Auditor’s Report Auditing Help

The audit report should contain a clear written expression of opinion on the financial statements. Also, when a qualified opinion, adverse opinion or a disclaimer of opinion is given, the audit report should state in a clear and informative manner all the reasons therefor, In this regard, observations of LORD JUSTICE LINDLEY in London and General Bank Ltd. (1895) are quoted as follows:

“A person whose duty is to convey information to other,  does not discharge that by simply giving them, so much information as is calculated to induce them, or some of them, to ask for more. Information and means of information are by no means equivalent terms.” Again, “an auditor who gives shareholders means of information instead of information in respect of a company’s financial position does so at his peril, to runs the very serious risk of being held, judicially, to have failed to discharge his duty.” The duty of an auditor is to convey information, not to arouse inquiry, and although an auditor might infer from an unusual statement that something was seriously wrong, it by no means follows that ordinary people would have their suspicions aroused by similar statement if, as in this case, its language expresses no more than an ordinary person would infer without it.”

The company has no claim on the working papers of the accountant.( i.e., the auditor) Chantrey Martin & Co. v . Martin (1953).

An auditor has a particular lien upon documents belonging to his  client company which have come to his possession by proper means, until his fees for any work done in relation to these documents are paid, Woodworth v. Conroy, (1976).

Auditor’s report as per form XI of the Modaraba Companies and Modaraba Rules 1981.

As regards auditor’s report on Modaraba Companies, following query was raised.

As per form XI of the Modarab Companies and Modaraba Rules,  1981 the contents of the auditor’s report include certification that the business conducted, investments made, and expenditure incurred by the Modaraba are in accordance with the objects, terms and conditions of the Modaraba. The Modaraba are required to comply with the following:

1) Modraba Companies and Modaraba (Floatation and Control Ordinance 1980.
ii) Modaraba Companies and Modaraba Rules 1981
iii) NBFIs regulations promulgated by SBP
iv) Guidelines issued by CLA
v) Authorization certificate issued by Modaraba registrar.


1. Is the audit opinion to be confined to (1) and (ii) or;

2. Is the auditor required to ensure that the Modraraba has also adequately complied with other requirements as mentioned in (iii) and (iv) as well;

3. If answer to issue no 2 is in affirmative. specific clauses requiring the auditor to do so may be identified, and

4. Should the audit report be qualified in the event of non  compliance of requirements mentioned in (iii) to (v)

Following opinion was issued by the appropriate committee of the institute.

The auditor is required to express his opinion on the financial statements of the Modaraba in the format prescribed inform Xl of the Modaraba Companies and Modaraba Rules 1981. Para c (1) of the statement exhibit a true and fair view of the state of the Modarabs affairs.

Para 1 of AS 1 Objective and Basic Principles Governing an Audit states as follow:

financial information. This reviews and assessment involves considering whether –

• The financial information has been prepared using acceptable accounting policies, which have been consistently  applied.
• The financial information complies with regulations and statutory requirements relating to preparation of financial statements.
• The view presented by the financial information as a whole is consistent with the auditor’s knowledge of the business if the entity; and
• There is adequate disclosure of all material matters relevant to the proper presentation of the financial information.

Keeping in view the relevant provisions of ISA – I as reproduced  above the auditor’s opinion on the financial statements of the Modaraba should not be only confined to:

• The “objects term and conditions” given in the Modarab’s prospectus
• Modarab companies and Modraba ordinance 1980 and (Flotation and Control) Modaraba Companies and Modaraba Rules 1981, and the auditor is also required to verify compliance of various regulations and statutory requirements which may include the following:
• State Bank of Pakistan Non – Banking Financial Institutions regulations
• Guidelines issued by the Corporate Law Authority
• Registrar of Modarabas Authorization Certificate.
• Consent Order of Controller of Capital Issues.

While expressing his opinion on the financial statements the auditor ill accordance with ISA – 1, is required to verify compliance with all the relevant rules, regulations and statutory requirements.

The auditor should use his judgment to determine whether non compliance of any particular rule or regulation is material which could affect the true and fair view of the financial statements of Modaraba and then decide accordingly whether he should qualify his audit report or not.

Auditor’s report: Form in respect of charitable institutions/ clubs/ schools and religious institutions

ICAP has adopted International Standard on auditing -13, Auditor’s report on financial statements and Standard 24, Special purpose auditor’s report and the requirements of both the standards are required to be complied with in every case.

What auditor’s duties are not?

Auditor’s duties do not include advising the directors as to how should they carry out business more effectively.

An auditor is not concerned with the policy of the company, LINDLEY, LJ observed in London & General Bank Re, (1895) . ” It is no part of an auditor’s duty to give advice, either to directors or shareholders, as to what they ought to do. An auditor has nothing to do with the prudence or imprudence of making loans with or without security. It is nothing to him whether the business of a company is being conducted prudently or imprudently, profitably or unprofitably, It is nothing to him whether dividends are properly or improperly declared, provided he discharges his own duty to the shareholders. His business is to ascertain and state the true financial position of the company at the time of the audit ….

Providing absolute assurance that financial statements are free of material misstatements is not the duty of the auditor,

The auditor is not expected to provide an absolute assurance that the accounts give a true and correct view of the financial position of the entity and the net profit earned during the period.

Auditor is not required to send his opinion to individual shareholders,

Although the auditor has to issue his report on financial statements, he is not required to send his report to every shareholder, Allen Craig & Co. (London) Re, (1934).

Auditor is not bound to respond to individual queries of shareholders.

The auditor has a fiduciary relationship vis-a-vis the shareholders as a membership. This does not imply that if anyone shareholder writes to him for certain queries regarding amounts or disclosures in the financial statements, he is bound to answer all queries.

Auditor’s Lien upon documents

The company has no claim on the working papers of the accountant, (i.e., the auditor) Chantey Martin & Co. v. Martin (1953) 2 All ERG 91.

An auditor has a particular lien upon documents belonging to his client company which have come to his possession by proper means, until his fees for any work done in relation to these documents are paid. Woolworth v. Conroy, (1976).

Posted on November 3, 2015 in Legal Provisions Relating to Auditors

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