Lesson 1 of 3 · 8 min
Where the board has to answer
If an auditor makes a qualification or an adverse remark, the directors must explain themselves about it — which makes those two passages worth finding first.
An annual report is long, and most of its length is designed to be read favourably. But it is not a free composition. A statute says what must be in it, and knowing that list turns a 300-page document into a short set of things to look up. This course is about finding them. It is not about deciding what to own, and it will not help with that.
That gives a reading order that works on any annual report. Go to the auditor's report first and look for qualifications, reservations, adverse remarks or a disclaimer. Then go to the board's report and read what the board says about each one. The gap between those two passages — what the auditor put down and how completely the board answered it — is the most information the document gives up for the least effort.
Does a qualification mean the company is bad?
KabirTara
Kabirasking
If I find a qualification, does that mean I should stay away?
Taraexplaining
That is a step this page cannot take with you, and neither can anyone who has not read your situation. What a qualification means is that a professional with a licence to lose put a formal objection in writing. What it is about matters entirely.
Kabirasking
So what am I supposed to do with it?
Taraexplaining
Read it, and read the board's answer to it. Understanding a document is a different skill from deciding what to buy, and it is the one worth having. Anyone who offers you the second without the first is selling something.
Put these in order
Put a first pass through an annual report in a sensible order.
- Note anything the auditor put down that the board did not address
- Find the board's report and read its comment on each one
- List any qualifications, reservations, adverse remarks or disclaimers in it
- Find the auditor's report attached to the financial statement
Check yourself
1 / 3
Kabir asks
What must the board's report say about an auditor's qualification?
Done reading?
Saved in this browser.