Internal Audit

10 Differences between Audit Report and Audit Certificate

Both the terms Audit Report and Audit Certificate have been used a lot in common parlance and often used interchangeable. However, there exists a lot of difference between these two terms. Although they are used causally as one and same thing, yet they differ a lot in terms of purpose and usage. This piece of writing discusses the 10 major differences between an audit report and an audit certificate.  

What Is An Audit Report?  

An audit report is an opinion of the auditor on his analysis after reviewing all the company’s financial statements. An audit report is an instrument used by the auditor to convey his opinion on the accumulated results obtained after evaluating the financial statements of a client. It is the final product given at the conclusion of the audit proceedings. No audit proceeding can be concluded successfully without the submission of audit report from the auditor’s end. The Companies Act, 2013^[1] makes it mandatory that an audit report should be duly signed by the auditor and must be laid down before the members of the company at the time of Annual General Meeting.   

What Is An Audit Certificate?  

An audit certificate is a statement given by an auditor providing confirmation about the accuracy of specific information sought to be verified by the client. The auditor in an audit certificate does not give an opinion or estimate about the accuracy. Through the instrument of audit certificate, an auditor certifies the accuracy of particular information. In audit certificate, since the auditor vouches for the accuracy regarding particular information, legal liability is attached to the auditor. The audit certificate is not given for all the books of accounts for the entire year. It is given for specific portion of the financial transactions.    

10 Major Differences between an Audit Report and Audit Certificate

Following are the 10 major differences that exist between an audit report and audit certificate:

1. Meaning: An audit report is the summary of information and review of the same done by an auditor from the given financial statements to provide a clear picture about the company’s affairs to those who do not know about it. An audit certificate is an instrument though which an auditor vouches for the accuracy of particular information provided by the client.
2. Extent of Guarantee: Since an audit report is based on the opinion of the auditor regarding the financial affairs of the company, there is no guarantee about the financial accuracy of the books of accounts. On the other hand the audit certificate is issued to validate the accuracy of the data provided by the client in an objective manner. Therefore, the extent of guarantee is very high in case of an audit certificate.
3. Opinion: The audit report provides the client an opinion regarding the status of the financial position of the company based on the financial statements provided by the client. However, as audit certificate does not provide any opinion, instead it validates the correctness of some particular information.
4. Scope of audit: An auditor’s scope is very wide in case of a an audit report where he has to cover the entire books of accounts of the company for an entire year and in case of an audit report the scope of audit is very limited since it has to audit specific information from a small portion of accounts and does not extent to the whole of business accounts.
5. Room for advice: There exists a scope of advice from the auditor in case of an audit report regarding the possible improvements and suggestions as to how company can better manage its financial affairs. This is not the case in case of an audit report as an audit report is merely an objective statement spelling whether the accuracy exists or not in the information provided by the client. This leaves no scope for advice on improvement from the auditor’s end.
6. Liability of the auditor: No liability accrues in case of an audit report since the auditor is only providing his opinion on the general financial functioning of the business. The auditor does not vouch for the authenticity of the financial statements. Since there is no vouching for accuracy, there exists no liability. However, in audit report the auditor certifies the accuracy of the information provided by the client. Here the auditor’s audit certificate vouches for accuracy of the finding made by the auditor. This attracts liability on the auditor’s end.  
7. Basis of verification: an audit report is prepared on the basis of facts, assumptions and estimates adopted by the auditor which can differ from auditor to auditor. An audit certificate is prepared based on actual facts where the auditor guarantees correctness of the facts.
8. Characteristics: Since an audit report is based on the estimates and opinion of the auditor, it is highly subjective in nature whereas an audit certificate is based only on the facts and figures which need to be verified. Therefore, it is highly objective in nature.
9. No specific format: An auditor needs to comply with the Standards of Auditing while preparing an audit report whereas in case of an audit certificate there is no specific format which needs to be adhered to except in few statutory cases. An auditor is independent to form his audit certificate as he finds reasonable.
10. Periodicity: An audit report is prepared every year at the closing of financial year according to the mandate of the statute. This is not the case in audit certificate where no such mandate has been provided in the statute to issue one. An audit certificate can be issued at any time of the year based on the needs of the business or any statutory requirement.

Conclusion 

Both the terms audit report and audit certificate are similar in nature. However, the above discussion has clarified both the concepts of the concepts of audit report and audit certificate to a great extent. An audit report is a subjective opinion of the auditor and can differ from auditor to auditor whereas the audit certificate is a step forward as it is a certification from the auditor’s end regarding the accuracy of the financial statements. This makes the auditor liable for his certification in the case of audit certificate and absolves him for any liability in case of audit report.  

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