Chapter: 8 Understanding Financial Statements

Section: 8 Other Reports

Auditors' Report & Opinions

An auditor is an independent public accountant hired to express an opinion on fairness of financial statements issued by the company. Further, auditors also certify that the financial statements are prepared in conformity with the generally accepted accounting principles. Depending on the findings they will pass an opinion. There are four classes of opinions expressed by the auditor. An unqualified opinion is a confirmation that the financial statements are presenting a true and fair picture. A qualified opinion refers to a situation where some of the items are not representing the true picture and otherwise the statements are acceptable. A disclaimer opinion is offered when the audit is not sufficient to issue an opinion. Finally an adverse opinion is a serious one which claims that the accounts do not present a fair picture of the performance and the financials position.


Directors' Report

Listed companies are required to produce a directors' report that discusses the performance and financial position of a firm during the reporting period. The factors that influence the performance during the year, any noteworthy events that took place, and market and economic conditions are all highlighted in this report. The directors are also supposed to discuss any uncertainties or trends that have been developing in the market along with comments on the future trading conditions and business prospects from the company's point of view. This report is an analysis report from managements' point of view and provides the readers with useful quantitative and qualitative facts about the company, industry, competition, and trading conditions in market and economy.


Management Report

This report is intended to reinforce the responsibility of senior management, directors and the auditors in preparing the financial statements. This is a shared responsibility of all three parties who are involved in the process of financial reporting. Further emphasis is placed on the integrity of financial statements, as it is a key information source for the shareholders and other stakeholders. It is also stated that control systems of the organization are the responsibility of management. It is a common practice to appoint audit committees to look into this matter.