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Statement in Audit Report

Naina (CA Student) (477 Points)

01 February 2010

A tax audit report contains statement that :-

"Debit and credit balances are subject to confirmation"

What is the impact or significance of this statement in the audit report.

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5 Replies

Amir (Learner) (4016 Points)
Replied 01 February 2010

Dear Naina,

I don't think Format of Tax Audit reports contains any such statement..

I think by adding this statement Auditor is giving a kind of "Qualification/reservation" that Balance are rite "subject to their confirmation by the parties"

it means that Auditor could not find any descrepancy based on the records available..

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CA Pranjal Joshi (CA) (331 Points)
Replied 07 February 2010

Hi,

The qualifying / explanatary remarks as "Debit and credit balances are subject to confirmation" are generally made in the report when the auditor has not verified / auditee has not submitted the third party confirmation as regards Sundry Debtors / Creditors or Loans and Advances.

Tax Audit Report in Form 3CD is certification where the details stated therein must be "True & Correct", while Form 3CA or 3CB involves expresssion of opinion about "True and Fair" view of financial affairs & revenue results. Here auditor may write such remarks.

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Naina (CA Student) (477 Points)
Replied 08 February 2010

But doesn't this statement in audit report, makes the audit doubtful.

Debtors and Creditors are major part in the balance sheet. I think these must be confirmed. If auditor is not able to confirm any of these then what's the purpose of audit.

Amir (Learner) (4016 Points)
Replied 08 February 2010

Dear Naina,

U r rite that "Debtors/Creditors" are essentail part of audit..

But dear, an auditor decides his scope (means what is to be checked) after considering many things like

"Internal Control" - If Auditor finds that an organization is having a strong internal control & the chances of error/manipulations are minimum i:e the circumstances were not such that raises a suspicion about the "debtors/creditors" - the it is fine even idf auditor has not obtained confirmation...

Further, confirmation is generally carried out onnce in every 3 years from all the parties & evry year in case of major parties, But again this is not a hard & fast rule. It will depend upon the circumsatnces mentioned above.

CA Pranjal Joshi (CA) (331 Points)
Replied 08 February 2010

Hi,

It is not the question of making auditing "doubtful" It is reservation about verification the auditors has noted. Verification of Debtors & Creditors through confirmation is essential - no doubt about that.

But, here let us study SA 500 of ICAI "Audit Evidence" which suggests that "Normally, the auditor finds it necessary to rely on evidence that is persuasive rather than conclusive."

In this situation, it means that even a confirmation from debtor suggests that the amount is receivable, but does not assures the auditors of its ultimate recovery on the due date ! while the auditor is expected to certify that the assets shall be realised at the values at which they are stated in the balance sheet, here the evidence of confirmation from debtor still is a persuasive rather than conclusive evidence for the auditor.

Hence as well explained by Amir Sir, Auditor need to balance the evidences to be obtained for verification & likely impact of the evidences on his "opinion" while decideing the mode of verificaion.