Duties of Auditors
- Make report
The auditor shall make a report to the members of the company on the following:
- on accounts examined by him and
- on every financial statements which are required by or under this act to be laid before the company in general meeting and
- report financial statement give a true and fair view of the state of company’s affairs at the end of its financial year and profit or loss and cash flow for the year and such other matters.
The auditor report shall also state:
- Whether he has sought and obtained all the necessary information and
(b)Whether proper books of account have been kept,
(c) Whether company’s balance sheet and profit and loss account are in agreement with books of accounts and returns,
(d) Whether the report from branch auditor was sent to him and the manner dealt with it,
(e) Whether financial statements comply with accounting standards,
(f) The observations or comments on financial transactions or matters which have any adverse effect .Also such observations/comments will be read in the AGM and can be inspected by any member. Currently, the companies Act require the observations or comments of the auditors with any adverse effect on the functioning of the company to be given in bold/italics in the audit report.
g)Whether any director is disqualified from being appointed as director section 164(2),
h)Any qualification, reservation or adverse remark
(i)Whether company has effective internal financial control system and operative effectiveness, and Such other matters.
The reporting requirement of an auditor on ‘internal financial controls system’ is highly debated presently. On a literal interpretation, one may argue that the term has to be interpreted not only with reference to financial statements but also to include non-financial parameters, e.g., policies and procedures adopted by company for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies. However, it may be noted that as per the Companies (Accounts) Rules, 2014, the directors’ report of unlisted companies has to include details in respect of adequacy of internal financial controls only with reference to the financial statements. This may lead to auditor’s reporting responsibility extending beyond the directors’ responsibility, which may not be correct. MCA/ ICAI should issue appropriate clarification to resolve this issue on a priority basis.‘Other prescribed matters’ have been given under the Rules, which are as follows:
|Draft Rules||Final Rules||Remarks|
|Whether the company has disclosed the effect, if any, of pending litigations on its financial position in its financial statement||Whether the company has disclosed the impact, if any, of pending litigations on its financial position in its financial statement*||There is no change in the final Rules vis-à-vis the draft Rules in relation to this requirement.|
|Whether the company has made provision for foreseeable losses, if any, on long term contracts including derivative contracts||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||The final Rules have clarified that a provision should be recognized by the company if required under any law or Accounting Standards. Also, the reporting requirement has been rationalized to include only ‘material’foreseeable losses as compared to ‘all’foreseeable losses under the draft Rules.|
|Whether there has been delay in depositing money into the Investor Education and Protection Fund by the company||Whether there has been any delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the company||It seems that there is no major change in the final Rules vis-à-vis the draft Rules. MCA has clarified that auditor has to opine upon delay in transferring any amount to IEPF.|
|The final Rules also do not clarify whether the company has to disclose the impact of pending litigations on its financial position in its financial statement even if not required by Accounting Standards, viz. AS 29 on ‘Provisions, Contingent Liabilities and Contingent Assets’. This may lead to interpretation issues, on which MCA/ ICAI should issue appropriate clarification.|
It seems that a requirement similar to CARO, 2003 has been kept under the new Act (Form no. AOC-4 ‘Form for filing financial statement and other documents with the registrar’ makes a reference to CARO, 2003). In addition, the provisions relating to ‘powers and duties of auditors’ have also been made applicable, mutatis mutandis, to cost accountants (conducting cost audits) and company secretaries (conducting secretarial audits).
Duties of Auditors
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