The following article is an detailed Explanation of Auditors Report along with the Auditors Powers and Duties under the Companies Act 2013. Section 143(1) deals with the Powers or Rights of Auditors, Section 143(2) deals with the Auditors Duties and Section 143(3) deals with the Auditors Report under the Companies Act 2013.
Section 141 (1) & (2) of the Act prescribed the following eligibility and qualifications of auditor which are as under:-
- Only a Chartered Accountant (individual) or a firm where majority of partners practicing in India are Chartered Accountants can be appointed as auditor.
- Where a firm including a limited liability partnership (LLP) is appointed as an auditor of a company, only the partners who are chartered accountants shall be authorized to act and sign on behalf of the firm.
Powers or Rights of Auditors
Section 143(1) provides for powers or rights of auditors. Auditor of a company shall have a right of access at all times to the books of account and vouchers of the company, whether kept at the registered office of the company or at any other place and shall be entitled to require from the officers of the company such information and explanation as he may consider necessary for the performance of his duties as auditor and amongst other matters inquire into the following matters, namely: –
- whether loans and advances made by the company on the basis of security have been properly secured and whether the terms on which they have been made are prejudicial to the interests of the company or its members;
- whether transactions of the company which are represented merely by book entries are prejudicial to the interests of the company;
- where the company not being an investment company or a banking company, whether so much of the assets of the company as consist of shares, debentures and other securities have been sold at a price less than that at which they were purchased by the company;
- whether loans and advances made by the company have been shown as deposits;
- whether personal expenses have been charged to revenue account;
- where it is stated in the books and documents of the company that any shares have been allotted for cash, whether cash has actually been received in respect of such allotment, and if no cash has actually been so received, whether the position as stated in the account books and the balance sheet is correct, regular and not misleading:
The auditor of a company which is a holding company shall also have the right of access to the records of all its subsidiaries in so far as it relates to the consolidation of its financial statements with that of its subsidiaries.
Duties of Auditors
Section 143(2), 143(3) and 143(4) provides for the duties of auditors. The auditor shall make a report to the members of the company on –
- the accounts examined by him and
- on every financial statement which are required by or under this Act to be laid before the company in general meeting.
The auditor shall state in his report as to whether the accounts examined by him and financial statements give a true and fair view of –
- the state of the company’s affairs as at the end of its financial year;
- the profit or loss for the year; and
- cash flow for the year and such other matters as may be prescribed.
The auditor shall prepare his report after taking into account –
- the provisions of this Act
- the accounting and auditing standards
Auditors Report Section 143(3)
The auditor’s report shall also state –
- whether he has sought and obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit and if not, the details thereof and the effect of such information on the financial statements;
- whether, in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books and proper returns adequate for the purposes of his audit have been received from branches not visited by him;
- whether the report on the accounts of any branch office of the company audited under sub-section (8) by a person other than the company’s auditor has been sent to him under the proviso to that sub-section and the manner in which he has dealt with it in preparing his report;
- whether the company’s balance sheet and profit and loss account dealt with in the report are in agreement with the books of account and returns;
- whether, in his opinion, the financial statements comply with the accounting standards;
- the observations or comments of the auditors on financial transactions or matters which have any adverse effect on the functioning of the company;
- whether any director is disqualified from being appointed as a director under sub-section (2) of section 164;
- any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith;
- whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls;
Other matters to be included in auditor’s report: The auditor’s report shall also include their views and comments on the following matters, namely:-
- whether the company has disclosed the impact, if any, of pending litigations on its financial position in its financial statement;
- whether the company has made provision, as required under any law or accounting standards, for material foreseeable losses, if any, on long term contracts including derivative contracts;
- whether there has been any delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the company.
Where any of the matters required to be included in the audit report under this section is answered in the negative or with a qualification, the report shall state the reasons therefor.
Auditing Standards and National Financial Reporting Authority
The Companies Act, 2013 provides that every auditor shall comply with the auditing standards. The auditing standards will be prescribed by the Central Government as recommended by the Institute of Chartered Accountants of India (ICAI), constituted under section 3 of the Chartered Accountants Act, 1949, in consultation with and after examination of the recommendations made by the National Financial Reporting Authority (NFRA).
However, until any auditing standards are notified, any standard or standards of auditing specified by the ICAI shall be deemed to be the auditing standards.
The Central Government may, in consultation with the NFRA, by general or special order, direct, in respect of such class or description of companies, as may be specified in the order, that the auditor’s report shall also include a statement on such matters as may be specified therein.
The above all the information Prepared on the basis of the Relevant Provisions under the Companies Act 2013. For better Understanding Cross check the Companies Act 2013. For any doubts and quarries comment below.