Auditor’s report

By:

James Knight

James is a lead editor for Invezz, where he covers topics from across the financial world, from the stock… read more.

Updated: Aug 20, 2021

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The report made by an auditor appointed to examine and report on the accounts of any organization. The term has particular reference to the books and accounts of limited companies in so far as the Companies Act 1985 requires that the accounts of limited companies must be audited annually by an approved auditor. These requirements now extend to the directors’ report. Eligibility is determined by law and the Department of Trade must be appended to every balance must be appended to every balance sheet, and documents that the law requires must be attached thereto and laid before members in general meeting. The auditor’s report must also accompany the accounts that are filed with the company’s annual return. An auditor’s report normally takes one of the forms approved by the professional organizations – such a form having been adjudged to cover all requirements imposed by law on the auditor. Reports may be ‘clean’ or ‘qualified’. A report is qualified if it contains any indication that the auditor has failed to satisfy himself on any of the points on which the law demands that he report. The qualification may be notional, as when the report adds a rider stating that because of geographical difficulties the appointed auditor has had to rely on information supplied by other auditors in the countries where certain subsidiaries are located and where the size of the subsidiary company does not justify an expensive visit by the official auditor in person. More serious qualifications do, however, arise, and, with the growing concern in the public mind as to the reliability of published accounts, are becoming more frequent. Such qualifications may refer to the inadequacy of information or explanations supplied, or the fact that the auditor is not satisfied that proper books, or other records, are being kept. Naturally, no company likes to publish its accounts with a qualified report and it is customary for every effort to be made by directors and management to fill gaps, give adequate answers to inquiries and allay any doubts that the auditor may have as to the fairness of the accounts. In the past there has been the danger that an auditor might be willing to lean a little too far backwards to afeguard his appointment, but both the law ind the accounting profession are now taking steps to minimize such a possibility, if ily by emphasizing that the first loyalty of the auditor is not to the directors of a company but to its members. It is to them fiat he makes his report. What is more. should he fail to disclose irregularities, or to fy his report when facts show that this is lecessary, then he may be sued for negli;nce by members of the company and, in some instances, by third parties who have lost money as a result of relying on wrong information in the accounts to which the report relates.

Reference: The Penguin Business Dictionary, 3rd edt.