Qualified Report

Qualified Report

A qualified opinion is given when the auditor fells the he cannot issue an unqualified opinion. The effect of disagreement or limitation on scope is not so material as to require an advance opinion or a disclaimer of opinion. A qualified opinion should be expressed as being except to the effects of the matter to which the qualification relates.

1. No Proper Books
A qualified repeat is issued when proper books of accounts have not kept by the business concern. The law estates the number of books to be maintained by the companies by the companies. The failure to keep necessary books of accounts induces the auditor to mention the fact in the reports.

2. Informal Statement
The law states the formal for financial statement. The fourth schedule and fifth are given in the companies ordinance 1984. The companies must prepare their statement according to schedule otherwise the auditor can mention weakness in the report.

3. Disagreement Between Books and Statements
The financial statement figures must tally with figures recorded in journal and ledgers. The different in figures is not acceptable as it may lead to receive the shareholders. The auditor can qualified his report that figures of books and statement are different.

4. Inconsistent Accounting Policies
The accounting policies must remain the same from year to year. The changes in depreciation rate valuation of stock and provision for bad debts can disturb the financial statements. The auditor can state the inconsistency in accounting policies toward by the management.

5. Ultra Vires Payments
The management can misuse the power of doing the business. They may not followed articles of association or companies ordinance 1984. The payment of dividend out of capital is an example. The auditor must report to the shareholders about the misuse of powers.

6. Expenditure Incurred
The expenditure incurred during the year must be to the purpose of business of company. The expenses incurred objective may be state by the auditor in the report. The management is responsible to these wrong payments.

7. Business Conducted
The business conducted investment made and the expenditure incurred during the year may not meet the requirement of memorandum of association, articles of association and the companies ordinance. The auditor can inform the owners about the violation of law.

8. Scope Limitations
The management may have valued closing stock prior to date of appointment of auditors. There is a scope limitation as auditor was absence at the time of stock valuatio. The auditor can qualify his report as to the valuation of stack talking.

9. In Appropriate Accounting Method
The auditor may note that depreciation has not been charged on building. The depreciated on plant and machinery may be recorded at fewer rates. The difference in actual and recorded expenses may be stated in the report.

10. Inadequate disclosure
The management may have entered in to an agreement for issue of debentures for plant and expansion. The agreement may restrict the right to pay dividend to shareholders for next years. The auditor can disclose such agreement to the owners of the company.

11. Departure from Accounting Practice
The qualified report is issued when an auditor is not satisfied with the management policies. The company may not record the provision for loss on long-term contract. The disagreement with management can be recorded as adverse opinion in the report for the information.

12. Breakdown of Accounting System
The auditor can issue the qualified report when he is unable to form an opinion about the financial statements. There may be fire at computer center business office. The figures may be estimated so auditor can disclaim his opinion.

13. Failure To Prove Case Sales
The auditor can check the internal control system. The company may be dealing on cash basis. All sales may be in terms of cash. The poor internal control system may create hurdle to verify cash sales. The auditor can submit qualified report with out opinion.

14. Contingency
The auditor may qualify his report where there is contingency (tax dispute court case) which is significant to affect the financial statement of the company. The auditor has the right to report the matter to the shareholders. The items must be stated in the footnote as well as audit report.

15. No Zakat Deduction
The Zakat may be deductible at sources under the Zakat and usher ordinance 1980. The auditor may examine the relevant law. He can not the weakness of the management for deduction of Zakat. This weakness may be present in the audit report.

16. Incomplete Information
The auditor may not obtain complete and full information and explanation for the purpose of audit. The facts can be presented to the owners that he is unable to collect necessary information. He can submit qualified report in order to draw attention. He can submit qualified report in order to draw attention of owners.

17. No Access to Books
The auditor may be refused to have access to the books of accounts and other relevant record. In this case the auditor is unable to collect true information necessary for the purpose of audit. The qualified report can be presented to the shareholder due to non-availability of all or any book.