Audited Financial Statements: – Definition, Inclusions and Auditors Report

Tally Solutions |Updated on: December 13, 2021

• Definition
• Auditors Opinion on Audited Financial Statements
• Audited Financial Statements and Fair Presentation
• Audited Financial Statements and Auditor’s report
• Signature, Place and Date of Auditor

Definition

Audited financial statements refer to a complete set of general-purpose financial statements, including the related notes. The related notes ordinarily comprise a summary of significant accounting policies and other explanatory information and any other information required to be included as part of the financial statements by the laws and regulations governing the entity.

The requirements of the applicable financial reporting framework determine the form and content of the financial statements, and what constitutes a complete set of audited financial statements.

Auditors Opinion on Audited Financial Statements

It is the auditors’ responsibility to form an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.

The auditor here shall conclude as to whether he has obtained reasonable assurance about whether the financial statements as a whole are free from any material misstatement, whether due to fraud or error. That conclusion shall take into account: -

• The audited financial statements adequately disclose the significant accounting policies selected and applied;
  
  
• The selected accounting policies applied by the management are consistent with the applicable financial reporting framework and are appropriate;
  
  
• The accounting estimates made by management are reasonable;
  
  
• The information presented in the audited financial statements is relevant, reliable, comparable, and understandable;
  
  
• The financial statements provide adequate disclosures to enable the intended users to understand the effect of material transactions and events on the information conveyed in the financial statements; and
  
  
• The terminology used in the audited financial statements, including the title of each financial statement, is appropriate.

Audited Financial Statements and Fair Presentation

When financial statements are prepared in accordance with a fair presentation framework, the evaluation required should also include whether the financial statements achieve fair presentation.

The evaluation as to whether the financial statements achieve fair presentation shall include consideration of:

• The comprehensive presentation, structure and content of the financial statements; and
  
  
• Do the audited financial statements’, including the related notes, represent the underlying transactions and events in a manner that achieves fair presentation?

Forming of Opinion on Audited Financial Statements

While framing an opinion on audited financial statements, the auditor shall express an unmodified opinion when he concludes that the Audited financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.

But if in case, if the auditor concludes that

• On the audit evidence obtained, the financial statements as a whole are not free from material misstatement; or
  
  
• He is unable to obtain sufficient appropriate audit evidence to conclude that the audited financial statements as a whole are free from material misstatement, the auditor shall modify the opinion in the auditor’s report

Audited Financial Statements and Auditor’s report

The auditor’s report shall be in writing and shall have a title that clearly indicates that it is the report of an independent auditor. And shall be addressed, as appropriate, based on the circumstances of the engagement.

The audit report shall include the following sections : -

Auditor’s Responsibility for Audit of Financial Statements

This section of the auditor’s report shall :

• State that the responsibilities of the auditor:
  
  
  • Arrive at a 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 audit report that includes the auditor’s opinion.
    
    
• Mention that reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with Standards on auditing will always detect a material misstatement when it exists; and
  
  
• Mention that misstatements can arise from fraud or error, and either : -
  
  
  • Represent that they 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; or
    
    
  • Establish a definition or description of materiality in accordance with the applicable financial reporting framework.

Signature, Place and Date of Auditor

Signature of Auditor

The auditor’s report shall be signed. The report is signed by the auditor (i.e. the engagement partner) in his personal name. Where a partnership firm is appointed as the auditor, the report is signed in the personal name of the auditor and in the name of the audit firm. The partner/proprietor signing the audit report also needs to mention the membership number assigned by the Institute of Chartered Accountants of India.

Place of Signature

The audit report shall name a specific location, which is ordinarily the city where the audit report is signed.

Date of Auditor's Report

The audit report shall be affixed with a date no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the auditor’s opinion on the financial statements, including evidence that : -

• The financial statements, including the related notes, have been prepared; and
  
  
• Those with the recognized authority have asserted that they have taken responsibility for those financial statements.