Thread by @money_theory

A thread on Independent Auditors' report on financial statements

Introduction :
The Audit report is one of the important documents in the Annual report. It consists of one Main report and two annexures attached to it

Main report
Opinion :
👉It explains auditor opinion on financial statements
👉Look for the term 'True and Fair view in conformity' which implies financials are in accordance with rules

Emphasis of matter :
👉Here the auditor specifies notes to financials which require your attention
👉Look for any modification by auditor in respect of that matter

Key audit matters :
👉It explains those matters that, in auditors' professional judgement, were of most significance
👉Read the key audit matters & how the audit has addressed them

Information other than the financial statements & Auditor's opinion :
👉It reports any material misstatements in other information
👉Look for auditor comment on this regard

Other matters :
👉Read the other matters
👉Look for any modification by auditor in respect of those matters

Report on Other Legal & Regulatory requirements :
This report talks about
👉Info obtained by auditor
👉Books of a/c maintenance
👉BS, PL, cash flow & changes in equity in agreement with Books of a/c
👉Compliance with Accounting standards
👉Directors disqualification
(1/2)

Report on Other Legal & Regulatory requirements :
This report talks about
👉Remuneration paid to directors
👉Disclosure of pending litigations
👉Provisions made on long term contracts if any
👉Any delay in Funds transfer to Investor education & Protection fund
(2/2)

Annexure A
Report on Internal financial controls over financial reporting :
👉Read opinion paragraph
👉Look for terms 'Adequate', Operating effectively' which implies sound internal controls
👉Look for any modification by auditor in other matters

Annexure B
This annexure talks about
👉Fixed assets records, physical verification etc.,
👉Inventories records
👉Contracts, Investments, Guarantees, Securities
👉Deposits acceptance
👉Cost records
👉Payment of dues like PF, GST etc.,
👉Amount involved in tax disputes
(1/2)

Annexure B
This talks about
👉Defaults in loan repayment
👉Funds raised by IPO, FPO, Term loans
👉Material frauds
👉Managerial remuneration
👉Related party transacttions compliance
👉Preferential allotment or private placement
👉Non cash transactions entered with directors
(2/2)

What you can ignore :
The below paragraphs depict similar context & info in all annual reports
👉Basis for opinion
👉Management responsibility
👉Auditor responsibility
👉Meaning of internal financial controls
👉Inherent limitations of internal financial controls

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Notes :
👉Do read both audit reports on standalone & consolidated financials
👉Do check DHFL Annual report 2019 for audit report significance

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