Chapter X of Companies Act – Audit and Auditors

Section 143

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 Companies Act 2013 -> Section 143 (1) – Powers and Duties of Auditors and Auditing Standards

Power of auditor

1. Auditor would always have a right of access to the books of account and vouchers of the company and to inquire into
following matters
I. Company has taken securities against loans given to various entities
II. All the transactions are done in the interest of the company
III. All the accounting is being done as per accounting standards

2. The auditor of a company which is a holding company shall also have the right of access to the records of all
subsidiaries and associate companies wherever it is required for consolidation of Annual Statements
 Companies Act 2013 -> Section 143 (2,3 and 4) – Powers and Duties of Auditors and Auditing Standards
The Companies (Audit and Auditors) Rules, 2014 – Rule 11 – Matters to be Included in Auditor Report
Duties of Auditor
1. The auditor shall present a report in the general meeting with respect to the financial statements of the company that
he has examined the financial statements and they represent true and fair picture of the company

2. The auditor report shall also mention

I. whether, in his opinion, the financial statements comply with the accounting standards
II. whether any director is disqualified from being appointed as a director
III. any qualification, reservation or adverse remark relating to the maintenance of accounts
IV. whether the company has adequate internal financial controls in place to mitigate risk (Exception: This point is
not valid (Auditor need not include this in report) for a private company which is
I. which is a one-person company or a small company or
II. which has turnover < than rupees fifty crores as per latest audited financial statement and which has
aggregate borrowings from banks or financial institutions < than 25 crores

V. whether the company has disclosed the impact, if any, of pending litigations on the financial Position of company
VI. Whether Company has made provision for any foreseeable losses in future
VII. whether there has been any delay in transferring amounts, required to be transferred, to the Investor Education
and Protection Fund by the company.
 Companies Act 2013 -> Section 143 (2,3 and 4) – Powers and Duties of Auditors and Auditing Standards
The Companies (Audit and Auditors) Rules, 2014 – Rule 11 – Matters to be Included in Auditor Report
Duties of Auditor

Additionally, following are the duties of auditor which shall apply for all the companies except
1. a banking company and Insurance company
2. One-person Company
3. a private limited company, not being a subsidiary or holding company of a public company and
I. having a paid-up capital and reserves and surplus <= one crore rupees and
II. total borrowings <= one crore rupees from any bank or financial institution at any point of time during the
financial year and
III. total revenue <= ten crore rupees during the financial year as per the financial statements and

1. whether the company is maintaining proper records showing details and situation of Property, Plant and Equipment
2. whether the company is maintaining proper records showing full particulars of intangible assets
3. whether the title deeds of all the immovable properties take on lease are in favor of company
4. whether the company has revalued its Property, Plant and or intangible assets during the year and, if yes then auditor
must specify the amount of change in value after revaluation if the change is more than 10%
5. whether physical verification of inventory has been conducted at reasonable intervals by the management whether
any discrepancies of 10% or more in the aggregate for each class of inventory were noticed
Continued on next slide
 Companies Act 2013 -> Section 143 (2,3 and 4) – Powers and Duties of Auditors and Auditing Standards
The Companies (Audit and Auditors) Rules, 2014 – Rule 11 – Matters to be Included in Auditor Report
Duties of Auditor

1. whether during any point of time of the year, the company has been sanctioned working capital limits in excess of five
crore rupees, in aggregate, from banks or financial institutions based on security of current assets
2. whether during the year the company has made investments or provided any secured or unsecured loans to
companies, firms, Limited Liability Partnerships
3. If company is required to do cost audit or maintain cost records, then whether the company is doing so or not
4. whether the company has defaulted in repayment of loans or other borrowings or in the payment of interest to any
lender and if yes then what is amount of principal/Interest not paid and since how many days
5. whether the company is a declared willful defaulter by any bank or financial institution or other lender
6. whether term loans were applied for the purpose for which the loans were obtained; if not, the amount of loan so
diverted and the purpose for which it is used may be reported
7. whether funds raised on short term basis have been utilized for long term purposes, if yes, the nature and amount to
be indicated
8. whether the company has raised loans during the year on the pledge of securities
9. whether moneys raised by way of initial public offer or further public offer (including debt instruments) during the year
were applied for the purposes for which those are raised
10. whether the company has made any preferential allotment or private placement of shares
 Companies Act 2013 -> Section 143 (5,6 and 7) – Powers and Duties of Auditors and Auditing Standards

Duties of Auditor
In case of Government companies, additionally to what we have discussed till now with respect to duties of Auditor

1. CAG can direct the auditor regarding the manner which the accounts of the company are required to be audited and
auditor shall submit a report to CAG
2. CAG with in 60 days from the date of receipt of the audit report can conduct a supplementary audit
3. CAG can also conduct a test audit

Test audit is like selecting some random samples from the overall accounts and not auditing the whole accounts
 Companies Act 2013 -> Section 143 (8) – Powers and Duties of Auditors and Auditing Standards
The Companies (Audit and Auditors) Rules, 2014 – Rule 12 – Duties and powers of the company’s auditor with reference
to the audit of the branch and the branch auditor:
Duties of Auditor – Branch Office

1. If there is branch office (with in India or Outside India) , then the accounts of that branch must also be audited by the
company’s auditor or any other person who is not appointed auditor to company but is eligible to be appointed as
auditor

2. The person doing audit of branch shall be called branch auditor

3. The branch auditor shall submit his report to company’s auditor if branch auditor is different from company’s auditor

4. The company’s auditor shall also consider the branch audit report while making his own report and any observations
in the branch audit report shall be made in the main report
 Companies Act 2013 -> Section 143 (9 and 10) – Powers and Duties of Auditors and Auditing Standards

Auditing Standards

1. Every auditor shall comply with the auditing standards

Who makes auditing Standards

The Central Government may

prescribe the standards of auditing,
as recommended by the Institute
of Chartered Accountants of India,
in consultation with National
Financial Reporting Authority
If no standards are specified by Central government
then standards of auditing specified by the Institute of
Chartered Accountants of India shall be deemed to be
the auditing standards

The auditing standards notified by

Central government may be
notified after certain modifications
in the standards recommended by
ICAI
 Companies Act 2013 -> Section 143 (11) – Powers and Duties of Auditors and Auditing Standards

Auditing Standards

Central Government in consultation with National Financial Reporting Authority (NFRA) can direct that auditor’s report
should include information related to certain matters

If NFRA is not constituted, then Central Government may hold consultation with the Committee whose details are given
below

1. The committee shall be chaired by an officer of the rank of Joint Secretary or equivalent in the Ministry of corporate
Affairs
2. The committee shall have the representatives from
I. Institute of Chartered Accountants of India and Industry Chambers
II. National Advisory Committee on Accounting Standards
III. The office of the Comptroller and Auditor-General
 Companies Act 2013 -> Section 143 (12) – Powers and Duties of Auditors and Auditing Standards

Duties of Auditor – Reporting Frauds

Frauds can be categorized into two categories based on amount

Frauds >= 1 crore Frauds < 1 crore

Reported to Central Government Reported to Audit Committee (if there

is one) or to the Board
 Companies Act 2013 -> Section 143 (12) – Powers and Duties of Auditors and Auditing Standards
The Companies (Audit and Auditors) Rules, 2014 – Rule 13 – Reporting of Frauds

Duties of Auditor – Reporting Frauds >= 1 Crore

If an auditor of a company has reason to believe that an offence of fraud of >= 1 crore amount has been committed in
the company by its officers or employees, the auditor shall report the matter to the Central Government within certain
timeline as per guidelines

Timeline/Format for sending report to Central government

The auditor shall with in 2 days of If the reply comes with in 45 days
The auditor shall ask the board or auditor shall forward his report and
fraud coming to his knowledge shall audit committee to reply with in 45
report the matter to the Board or the reply or observations of the
days Board or the Audit Committee along
the Audit Committee
with his comments on such reply
If the reply does not come with in 45 with in 15 days from the date of
days auditor shall forward his report receipt of such reply
to Central Government (No time
period specified for this in act/rules)
1. Report shall be on the Auditor’s letter head containing postal and email address, contact number and Membership Number
2. The report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by Registered Post or by Speed
Post followed by an e-mail in confirmation of the same;
 Companies Act 2013 -> Section 143 (12) – Powers and Duties of Auditors and Auditing Standards
The Companies (Audit and Auditors) Rules, 2014 – Rule 13 – Reporting of Frauds

Duties of Auditor – Reporting Frauds < 1 Crore

Fraud involving lesser than 1 crore, the auditor shall report the matter to the audit committee (if there is audit
committee) or to the Board in other within such time as prescribed by the timelines

Timeline/Format for sending report to Board or the audit Committee

The auditor shall with in 2 days of The report shall contain the following details
fraud coming to his knowledge shall (a) Nature of Fraud with description
report the matter to the Board or (b) Approximate amount involved
the Audit Committee (c) Parties involved.

These details shall also be included in the annual report by Board

 Companies Act 2013 -> Section 143 (15) – Powers and Duties of Auditors and Auditing Standards
The Companies (Audit and Auditors) Rules, 2014 – Rule 13 – Reporting of Frauds

Duties of Auditor – Penalties for not Reporting Frauds

Auditor shall be punishable with fine which

minimum of one lakh rupees, but which
may be extend to twenty-five lakh rupees.
 Companies Act 2013 -> Section 143 (14) – Powers and Duties of Auditors and Auditing Standards

Power and Duties of Financial Auditor Applies to Cost Auditor and Secretarial Auditor

Types of Auditors

Financial Auditor Cost Auditor Secretarial Auditor

Verification of Financial Verification of Cost compliance with the

Statements such as Reports, Cost sheets, provisions of various
Balance Sheet, Income Cost Statement etc. laws and rules/
statement, Cash Flow regulations/procedures
Statement Such as compliance
with company’s Act

Till now we meant Financial Auditor by the word Auditor

All the provisions and rules discussed in section 143 applies also to Cost Auditor and Secretarial Auditor
 Companies Act 2013 -> Section 143 (15) – Powers and Duties of Auditors and Auditing Standards
The Companies (Audit and Auditors) Rules, 2014 – Rule 13 – Reporting of Frauds

Duties of Auditor – Penalties for not Reporting Frauds

Auditor shall be punishable with fine which

minimum of one lakh rupees, but which
may be extend to twenty-five lakh rupees.

This penalty also applies to

Cost Auditor and
Secretarial Auditor

Cost Auditor Secretarial Auditor

 Concept Check

If no standards are specified by Central government for Financial audit, then standards of auditing specified by the
__________of India shall be deemed to be the auditing standards
1. Institute of Cost Accountants
2. Institute of Chartered Accountants
3. Institute of Company Secretary
4. Any of the above
Ans: Option 2
 Concept Check

Frauds of value >= ____ are reported to Central government by Auditors?

1. 200 lakh
2. 500 Lakh
3. 100 lakh
4. 50 Lakh
Ans: Option 3

In case auditor does not reports the frauds then Auditor shall be punishable with fine which minimum of _____lakh rupees,
but which may be extend to _____lakh rupees
1. 10,50
2. 20,100
3. 1,25
4. None of the above
Ans: Option 3
Thanks