All about an Audit and auditor in a companyHemlata Khandelwal / 2022-01-20 04:52:56
Audit and Auditor in a company
An investor analyses any company on its Financial Statements.
But Financial Statements make the company itself.
How does the company show its true income, true liabilities, and assets?
Because the investors analyzing the company themselves cannot know whether the information written in all the companies is correct or not.
It may be that the company is at loss, but show itself in Profit.
Companies can do many such things.
Such investors will never get true figures from which they will lose their losses.
The solution to this problem is Audit.
What is an audit?
The audit is the process in which the financial statements made by the company are showing the true financial position of the company, or not it is checked.
After this investigation, investors are told through a report whether the financial statements of the company are indeed correct or not.
Who is an auditor?
A person who is registered to audit companies, other than companies, is called an auditor.
The auditor gives his opinion in the form of a report after verifying the financial statements of the company based on the financial position of the companies and the rest of the information. This is called Auditor's Report
Companies combine this Auditor Report with their Annual Report.
By reading this, the investor can see that the financial statements of the company have been checked by the auditor.
And now he can decide the investment from this by analyzing the position of the company according to those figures.
How many types of auditors are in a company?
Types of Auditors:
There are two main types of auditors:
- Internal auditor
- External auditor
Internal Auditor is the auditor whom the management of the company appoints itself. Which checks whether the company's performance and all the activities are being done properly or not. And tells about how all those Transactions can be shown accurately. With which the company can accurate its financial statements more. Because it is maintained by the company's management, it gives its report to the company's management.
An external auditor is a person from outside, who has nothing to do with the company. (companies having a Company registration in India). It is completely independent of the company. Which is kept by the Board of Directors of the company to Verify the performance of the company and all the Statements. Which tells about all the Statements issued by the company in its report. Whether the information given by the company in the Financial Statement is correct or not. Did the company give him the necessary information for the Audit or not? Based on all these, he gives his Opinion in his report i.e. Independent Auditor's Report.
It is very important to read this report to all the investors and those who are thinking about investing in that company.
And, an audit is important to file the Annual Compliances for the company.
But the truth is that most ordinary investors are not aware of it. There is also a reason that the general investors mostly lose on the investment in the stock market.
What is Auditor's Opinion?
Auditor's Opinion means Auditor's opinion about the company's financial statements. In which he gives his opinion about the financial statement of the company according to the audit done.
There are four types of Opinions in which
- Unqualified Opinion
- Qualified opinion
- Adverse opinion
- Disclaimer Opinion is included.
We will learn about all these one by one.
- Unqualified Opinion:
This is the most common Opinion given by the Opinion Auditor. This means, whatever information the company has given in its Financial Statements, everything is correct. Therefore, you will get the same Opinion in the report of most companies.
As an investor, if we find something written in the audit report of a company, then we must understand that the company has given the correct information in its financial statements.
And by relying on those details, we can think about our investment.
- Worthy Opinion:
This opinion means that the company has some problems with its financial statements. But it is not so large, which has an impact on the company's financial statements.
In addition to the above words, the company has written what the company has done wrong. For example, if the company made some mistake in depreciation of an asset, the bottom line could be written.
"In our view, furnishing financial statements and presenting a true and fair view of the company's operations and transactions, except for the effect of incorrect determination of the company's wrong deposit"
In this, the company needs to improve what has been written about it.
- Adverse Opinion:
If the statements of a company differ from their actual position, the auditor gives an advanced opinion. This means the details given by the company cannot be considered correct. Because the company has given very wrong information in them. If you get this opinion in the report of a company, then it is better to stay away from that company.
- Disclaimer Opinion:
If the company does not give the auditor all the information to conduct a thorough audit, it does not provide any opinion. Because he is not given full information, he cannot conduct an audit. In such a situation, the auditor gives the disclaimer opinion. In which the below line is written.
Because of the Lack of Information Provided to us, we can not audit the financial statements of the Company "
If you see this Opinion in the report of a company, then it is good to stay away from it. Because the company may be at a loss, it has shown up in Profit. And if she gives all the information then the truth will be revealed. Now you must have understood how important it is to read Auditor's Report.
Hence, you should not invest in any company without reading the audit report.