Introduction
In the auditing process, an audit report and an audit certificate are both important documents. An audit report is prepared after the auditing process has been done to summarize the findings and conclusions of an audit. An audit certificate declares that the audit has been concluded and the financial statements are in compliance with relevant laws and regulations.
The terms “Audit Report” and “Audit Certificate” have been used a lot in common parlance and are often used as the same thing. However, a lot of differences are between them. In this article, we will be trying to figure out those differences.
Audit Report vs. Audit Certificate
While the audit report states the statement of fact or an opinion about the issues identified during the audit process, an audit certificate certifies that an audit has been conducted and the financial statements are true and fair an audit has been performed. Therefore, an audit report is a detailed document containing the results of an audit, and an audit certificate is a document confirming the same.
We will discuss in detail the differences between an “audit report” and an “audit certificate”.
Introduction
In the auditing process, an audit report and an audit certificate are both important documents. An audit report is prepared after the auditing process has been done to summarize the findings and conclusions of an audit. An audit certificate declares that the audit has been concluded and the financial statements are in compliance with relevant laws and regulations.
The terms “Audit Report” and “Audit Certificate” have been used a lot in common parlance and are often used as the same thing. However, a lot of differences are between them. In this article, we will be trying to figure out those differences.
Audit Report vs. Audit Certificate
While the audit report states the statement of fact or an opinion about the issues identified during the audit process, an audit certificate certifies that an audit has been conducted and the financial statements are true and fair an audit has been performed. Therefore, an audit report is a detailed document containing the results of an audit, and an audit certificate is a document confirming the same.
We will discuss in detail the differences between an “audit report” and an “audit certificate”.
Difference Between Audit Report and Audit Certificate in Tabular Form
| Basis for Comparison | It can be a public document, depending on the purpose and audience of the report. | Audit Certificate |
| Meaning | In an audit report, an auditor expresses in writing his opinion on the financial status of the company. It includes information regarding the scope, objectives, and methodology of the audit. In short, an audit report gives a clear picture of the state of affairs of the business of a company. | An audit certificate ratifies the accuracy of the statement laid down in an audit report. It certifies that the audit has been concluded. It typically includes only basic information such as the date of the audit, the name of the auditor, and the name of the audited entity. |
| Guarantee | Does not provide any guarantee of the accuracy and correctness of the information. | Provides a complete guarantee of the accuracy and correctness of the information. |
| Basis | Based on books of the company’s accounts and information obtained. | Based on facts and measurable actual figures. |
| Contents | Contains and is based on the opinion of the auditor. There is a high possibility that different auditors are giving different opinions. | Does not contain any opinion. Only confirms the accuracy of the financial statement. Different auditors may give the same certificate. |
| Assessment | Provides an in-depth assessment of the company’s financial statements. Includes any areas of issue or concern identified during the audit. | Does not provide any assessment. |
| Recommendation | It may be a confidential document, shared only with specific individuals or organizations as required. | Does not contain any recommendations. |
| Usage | Typically used for external financial reporting and regulatory compliances of a company. | Typically used as proof that the company has been audited. |
| Format | A standard format is required as prescribed by law. | No standard format is required. |
| Nature | Can be a public document, depending on the purpose and audience of the report. | May be a confidential document, shared only with specific individuals or organizations as required. |
| Responsibility | The auditor shall not be held responsible if the report issued by him is found wrong because of any wrong in the books of the company’s accounts. | An auditor shall be held directly responsible if the audit certificate issued by him is found wrong. |
What is an Audit Report?
An audit report is a formal document presented by an auditor. It presents the findings of an audit. To put it simply, it is a medium through which an auditor expresses his opinion on the financial position of the company.
An audit report usually contains:
- A summary of the scope and procedures of the audit proceeding.
- An explanation of any material weaknesses or deficiencies found during the audit.
- The auditor's opinion on the financial position of the company.
- A conclusion as to whether the financial statements have been presented fairly in all material aspects.
An audit report is the final and ultimate outcome or result of the audit process. In other words, it is the conclusion of the audit proceedings. It is the final product given at an audit proceeding. No audit proceeding can be concluded successfully without the submission of an audit report from the auditor's end.
It is mandatory that the auditor duly sign an audit report, and it must be laid down before the members of the company in the Annual General Meeting of the company as per the Companies Act, 2013.
An audit report is generally used to assure stakeholders that the financial statements of the company are accurate and reliable. This report is important for stakeholders when making any decisions about the company.
An audit report is a true and fair view of the financial statements of a company. However, this report is not guaranteed. The auditor does not give any guarantee that the accounts of the company are error-free and fraud-free, and he shall not be held responsible for any wrong in the accounts.
What is a True and Fair View?
A true and Fair View of the financial statement means that the financial statement presents fairly what it claims. Also, all material items and grouping. In addition, accounting principles are followed appropriately.
Types of Audit Report
Clean Report
A clean audit report is free from any kind of qualifications. When the auditor is satisfied with all the information that he has considered in the auditing process, the audit report submitted by him becomes a clean report. It should be mentioned in an audit report. In a clean report, the opinions of the auditor are stated affirmatively, and no reservations shall be added to the report.
Qualified Report
If, in an audit report, the auditor states an opinion but adds some reservations or says something that is not positive, this report is called a qualified report. However, such an opinion does not materially affect the true and fair view of the financial statements. Such a report is worth reporting.
Adverse Report
If the auditor expresses, in the audit report, a negative opinion about the main reason for which the audit has been conducted, it becomes an adverse report. In other words, the auditor states in an adverse report that the financial statement of the accounts of the company does not represent a true and fair view. This report is submitted only when some solid and reasonable evidence is there to support it.
Disclaimer Report
If the auditor cannot express an opinion for some reason and indicates the reasons in the report, such a report is a disclaimer report. There is some fair data behind this report.
What is an Audit Certificate?
An audit certificate issued by an auditor validates the accuracy and reliability of a company's financial statements stated in the audit report. It contains no opinion or estimate of accuracy. It guarantees the accuracy of the company's accounts. This certificate is an indicator of the authenticity of the financial statements. Therefore, before certifying the statement, the auditor must thoroughly and carefully verify the truth of every information stated therein. It implies that the auditor's signature issuing the certificate confirms the authenticity of the audit report. The auditor is liable for the accuracy of the particular information he confirms by the audit certificate. The auditor becomes legally liable.
The audit certificate is used to ensure the stakeholders that the financial statements of the company have been properly checked and verified by a qualified auditor and are free of material misstatements and to assure that the company's financial records comply with generally accepted accounting principles (GAAP). Audit certificates are usually included in a company's annual report.
What if the audit certificate is later proved to be wrong?
If the audit certificate given by the auditor later proved to be wrong, the auditor shall be liable for the same.
In which circumstances an Audit Certificate is very much required?
The circumstances when an audit certificate is very much required are:
- Statutory report
- Prospectus
- Liquidation
- Obtaining an import and export license
- Determination of income tax
- Taking loans from banks or financial institutions
Types of Audit Certificates
Certificate for Tax Computation
Sometimes, a company requires a certificate from a Chartered Accountant certifying its income and expenses to get an exemption in income tax. It is done according to the Income Tax Act of 1961.
Certificate of Import and Export
To apply for an import or export license, the applicant has to submit a certificate of import and export. This certificate is provided by a practising Chartered Accountant by the Import and Export Trade Control Rules and Procedures.
Certificate of Circulation
The Audit Bureau of Circulations Limited is an association of advertisers and publishers. For advertisement and publication purposes, the association needs to submit reports of circulation figures for the publication of its members. The association has to issue a circulation certificate based on the audit certificate of its members for the said purpose. For the same, the auditor must adequately verify the circulation figure in order to ensure that he has checked and verified the books of account, as to:
- Newsprint consumption,
- Distribution and
- Unsold stock of publications.
Main Differences Between Audit Report and Audit Certificate in Points
The main differences between an audit report and an audit certificate are described below:
- An audit report is a detailed document containing the facts and opinions of the auditor about the financial statement and any areas of concern identified by him during carrying out the auditing process. On the other hand, an auditor issues an audit certificate confirming that the facts provided in the audit report are correct and according to the rules and regulations established by law.
- Since the audit report is prepared based on the information and books of the accounts of the company provided to the auditor, it does not guarantee the truth and correctness of the information. In contrast, an audit certificate certifies the truth and correctness of the information provided in an audit report. Hence, the accuracy of an audit certificate is higher than that of an audit report.
- An audit report is made based on the information received by the auditor about the financial statement of a company; in contrast, an audit certificate is issued based on the correctness and fairness of the audit report.
- An auditor writes the scope of the audit, his own opinion on the financial statements, and any significant findings or issues, if any, that have been found while conducting the audit. On the contrary, an audit certificate only contains a basic statement certifying that the audit has been conducted and the financial statements contained in it are correct and include basic information like the date of the audit, the financial statements of the bank accounts, and the auditor's signature.
- In the case of audit reports, the auditor has to cover and verify and has to do an in-depth assessment of all and entire books of the accounts of the company for an entire year. But, in the case of an audit certificate, no verification or in-depth assessment is needed. In an audit certificate, the auditor guarantees the correctness of the facts.
- In an audit certificate, the auditor may give recommendations or opinions on the matters of concern he has found during the auditing process. No such recommendation or opinion can be given in an audit certificate.
- The audit report is typically used for external financial reporting and regulatory compliance of a company. An audit certificate is typically used as proof that the company has been audited.
- An audit report shall be prepared in the standard format as prescribed by law. But no such format is required in the case of an audit certificate.
- Audit reports can be a public document, depending on the purpose and audience of the report. Where audit certificate May be a confidential document, shared only with specific individuals or organizations as required.
- The auditor has no responsibility for the audit report after it has been published and found incorrect. Where an auditor shall be held directly responsible if the audit certificate issued by him is found wrong.
Conclusion
To fully complete the auditing process of a company, both "audit report" and "audit certificate" are required. Some think that these two are similar in nature. But it is clarified from the above discussion that they differ to a great extent. Both audit report and audit certificate are provided by an auditor. An audit report implies the financial statement of a company and the required opinion to fix any concern on the financial statement and affairs of the business of a company; an audit certificate, on the contrary, gives a seal on the audit report confirming the accuracy of the audit report.
An auditor has no responsibility for the accuracy of the audit report after it has been published, but an auditor is responsible for the contents of an audit certificate after it has been issued.
