4 Types of Audit Report

There are four types of Audit Report. They are—

1. Clean Report
2. Qualified Report
3. Disclaimer
4. Negative Report

They are briefly explained as follows.

1. Clean Report

If the auditor has no reservation in respect of matters presented in the financial statements, he gives a clean report. He states that

the financial statements give a true and fair view of the state of affairs and profit and loss account during the period.

2. Qualified Report

If the auditor has any reservation in respect of the certain matters mentioned in the financial statements, he may qualify his report. The auditor may qualify his report only when the subject matter of qualification affects the truthfulness and fairness of the financial statement materially.

1. All the qualifications shall be stated by the auditor in clear and in unambiguous manner in his report.

2. Even if the subject matter of qualification is included in the notes presented by the management, which form a part of the financial statement, auditor has to repeat the subject matter of qualification again in his report clearly.

3. He shall use the word ‘Subject to‘ before stating his qualifications.

4. He shall quantify the effect of the qualifications on the financial statements as a whole as well as on individual items.

5. If the effect of qualification could not be quantified with accuracy, auditor may make an estimate on reasonable basis.

3. Disclaimer

While conducting the audit, the auditor may fail to obtain the required information and explanation or the books of accounts may not be available due to various reasons, or there may arise various situations, which shall restrict the scope of the duties of the auditor.

Under such situations, he may not be in a position to form an opinion, then the auditor shall disclaim to give an opinion.

4. Adverse/Negative Report

If the auditor is of the opinion that the financial statement does not show the true and fair view of the state of affairs of the business, he shall give an adverse or Negative Report.

Difference Between Misrepresentation and Mistake

A mistake is a very common occurrence in our daily lives and we tend to say sorry to others if our act of commission or omission caused any inconvenience to others. A mistake is taken as accidental error, though sometimes, especially in sports, players feel that the person committing mistakes again and again is doing them willfully. Misrepresentation on the other hand is mostly referred to in contracts where a person does not fully disclose all the facts so as to lure another party into the contract. This is also the case when a manufacturer does not tell the side effects of a product and merely harps on the benefits of the product so as to sell it in good numbers. There are other differences also between misrepresentation and mistake, which will be discussed in this article.

Sometimes the lines between a mistake and misrepresentation get blurred as when the person presenting the facts may not be in the know of true facts and may think of the facts presented by him to be correct and true. This is then an innocent misrepresentation and also a mistake on his part as he did not try to glean information from various sources. Thus an innocent misrepresentation is a mistake that can at best be termed as a felony and does not attract severe penalties. On the other hand, when misrepresentation is willful as when a person does not disclose all the facts only for monetary gains or to lure another party into signing a contract, it is considered more serious and calls for severe action against the person.

It is generally assumed that a person who is feeling sorry for his action must be pardoned for his mistake or error. On the other hand, misrepresentation, as it means hiding some information for monetary gains, is unpardonable as it may harm another person, either financially or physically.