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INTRODUCTION
Audit report is a fundamental document in any audit. There are two basic aspects of an audit.
One is to establish the facts and the other is to report material facts without any fear or favour to
the company. The auditor can be held liable for his failure to carry out satisfactory audit, audit
procedure and report facts.

Thus, an audit report is a formal statement usually made after an enquiry, examination or reviews
of specified matters under report and includes the reporting auditor’s opinion thereon. When a
reporting auditor gives a report ,he is responsible for ensuring that the report is based on factual
data, that his opinion is in due accordance with the facts.

The audit report involves expression of opinion which may differ from one professional to
another. There is no question of exactitude in case of a report since the information contained
therein is based on estimates and involves judgment element.

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ELEMENTS
The elements of an audit report are as follows:

1 Title: The audit report should be titled as ‘Auditor’s Report’ in order to separate it from other
reports. It should be distinguished from the other reports.

2. Addressee: Normally the auditor’s report should be addressed to the persons or authorities
who have appointed the auditor or as per laws or regulations.

3. Introductory approach: An audit report should contain reference to the audited financial
statements of the company as also the date and period covered by those statements.

4. Scope Paragraph: The purpose of this paragraph is to ensure that the elements of the
financial statements which are subject to audit are identified .This is important to avoid
misunderstandings in relation to the auditor’s opinion. An element of the so-called expectation
gap which is claimed to exist between users of financial statements and auditors is the perception
on the part of some users that the entire contents of the annual report are subject to audit so
identifying the scope of the audit is crucial.

According to AAS 28, determination of the scope audit will depend on the terms of his
engagement, legal requirements and pronouncements of the ICAI.AAS 28 provide illustration of
the scope paragraph as follows:

a) The conduct of audit has been in accordance with the auditing standards generally accepted in
India.

b) The auditing standards require that the auditor plans and performs the audit to obtain
reasonable assurance whether financial statements are free of material misstatement.

c) The auditor believes that the audit provides a reasonable basis for their opinion.

The auditor is also under a statutory duty to consider if:

• proper accounting records have been kept;

• the financial statements are in agreement with underlying records and returns;
• proper returns have been received from branches not visited by the auditor;
• adequate evidence and explanations have been made available to the auditor by the
officers of the client;
• the directors report is consistent with the financial statements.

5. Opinion Paragraph: The key point in this paragraph is that the audit is conducted in
accordance with auditing standards, this gives a benchmark against which the quality of the audit
may subsequently be judged in the event of any external scrutiny of the auditors work. Therefore

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it is very important that auditors can demonstrate compliance with all relevant auditing standards
in order to satisfy external scrutiny as a result of, for example, litigation against the auditor.

AAS 28 gives an illustration of the opinion paragraph as follows:

“In our opinion and to the best of our information and according to the explanations given to us,
the financial statements give a true and fair view in conformity with the accounting principles
generally accepted in India.

(i) In the case of balance sheet of the state of affairs of the company as at 31st march……
(ii) In the case of profit and loss account of the profit or loss for the year ended on that date.

In addition the audit report may also include auditor’s opinion, whether to the best of his
information and according to the explanations given to him the financial statements give the
information required under the Companies Act in the manner as required.

6. Date, Place and Signature: The date of audit report is the date on which the auditor signs it.
It enables the reader to know that the auditor has taken note of the effects on financial statements
of the events and transactions within this knowledge, which took place up to that date. The audit
report should specifically give the name of the place where the auditor has signed the report. The
auditor should sign the report in his personal name. The signing auditor should also mention the
membership number assigned to him by the ICAI.

The report must be signed by a registered auditor and dated. The date is significant because it
specifies a key point in the post balance sheet events review period and it will usually be the
same as the date of approval of the financial statements. The audit report cannot be dated before
the date of approval because the financial statements do not legally exist until they have been
approved by the directors.

Aside from the letterhead of the auditing firm, the basic elements of the audit report are the
following:

- A title indicating the word “independent”,

- That the financial statements which are the subject of the report were audited,

- A statement stating that the financial statements are management’s responsibility and the
auditor is merely expressing his opinion,

- The audit was made in line with the generally accepted auditing standards,

- A statement that the auditor planned and completed the audit.

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Contents:
The audit report should not override the statutory provisions regarding any other matters to be
include the report ion the case of any specified class of enterprises.
The auditor should also refer expressly in his report the following:

a) whether the financial statements have been audited in accordance with generally accepted
auditing standards and practices,

b) whether in his opinion the financial statements give a true and fair view of the state of
affairs profit or loss and where applicable source sand application of funds.

c) any matter to be included in his report to the relevant law or other requirements.

There should be a testimonial in the audit report that the examination was done on a test basis,
that there was an assessment of accounting principles used and of the estimates applied by
management.

It must contain a declaration that the auditor believes that there is a sensible basis for the
opinion.

It should state an opinion that the financial statements are fairly presented in all material aspects.

An audit report must contain in relation to the material aspects in the fair presentation of the
financial statements that the financial position of the business as of balance sheet date conforms
to the GAAP provisions.

The report must have the signature of the auditor’s firm either signed manually or in printed
form.

Based on the above points we have tried to analyse the auditor’s report of BASF-the chemical
company

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Introduction to BASF
BASF is the world’s leading chemical company – The Chemical Company. With about 105,000
employees, six Verbund sites and close to 385 production sites worldwide they serve customers
and partners in almost all countries of the world.

In 2009, BASF (internationally) posted sales of €50.7 billion and income before special items of
approximately €4.9 billion. They have been helping customers to be more successful through
intelligent system solutions and high-quality products. Through new technologies they can tap
into additional market opportunities. They conduct their business in accordance with the
principles of sustainable development.

The BASF portfolio comprises:

Chemicals

Plastics

Performance Products

Functional Solutions

Agricultural Solutions

Oil & Gas

Sales by segment 2009

Million €
1 Chemicals 7,515
2 Plastics 7,128
3 Performance Products 9,356
4 Functional Solutions 7,115
5 Agricultural Solutions 3,646
6 Oil & Gas 11,356
7 Other 4,577
Total 50,693

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Business Segments & Product Portfolio

They are focusing on business to the needs of our customers. Since January 1, 2008 there have
been six segments, which are based on related products, customer industries and production
processes.

This enables them to work more effectively combining with competencies and knowledge and
bring in products and system solutions faster to market. In addition, investors will be better able
to assess BASF.

Mergers and Acquisition

Mergers:
Ciba India to merge with BASF India:
Ciba India to be merged into BASF India
The board of Ciba India Ltd has approved the company's merger with BASF India Ltd, as part of
a global merger deal between their respective holding firms.
The boards of both the companies have also approved merging Ciba's unlisted unit, Diamond
Dye-Chem Ltd, and an unlisted affiliate company, Ciba Research (India) Pvt Ltd, with BASF
India.
Under the deal, 90 BASF India shares will be given for every 100 Ciba India shares and 18
shares of the acquiring firm will be issued for every 100 Ciba Research shares, the companies
said in separate statements to the Bombay Stock Exchange.
"The appointed date for this purpose was fixed as Feb 1, 2010,"
Ciba India is now taken over by BASF India.

PT BASF Indonesia completes merger process of former Ciba entity PT

Latexia Indonesia
Newly integrated business strengthens BASF’s Paper Chemicals business portfolio

Jakarta, Indonesia – April 1, 2010 – PT BASF Indonesia announced the completion of the
merger process for PT Latexia Indonesia, a former Ciba entity. The legal entity of PT Latexia
Indonesia will be dissolved accordingly.

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“The completion of the merger process for PT Latexia Indonesia marks another milestone for PT
BASF Indonesia. With the newly integrated business and production facility in Merak into our
Paper Chemicals business unit, we believe that BASF will be able to provide stronger support to
our customers and help them to be more successful,” said Henry Choo, President Director of PT
BASF Indonesia.

Other Ciba businesses in Indonesia have been integrated into PT BASF Indonesia’s Performance
Chemicals, Paper Chemicals, Dispersions & Pigments, and Care Chemicals business units on 1
December 2009.

About BASF in Indonesia

BASF has been presence in Indonesia for more than 33 years, and since 1984 operating under the
name of PT BASF Indonesia. Its business activities ranges from Paper Chemicals, Dispersions &
Pigments, Construction Chemicals, Crop Protection, Care Chemicals, Engineering Plastics,
Polyurethanes, Intermediates, Petrochemicals, Inorganics, Catalysts as well as Performance
Chemicals for water treatment, plastics additives, leather, textiles and oil & gas. PT BASF
Indonesia operates three production sites in Cengkareng, Cikarang, and Merak, a technical
application lab for paper, and an ASEAN technical center for Dispersions & Pigments. In 2009,
BASF posted sales in Indonesia of about €280 million with approximately 500 employees.

BASF Fine Chemicals Switzerland SA and BASF Orgamol Pharma Solutions

SA merger announced (2010-07-01)

Company renamed BASF Pharma (Evionnaz) SA

BASF (July 1, 2010) announced the merger of its Swiss group companies BASF Orgamol
Pharma Solutions SA, Evionnaz, and BASF Fine Chemicals Switzerland SA, Evionnaz, to a
single organization. The company arising from the merger is called BASF Pharma (Evionnaz)
SA and is based in Evionnaz, Switzerland.

BASF Orgamol Pharma Solutions SA in Evionnaz, Switzerland and its sister company, BASF
Orgamol Pharma Solutions France SAS in Saint-Vulbas, France, were uniformly renamed
"BASF Pharma" at the end of April 2010. "The renaming of both companies is part of our
strategy of becoming more customer-centric as a supplier and partner to the pharmaceutical
industry," Widmann, the President stated. "It shows our clear commitment to the pharmaceutical
industry and enhances our market visibility."

The merger has no effect on existing contracts with employees, suppliers and customers, which
will be transferred unchanged to BASF Pharma (Evionnaz) SA. Nor will there be any change in
the number of employees.

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Audit Committee
1. Purpose

The Audit Committee is created by the Board of Directors of the Company to:

(1) assist the Board in its oversight of:

• the integrity of the financial statements of the Company;

• the qualifications, independence and performance of the Company’s
independent auditor;
• the performance of the Company’s internal audit function; and
• compliance by the Company with legal and regulatory requirements;

and

(2) prepare the Audit Committee report that required to be included in the Company’s annual
proxy statement.

2. Membership

The Audit Committee shall consist of at least three members, comprised solely of independent
directors meeting the independence and experience requirements as applicable. The Nominating
Committee shall recommend nominees for appointment to the Audit Committee annually and as
vacancies or newly created positions occur. Audit Committee members shall be appointed by the
Board and may be removed by the Board at any time.

No member of the Audit Committee may serve on the audit committee of more than three public
companies, including the Company, unless the Board has determined that such simultaneous
service would not impair the ability of such member to effectively serve on the Audit
Committee.

3. Internal Auditors

At least annually, the Audit Committee shall evaluate the performance, responsibilities, budget
and staffing of the Company’s internal audit function and review the internal audit plan. Such
evaluation shall include a review of the responsibilities, budget and staffing of the Company’s
internal audit function with the independent auditor.

4. Reporting to the Board

The Audit Committee shall report to the Board periodically. This report shall include a review of
any issues that arise with respect to the quality or integrity of the Company’s financial
statements, the Company’s compliance with legal or regulatory requirements, the independence
and performance of the Company’s independent auditor, the performance of the internal audit

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function and any other matters that the Audit Committee deems appropriate or is requested to be
included by the Board.

5. Authority

The Audit Committee may delegate its authority to subcommittees or the Chairman of the Audit
Committee when it deems appropriate and in the best interests of the Company.

6.Other Functions

The Audit Committee shall, in conjunction with the CEO and CFO of the Company, review the
Company’s disclosure controls and procedures and internal control over financial reporting.

The Audit Committee shall review the Company’s policies and practices with respect to risk
assessment and risk management, including discussing with management the Company’s major
financial risk exposures and the steps that have been taken to monitor and control such
exposures.

AT BASF
Committees of the Supervisory Board
BASF SE's Supervisory Board established a total of three Supervisory Board
Committees: the Personnel Committee, the Audit Committee and the Nomination
Committee.

The Personnel Committee, among other things, prepares the appointment of members of the
Board of Executive Directors by the Supervisory Board, develops the main features of the Board
of Executive Directors' compensation, and, based on the decisions of the Supervisory Board, sets
the details of Board of Executive Directors members' remuneration and related contractual
issues. It comprises Michael Diekmann, Robert Oswald, Michael Vassiliadis and is chaired by
Dr. h.c. Eggert Voscherau.

The Audit Committee makes preparations for the negotiations and resolutions of the
Supervisory Board for the approval of the financial statements and consolidated financial
statements, considers the Quarterly and First-Half financial reports with the Board of Executive
Directors prior to their publication. The Audit Committee comprises Franz Fehrenbach, Ralf-
Gerd Bastian, Michael Vassiliadis and has Max Dietrich Kley as its chairman and financial
expert.

In July 2007, BASF's Supervisory Board established a Nomination Committee that prepares
the proposals for the election of Supervisory Board members at the Annual Meeting. All
shareholder representatives are members of the Nomination Committee, in other words, Prof. Dr.
François Diederich, Michael Diekmann, Franz Fehrenbach, Stephen K. Green, Max Dietrich
Kley, Dr. h.c. Eggert Voscherau, which is chaired by Dr. h.c. Eggert Voscherau.

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ANALYSIS ON AUDITORS REPORT

The analysis is based on the financial statements on the annual year 2009-2010. On the
basis of auditors report, the following comments our based:

1. The performance of the Company during the year under report registered an impressive
growth over the previous year. Sales at Rs. 14655 million and Profit before tax at Rs. 1514
million during the year ended 31st March, 2010 represent an increase of 18% and 40%
respectively, over the previous year. This substantial increase in profit before tax was
mainly on account of higher capacity utilization, improved operating results of the
Agricultural Solutions, Performance Products and Plastics businesses.

2. Profit after tax at Rs. 968.1 million was higher by 41% compared to the previous year.

3. The Agricultural Solutions business recorded substantial increase in sales and profits
during the year ended 31st March, 2010 mainly due to higher realizations, effective working
capital management and several marketing initiatives undertaken including introduction of
new products during the year under report. The Performance Products segment which
includes care chemicals, dispersions, textiles, specialty and leather chemical businesses
registered increase in sales, both in volume and value terms.
The Plastics business recorded higher sales and profits compared to the previous year.
4. The Chemical business performance during the year under review was lower, compared to
the previous year mainly due to reduced market uptake in certain segments and lower prices.

5. Overall capacity utilization was higher compared to the previous year. The export sales at
Rs. 609 million during the year under report represented an increase of 7% over the previous
year.

6. During the year under report, the Company has successfully commissioned the Engineering
Plastics Compounding plant at its Navi Mumbai factory, which will cater to the requirements
of the automobiles, electrical and electronic industries.

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7. Merger of Ciba India Limited, Ciba Research (India) Private Limited and Diamond Dye -
Chem Limited with the Company. The Scheme of Amalgamation of Ciba India Limited
(CIL), Ciba Research (India) Private Limited (CRIPL) and Diamond Dye-Chem Limited
(DDL) with the Company was sanctioned by the Honble High Court of Bombay vide its
Order dated 26th February, 2010. Accordingly, CIL, CRIPL and DDL were merged with
your Company from the Appointed Date, 1st February, 2010.

8. The shareholders of erstwhile CIL and CRIPL were issued 90 equity shares and 18 equity
shares of your Company for every 100 equity shares of CIL and CRIPL, respectively held by
them, as on the record date i.e. 18th March, 2010. As a result, the subscribed and paid-up
capital of the Company increased from Rs. 281.9 million to Rs. 407.7 million. The
Authorised Share Capital of your Company increased from Rs. 300 million to Rs. 450
million. The financial statements of the Company for the year ended 31st March, 2010
includes the financials of CIL, CRIPL and DDL.

9. Dividend:

Directors recommend payment of dividend on the equity shares @ 80% (Rs. 8/- per share)
for the financial year ended 31st March, 2010. The dividend will absorb Rs. 326.2 million.
The dividend distribution tax borne by the Company would amount to Rs.54.2 million.

10. Finance & Accounts:

With focus on cash flows and working capital management, the Company continued to
restrict the bank borrowing to absolute minimum during the year. Internal cash accruals
were effectively used for funding working capital needs and capital expenditure requirements
of the Company.

11. Capital Expenditure:

Capital Expenditure incurred during the year aggregated to Rs. 295.6million.

12. Fixed Deposits:

The Company continued to maintain the highest rating of FAAA awarded by CRISIL. Your
Company did not accept any fixed deposits during the year under report. There were no
overdue deposits except unclaimed deposits of Rs. 0.57 million as at 31s1 March, 2010.

13. Management Discussion & Analysis Report

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In terms of Clause 49 of the Listing Agreement with the Stock Exchanges, the Management
Discussion & Analysis Report is appended to this Report.

14. Wholly owned subsidiary:

BASF Polyurethanes India Limited (BPIL), the wholly owned subsidiary of your Company,
recorded sales of Rs. 2640.3 million as against Rs. 2185.4 million in the previous year,
registering good growth in value & volume terms. BPIL managed to reduce significantly its
operating loss to Rs. 7.6 million as compared to Rs. 200.6 million, which was achieved
through strict inventory and receivable control as well as strong growth in own manufactured
production, over the previous year.
BASF SE had the discretion to acquire the Company’s holding in BPIL. BASF SE had exercised
its discretion to acquire the entire equity shareholding in BPIL vide its letter dated 30th October,
2008 subject to conditions detailed therein. A committee constituted by the Board is examining
the matter and would recommend further course of action.
The Audited Accounts of the subsidiary and the Auditors report thereon form part of this Annual
Report.

13. Corporate Governance:

The Company has always strived to incorporate appropriate standards for good corporate
governance. Your Company has complied with the Corporate Governance requirements as per
Clause 49 of the Listing
14. Agreements with the Stock Exchanges.
A separate report on Corporate Governance along with a Certificate of Compliance from the
Auditors forms a part of this report.
The auditor’s report:
(i) that in the preparation of the annual accounts, the applicable accounting standards have been
followed;
(ii) that the Directors have selected such accounting policies and applied them consistently and
made judgments and estimates that are reasonable and prudent so as to give a true and fair view
of the state of affairs of your Company at the end of the financial year ended 31st March, 2010
and of the profits of your Company for that year;
(iii) that the Directors have taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of the Companies Act, 1956, for

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safeguarding the assets of your Company and for preventing and detecting fraud and other
Irregularities;
(iv) that the Directors have prepared the annual accounts on a going concern basis.
Auditors
M/s. B S R & Co., Chartered Accountants, Mumbai retire at the forthcoming Annual General
Meeting and are eligible for re-appointment.
Cost Audit:
The Board of Directors in pursuance of an order under Section 233B of the Companies Act,
1956, issued by the Government have appointed Cost Accountants for conducting audit of the
cost accounts maintained by the Company in respect of Insecticides and Dyes for the financial
year 2010-11.
General:
The Consolidated Financial Statements of your Company in this Annual Report are inclusive of
the results of its subsidiary, BASF Polyurethanes India Limited.These are the following points
presented by the auditor and we totally agree with it.
The company has kept its books of accounts in proper format and has complied with the
accounting policies and procedures. The auditor has checked their books of accounts thoroughly
and has given its comments with true and fair view.

Bibliography:
Websites:
http://gomestic.com/personal-finance/what-does-an-audit-report-contain-and-how-are-they-
presented/

http://www.blurtit.com/q366701.html

http://www.basf.com/group/about-basf/index

Books referred:

VIPUL PRAKASHAN: author: KIRAN M. REGE

P.K.BANDGAR

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Acknowledgement:
We would like to thank Ms. Tasneem Ma’am for
giving us the opportunity to work on this project. It
has enlightened our minds. There were new things
which we learnt which we did not before working
on this project.

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