KES SHROFF COLLEGE OF ARTS AND COMMERCE

Project on MUTUAL FUNDS. T.Y. (BANKING AND INSURANCE) GROUP NO. 5 CONSULT FACULTY- SHWETA MISS

GROUP MEMBERS

NAME OF STUDENT PRATIK AGRAWAL SAGAR CHITRODA NIYATI GANDHI NEELAM PANCHAL JAY PATEL RAJKUMAR SINGH

ROLL NO. 01 09 15 31 34 44

ACKNOWLEDGEMENT

Through this acknowledgment, we express and have helped us with it and made it a worthwhile experience. Finally, we express our thanks to SHWETA MISS who gave us this opportunity to learn the subject in a practical approach who guided us and gave us valuable suggestions regarding the project report. Our sincere gratitude to all those people who have been associated with this assignment

INTRODUCTION

Audit report is a fundamental document in any audit. There are two basic aspects of an audit. One is to establish the facts and other is to report material facts without any fear or favour to the company. The auditor can be held liable for his failure to carry out satisfactory audit, audit procedure and report facts. In the case of a company, the shareholders cannot by themselves, inspect the book of accounts on the basis of which the financial statements of the company are prepared. Therefore, they appoint an auditor who is professionally competent and under a legal obligation to report to the shareholders on the truth and fairness of the assertions made in the financial statements. Thus, the auditor is duty-bound to safeguard the interest of the shareholders against any irregular activities of the management in dealing with the assets of the company. In respect, the auditor is required to find out-

a) Whether the company has maintained proper books of accounts. b) Whether entries have been correctly and genuinely made in the books of account, and c) Whether legal and accounting standards have been duly complied with in all respects.

The auditor has to perform his duty with great care and caution so as to ascertain whether the transactions of the

company are within the law as applicable and as per standards of propriety. He is also required to follow the professional code of conduct, to act independently and not to do anything which may cause any loss to the shareholders directly or indirectly.

AUDIT UNDER COMPANIES ACT:

Under section 227(2) of the companies act 1956, the auditor is required to make a report to the members of the company:

i. ii.

On the accounts examined by him On every balance sheet and profit-loss account which are laid before the company in general meeting during his tenure of office.

iii.

On every document declared to be part of or annexed to the balance sheet and profit and loss account.

The auditors report must state whether in his opinion, and to the best of his information and according to the explanations given to him the said accounts give the information required by the act in the manner so required and give a true and fair view:

a) In the case of balance sheet, of the state of the companys affairs as at the end of the financial year and b) In the case of profit and loss account of the profit or loss for the financial year.

CONTENT OF AUDIT REPORT:

The auditing standards as regards audit report applies to all reports in wich the auditor is required to express his opinion on the financial statements of the company intended to give true and fair view of the state of affairs and the profit or loss for the year. However , it does not override in the report in the case of any specified class enterprises.

The auditors report should identify the person to whom it is addressed and the financial statements to which it relates. The auditor should also refer expressly in his report the following. (a) whether the financial statements have been audited in accordance with generally accepted auditing standards and practices, (b) whether in his opinion the financial statements give a true and fair view of the state of affairs profit or loss and where applicable sources and application of funds. (c) any matter to be included in his report to the relevant or other requirement.

ELEMENTS OF AUDIT REPORT

The basic element of audit report according to the auditing assurance standards are as follows. (1) Title: the audit report should titled as Auditors Report in order to separate it from other reports. (2) Addressee: normally the auditors report should be addressed to the person or authorities who have appointed the auditor or as per laws or regulations. (3) Introductory approach: an audit report should contain reference to the audited financial statement of the company as also the date and period covered by those statements. The auditor should make a statement that financial statements are responsibility of management of the company and the auditor has only expressed his opinion based on those statements. (4) Scope paragraph: according to AAS 28, determination of the scope of audit will depend on the terms of his engagement legal requirements and pronouncement of the ICAI. ADD 28, provides an illustration of the scope paragraph as follows: (A) the conduct of the audit has been in accordance with the auditing standards generally accepted in INDIA.

(B) the auditing standards require that the auditors plans and performs the audit to obtain reasonable assurance whether financial statements are free of materials misstatements. (C) the audit includes examining on a test basis the evidence supporting amounts and disclosures in the financial statements. It also includes assessing the accounting principles used and significant estimates made by the management as well as evaluating the overall financial statements presentation. (D) the auditors believe that the audit provides a reasonable basis for their opinion.

(5) Opinion paragraph: AAS 28 gives an illustration of the opinion paragraph as follows: in our opinion and to the best of our information and according to the explanations given to us, the financial statements give a true and fair view in conformity with the accounting principals generally accepted in India. (i) in the case of balance sheet of the state of affairs of the company as at 31ST march.. (ii) in the case of profit and loss account of the profit and loss for the year ended on that date. In addition, the audit report may also include auditors opinion, whether to the best of his information and according to the

explanations given to him the financial statements give the information required under the companies act in the manner as required. (6) Date, place and signature: the date of audit reports is the date on which auditor signs it. It enables the reader to know that the auditor has taken note of the effects on financial statements of the events and transactions within his knowledge, which took place upto that date. The audit reports should specifically give the name of the place where the auditor has signed the report. The auditor should auditor should also mention the membership number assigned to him by the ICAI.

SPECIMEN OF AN AUDIT REPORT:

ANNEXURE III AUDITORS CERTIFICATE The Board of Directors Tata Telleservices (Maharashtra) limited We have examined the compliance of conditions of corporate governance by Tata Teleservices (Maharashtra) Limited for the year ended on march 31, 2007 as stipulated in clause 49 of the listing Agreement of the said Company with the Stock exchanges. The compliance of conditions of Corporate governance is the responsibility of the management. Our examination was limited to procedures and implementation thereof, adopted by the company for ensuring compliance of the conditions of Corporate governance. It is neither an audit nor an expression of opinion on the financial statements of the company. In our opinion and to the best of our information and according to the explanations given to us, we certify that the Company has complied with the conditions of Corporate governance as stipulated in the above mentioned listing agreement. We state that no investor grievance is pending for a period exceeding one month against the company based on the records maintained by the investors services department and as certified by the Compliance officer of the company. We further state that such compliance is neither an assurance as to the future viability of the company nor the efficiency or effectiveness with which the management has conducted the affairs of the company.

For Deloittee Haskins & Sells Chartered Accountants

A.B. Jani Partner

Mumbai, dated may 15, 2007 Membership no:46488

AUDIT CERTIFICATE AND AUDIT REPORT

A certificate is a written confirmation of the necessary of the accuracy of the facts stated therein and does not involve any estimate or opinion. The term certificate is therefore, used where the auditor verifies the accuracy of facts. An auditor may thus, certify the circulation figures of a newspaper or the value of imports or exports of a company. An auditors certificate represents that he has verified certain figures and is in position to vouchsafe their accuracy as per his examination of documents and books of account. A report, on the other hand, is a formal statement usually made after an enquiry, examination or review of specified matters under report and includes the reporting auditors opinion thereon. Thus, when a reporting auditor issues a certificate, he is responsible for the factual accuracy of what he is stated therein. On the other hand, when a reporting auditor gives a report, he is responsible for ensuring that the report is based on factual data, that his opinion is in due care and skill, The report involves expression of opinion which may differ from one

professional to another. There is no question of exactitude in case of a report since the information contained therein based on estimates and involves judgement element.

AUDITORS OPINION
The auditor expresses his opinion in the report, whether the accounts and balance sheet of the company give a true and fair picture of the state of its affairs and the results of its operations. The opinion expressed by the auditor may be as follows: i) A qualified opinion. ii) An adverse opinion. iii)A disclaimer of opinion. AAS-1 mentions Audit Conclusions and Reporting as one of the basic principles governing an audit which requires that the auditor should review and assess the conclusions drawn from the audit evidence obtained and from his knowledge of business of the entity as the expression of his opinion on the financial information. This review and assessment involves forming an overall conclusion as to whether:

(a)

The financial information has been prepared using

acceptable accounting policies which have been consistently applied. (b) The financial information complies with relevant

regulations and statutory requirements. (c) There is adequate disclosure of all material matters

relevant to the proper presentation of the financial information, subject to statutory requirements, where applicable. The audit report should contain a clear written expression of opinion on the financial information and if the form or content of the report is laid down in or prescribed under any agreement or statute or regulation, the audit report should comply with such requirements. Further as per AAS-1, When a qualified opinion, adverse opinion or a disclaimer of opinion is to be given or reservation of opinion on any matter is to be made, the audit report should state the reasons therefore. With this background the auditors views on different types of opinion are given below:

(I) A Qualified Opinion:

A qualified opinion is issued when the auditor concludes that he cannot issue an unqualified opinion but that the effect of any disagreement, uncertainty or limitations on scope is not so material as to require an

adverse or a disclaimer of an opinion. It is given in respect of a part of the information reflected in the financial statements and that the auditor is not in agreement with that part. The need for a qualified opinion arises where the auditor is satisfied with the truth and fairness of the financial statements; yet because of certain transactions he is not fully satisfied so as to issue a clean or unqualified report. There can be numerous situations where it would be proper to opt for a qualified opinion. For eg:- the expenditure on purchases of Rs. 1 crore are not supported by original supporting amounting to Rs. 10 lakhs, it may be proper for the auditor to qualify his report with regard to purchases worth Rs. 10 lakhs rather than state an adverse opinion, because he is satisfied about the truthness and fairness of the balance purchases worth Rs. 90 lakhs and all other transactions booked in the accounting records. Statement on Qualifications in Auditors Report , specifies manner of qualification to ensure a certain degree of uniformity and to assist the public in evaluating the contents of auditors report.

(II) An Adverse Opinion/Negative Report:

An adverse opinion is issued by the auditor by the financial statements do not show a true and fair view of the state of affairs or of the operating results. All times

when the effect of disagreement is so material and pervasive on financial statements that the auditor concludes that the qualification in the audit report is not adequate to disclose the misleading picture of the financial statements. The auditor must have sufficient evidence in favour of his conclusions. Where the auditor gives an adverse opinion, he must disclose all material reasons therefore and clearly state that the financial statements do not reflect a true and fair view.

(III) A Disclaimer of opinion:

Such an opinion has to be necessarily issued when the auditor is unble to express an opinion on the financial statements because he fails to obtain sufficient information yo form an opinion. This may arise when certain limitations are imposed on the scope, of audit by the management or because of significant uncertainty in determination of various figures appearing in the financial statements. For eg: non availability of records either because they are destroyed in fire or seized by the government authorities or they are not accessible for any other reasons. Such an opinion is appropriate when an

opinion because in the absence of records he cannot conclude that the accounts do not reflect a true and fair view. The auditor must also state the reasons whenever disclaimer of opinion is given.

QUALIFICATIONS,OBSERVATIONS AND REMARKS IN CASE OF AUDIT OF LISTED COMPANIES:

1. According to AAS-28 the auditor can express qualified opinion when expression of unqualified opinion is not possible, but at the same time, the matters prompting qualified opinion are not such that would necessitiate a disclaimer of opinion. The matter that would lead to qualified opinion may as follows:

(A) The accounts and balance sheet and profit and loss account do not present true and fairly the state of affairs and results of operations. This may be because of lack of conformity with generally accepted accounting principles or because the disclosure is inadequate or incomplete as per legal requirements or because it is biased. (B)The client has not maintained proper books of accounts as required by law. (C)The auditor has not been able to obtain all the information and explanations that he considers necessary for the purposes of his audit. (D)The auditor himself has not carried out the entire audit work and other auditors have done a part of the work.

REQUIREMENTS REGARDING AUDITORS CERTIFICATE ON PROFIT FORECAST INCLUDED IN THE OFFER DOCUMENT:
2.Clarification XIV issued by SEBI requires that the offer document should include a forecast of the estimated profits the offer document (if such information is not already given in the offer document)and for the financial year ending immediately after the date of the offer document duly supported by an auditors

certificate which lists the major assumptions on which the forecast is based and gives assurance on the arithmetical calculations derived from such assumptions .provided however the above disclosures shall not given by (a)any company which has made projections of future profits in accordance with clarification XIII of SEBI Guidelines which include projected profits for the above period: or (b) any company has not commenced commercial production. As per the requirement, an auditors certificate on certain profit forecasts is required to be included in the offer document. Further, the requirement regarding auditors certificate on profit forecast requires the listing of the major assumptions on which the forecast is based on providing assurance on the arithmetical calculations derived from such assumptions. Thus, the scope of the said certificate is substantially limited compared to carrying on of a review of profit forecasts by an accountant.

3 .CERTIFICATE OF CORPORATE GOVERNANCE:

To implement corporate governance, SEBI has directed Stock Exchanges to insert a new Clause 49 in their listing agreement, under which the management of companies seeking listing of their shares or companies already listed and having specified paid up capital governance. Therefore, the company auditor on his

part, will have to certify compliance of the conditions of corporate governance, applying the Auditing and Assurance Standards and Code of Conduct. (a) Minimum 50 percent of Board of Directors to be non

executive with independent directors numbering at least 50% or one-third of total strength of Board depending on whether the chairman is executive or non-executive. An independent director is one,who except for receiving directors remuneration, does not have any other material pecuniary relationship or transactions with the company, its prompters, its management or its subsidiaries which in the judgement of the directors. (b) (c) (d) (e) Disclosure of all pecuniary relationship or transactions Audit committee comprising all non executive directors Presence of chairman of audit Committee of Annual Presence of directors, head of internal Audit at of non-executive directors with the company. with majority of them being independent should be in place. General Meeting. meetings of Audit Committee. (f) Terms of reference should enable Audit Committee to play the role assigned to it. (g) (h) Board of directors to decide remuneration of non Board to meet at least four times a year,with a gap of executive directors. four months between two meetings.

In case the auditor finds compliance with conditions of corporate governance, he can issue a certificate to the effect. If there is a non-compliance with any mandatory requirements ,the auditor can give a qualified or adverse statement in his report.

Qualification, Observation And Remarks In Case Of Audit Of Banking And Insurance Companies.

In addition to the requirement of section 227(2) & (3) of the Companies Act, the auditor is also required to report his opinion in regard to certain other matters. This can be in respect of certain specified transaction of the company or special matter, in the case of Banking and Insurance Companies. The auditor is required to enquire and report on: 1) Loans and advances made by the company on the basis of security in case these are not properly secured or if their terms are prejudicial to the interest of the company. 2) Transaction of the company represented merely by book entries in case they are prejudicial to the interest of the company. 3) Sale of shares, debentures and other securities by a noninvestment company in case sale price less than the purchase price. 4) Loans and Advances made by the company though shown as deposits. 5) Charging of personal expenses to revenue accounts. 6) The amount of cash received against share allotted for cash and the amount of outstanding. The auditor is not obliged to express his opinion on these matters, unless he has any special comments to make about them.

In case of a banking company, the matters to be included in audit report as per section 30(3) of Banking Regulation Act are as follows: 1) Whether the transaction of the bank which has come to his notice have been within the powers of the bank. 2) Whether the reports on the accounts of branches audited by the branch auditors have been forwarded to him and the same have been consider by him in preparing his own report. 3) In case of nationalized bank, the auditor has to include his report, whether the returns received from the offices and branches of the bank have been found adequate for the purpose of audit. 4) In case of insurance companies there is provision in the Insurance Act, specifying the following matter in respect of which the auditor is required to report. a) Whether proper returns, audited or unaudited from branches and other offices have been received and whether they were adequate for the purpose of audit. b) Whether the actuarial valuation of liabilities is duly certified by the appointed actuary including to the effect that the assumptions for such valuation are in accordance with guidelines and norms if any issued by the IRDA or the Actuarial Society Of India in concurrence with IRDA.

c) Whether the receipts and payments accounts give a true and fair view of the receipts and payments for the financial year. d) Whether the financial statement are prepared in accordance with the requirement of the Insurance Act, Insurance Regulatory and Development Authority Act and the Companies Act to the extent applicable and in the manner so required. e) Whether investment have been valued in accordance with the provisions of the Insurance Act and IRDA Regulations. The Auditor should further verify that a) They have reviewed the management report and there is no mistake or material inconsistencies with and b) The insurer has compiled with the terms and condition of the registration stipulated by IRDA. c) They have verified the cash balances and the securities relating to the insurers loans, reversions and life interests and investments. d) They have verified the investments and transactions relating to any trusts undertaken by the insurer as trustee. e) No Part of the assets of the policyholders funds has been directly or indirectly applied in contravention of the

provision of the Insurance Act relating to the application and investments of policyholders funds.

Conclusion
We had great experience from learning the project firstly we were all not knowing about auditors report but due to topic given by shweta miss we indulge in the project and our efforts to make it. We would like to thanks shweta miss to guiding throughtout the project.

BIBLIOGRAPHY
Referred text book of Vipul prakashan author Kiran M rege and P.k. Bandgar, of T.Y.B.B.I 5th semester.