expenditures pertaining to business or not
Auditor is required to report that that the expenditures incurred during the year were for the purpose
of company’s business or not.
4. Business is in accordance with Objectives or not

The auditor is also required to states that the business conducted, investments made and the
expenditures incurred during the year was in accordance with the object of the company or not. By
reviewing memorandum of association auditor should obtain reasonable assurance about it.
5. Financial Statements give true and fair view or not.

Auditor expresses his opinion that according to the best of his information and according to the
explanations given to him, the balance sheet, the profit & Loss Account, the statements Showing
changes in financial position and notes forming part thereof, give the information as required by the
ordinance and give a true and fair view of the state of business affairs or not.
6. Deduction of Zakat
Auditor expresses his opinion that Zakat deductible at source under the Zakat and Usher Ordinance
1980 was deducted or not by the Company and deposited or not in the Capital Zakat Fund established
under Sec 7 of that Ordinance.
Specimen of a qualified Audit Report:
AUDITOR’S REPORT TO THE MEMBERS
We have audited the annexed balance sheet of ABC Company Ltd as at June 30,2007 and the
related profit and loss account, cash flow statement and statement of changes in equity, together
with the notes forming part thereof, for the year then ended and we state that we have obtained all
the information and explanations which, to the best of our knowledge and belief, were necessary
for the purpose of our audit and after due verification thereof, we report that:
(1) Company has not provided depreciation amounting to Rs. 250,000.

(2) The stock is valued at Rs. 400,000 whereas its net realizable value is Rs
380,000 therefore, value of the stock should be reduced by Rs.20, 000.
(3) Provision for taxation Rs 50,000 not provided for
(4) We are unable to verify an amount of Rs 200,000 due from Affaf Trading.
Except for the above, we state that:

(c) in our opinion, proper books of accounts have been kept by the company as
required by the Company Act 2017;
(d) in our opinion:
(i) The balance sheet and profit and loss account together with the notes
thereon have been drawn up in conformity with the Company Act
2017, and are in agreement with the books of accounts and are further
in accordance with accounting policies consistently applied.
(ii) The expenditure incurred during the year was for the purpose of the
company’s business; and
(iii) The business conducted, investments made and the expenditure
incurred during the year were in accordance with the objects of the
company;
(c) In our opinion and to the best of our information and according to the
explanations given to us, the balance sheet, profit and loss account, and
statement of changes in financial position together with the notes forming
part thereof, give the information required by the Company Act 2017, in the
manner so required and respectively give a true and fair view of the state of
the company’s affairs as at 30 June 2007 and of the profit / loss and the
changes in financial position for the year then ended: and
(d) In our opinion Zakat deductible at source under the Zakat and Ushr Ordinance
1980 was deducted by the company and deposited in the Central Zakat Fund
established under section 7 of that ordinance.
Date:………… Signature(s)
Place:……….. Name(s) of Auditor(s)

Notes-Qualified and Unqualified Audit Report

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Q. Explain an Unqualified Annual Audit Report?

Discuss the Audit Work Involved in The

1. Full information and explanation obtained and verified.

• All Sums of money received and expended

3. Financial Statements as per the Company Act.

4. Financial Statements agree with accounts

5. Expenditures pertaining to business

6. Business is in accordance with Objectives

Specimen of an unqualified Audit Report:

Auditor’s report to the members:

15 October 2007 Kamran and Company

Qualified Audit Report:

Steps involved in preparation of Audit Report:

1. Full information and explanation obtained or not

3. Financial Statements as per the Company Act or not

4. Financial Statements agree with accounts or not

4. Business is in accordance with Objectives or not

5. Financial Statements give true and fair view or not.

AUDITOR’S REPORT TO THE MEMBERS

(1) Company has not provided depreciation amounting to Rs. 250,000.

Except for the above, we state that:

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