Page 115 - DCOM409_CONTEMPORARY_ACCOUNTING

Contemporary Accounting

Notes 8.7 Report of the Auditors to the Shareholders

The independent auditors report deals with the creditability of the financial statements.
Management through its internal accounting system is logically responsible for record-keeping
because it needs similar information for its own use in operating the business. The Certified
Public Accountants (Chartered Accountant) acting independently, add the necessary creditability
to management’s figures for interested third parties. They report to the Board of Directors and
the shareholders.

In form and language, most auditors’ reports are like the one shown below. The report is
divided into four parts:

The first paragraph identifies the financial statements subject to the auditors report. The
paragraph also identifies responsibilities of company management towards financial
statements and the auditor is responsible for expressing an opinion on the financial
statements based on the audit.
Second paragraph contains the scope that states that the examination was made in
accordance with generally accepted auditing standards (accepted in India). These standards
call for an acceptable level of quality in special areas established by the Institute of Chartered
Accountants of India. This paragraph also contains a brief description of the objectives and
nature of audit.

The third paragraph contains some information on specific areas as provided by the
Companies (Auditors Report) Order 2003.
The fourth paragraph, or opinion section, states the results of the auditor’s examination.
The use of the word opinion is very important because the auditor does not certify or
guarantee that the statements are absolutely correct. Instead, the auditors simply give an
opinion about whether, overall, the financial statements give true and fair view of the
financial position, results of operations and cash flows. This means that the statements are
prepared in accordance with generally accepted accounting principles (generally accepted
in India). If in the auditor’s opinion, the statements do not meet accepted standards, the
auditors must give full disclosure and explanation.

Self Assessment

Fill in the blanks:
20. The independent ………… report deals with the creditability of the financial statements.
21. The first paragraph of auditor’s report identifies the …………….subject to the auditors
report.

Task Work out capital structure of Dawson and Ross Manufacturing Company Ltd. as it
would appear in the balance sheet as on 31 December.
The company issued a prospectus offering 50,00,000 Equity Shares of ` 100 as face value
and 10,00,000. 13.5% 2007 Redeemable Preference Shares of ` 250 each on 1 September. The
issue was open for a week. The company’s merchant bankers reported subscription of
48,50,000 Equity shares and the entire preference issue. The prospectus had stipulated ` 30
of the equity shares as application money, ` 40 to be paid on allotment and the balance at
the call. The entire face value of the preference share is to be paid along with application.
Contd...

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