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Technical Session-II:

Provisions relating to Duties & Powers of Auditors under Section 143 of the Companies Act 2013

By MVSK RUTHVIK

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Audit Overview • Auditing refers– to a systematic examination of books of accounts,

documents and vouchers – to ascertain how far the financial statements

present a true and fair view of the concern.– compliance i.e ensuring that the books of accounts

are properly maintained by the entity as required by law.

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Who is an Auditor

• Auditors are independent accounting/auditing firms that are hired by companies subject to an audit.

• External auditors express their own opinions on whether the financial statements of the company in question are free of material misstatements

• Experts who possess knowledge in the field Auditing, Assurance & taxation who fall within the definition of Chartered accountants act, 1949.-modify the auditor definition as per sec 139

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Duties of Auditors • Introduction-

– Sec 143 of the companies act, 2013 speaks about the powers and duties of the auditors which were earlier mentioned in the Sec 227,228 of the companies act 1956.

– There are about 15 clauses under section 143.

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Section 143(1)-Duty to Inquire

• This section focuses the areas where the auditor is required to inquire into the following matters-– loan and advances made by the company the basis of

security – are properly secured– and the terms and conditions on which it is made are

prejudicial to the interest of the company or its members.

• Loans and advances made by the company are shown as deposits

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• Whether personal expenses have been charged to revenue account.

• Company other than banking company/ investment company– so much of the assets of the company consists of

share , debentures or other securities – have been sold at a price less than the price at which

these securities are purchased by the company.

• In case of shares, issued in cash – whether the cash in respect of these shares have

actually been received or not and– in case the cash is not received then whether it is

clearly shown in the books of accounts or not.

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• Transactions of the company are represented merely by books entries are prejudicial to the interest of the company

• Opinion of the Research Committee of the Institute of Chartered Accountants of India on section 143(1) is – The auditor is not required to report on the matters

specified in sub-section (1) unless he has any special comments to make on any of the items referred to therein.

– If he is satisfied as a result of the inquiries, he has no further duty to report that he is so satisfied.

– In such a case, the content of the Auditor’s Report will remain exactly the same as the auditor has to inquire and apply his mind to the information obtained by the enquiry, in deciding whether or not any reference needs to be made in his report.

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Section 143(2)-Duty to Report

• The auditor should report to the company – on the accounts examined by him and – in respect of the financial statement that are

required to be laid before the company in general meeting.

– The report shall be given after taking into consideration the provisions of this act, accounting standards, auditing standards etc

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Section 143(3)-Contents of Auditors Report• Obtain all the information and explanations which to the best of his

knowledge and belief were necessary for the purpose of audit. – In case proper information are not received , then the details

which are missing and effect of such information on the financial statement should be stated in the auditor’s report.

• Proper books of accounts as required by law are maintained or not and whether proper returns adequate for the purpose of audit have been received from the branch auditor in case of company auditor & branch auditor are not same.

• Companies balance sheet & profit and loss account are in agreement with the books of accounts and returns

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Continued….

• Financial statement prepared by the company comply with the accounting standards issued by ICAI.

• Observations and comments of the auditor on the financial transactions or matters which have adverse effect on the company.

• Whether any director is disqualified to be appointed as a director under section 164(2).

• Whether the company has adequate internal financial control system in place and operative effectiveness of such control.

• the company has disclosed the impact of any pending litigation if any in the financial statement.

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Continued….• company has made provision in respect of any

material foreseeable losses as required by law or accounting standards including the derivative contracts.

• company has made delay in transferring the amount required to be transferred to the Investor Education and Protection Fund (IEPF) by the company.

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Section 143(4)• Where any of the matters required being

included in the audit report under this section is answered in negative or with a qualification, then in that case auditor is required to state the reasons of such reservations and negative remark.

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Section 143(5)• Government Company-– C&AG will appoint the auditor to conduct the audit of the

company.– It gives the directions and the manner in which the accounts

of the government company are required to be audited by the auditor.

– After completing the audit, auditor will issue an audit report to the C&AG which will include all the matters.

– In additions to these matters, the auditor of the government company shall state in his audit report the • direction issued by C&AG , • the actions taken there upon and • the its impact on the accounts and financial statement of the

company.

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Section 143(6)• On receipt of audit report of the government

company,– C&AG can carry out supplementary audit with 60

days from the date of receipt of such audit report– He may comment upon the audit report.– Audit report should be sent to every person to

whom audited financial statement are sent & the copy of audit report shall also be place at the AGM.

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Section 143(7)• In case of a Government company– C&AG in respect of a financial year shall appoint

an auditor duly qualified to be appointed as an auditor of company within a period of 180 days from the commencement of the financial year, who shall hold office till the conclusion of the annual general meeting.

• In case C&AG feels necessary, he may conduct the test audit of the company.

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Section 143(8)

• In case has company Branch audit, who has a Branch in India, – the audit of such branch can be done by the Company

auditor or– by any other person qualified to be appointed as an

auditor as per Sec 139.• In case the company has a Branch is in some other

countries, – then the audit of such branch shall be conducted by an

accountant or by any such person qualified to be appointed as an auditor as per the laws of that country.

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Continued….– Such branch auditor should prepare a report

on the books of accounts of the branch audited by him and send a copy of such audit report to the company auditor.

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Section 143(9)

• Auditor shall comply with the standards on auditing(SA) during his course of audit.

• Any deviation from the SA’s should be explained with reasons as to why he opted should be made clear.

• He should refer the Guidance notes and other materials released by ICAI from time to time and seek help from the fellow members of ICAI on certain aspects where he is unable to form a opinion.

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Section 143(10)

• The Central Government may prescribe the standards of auditing, as recommended by the Institute of Chartered Accountants of India, in consultation with and after examination of the recommendations made by the National Financial Reporting Authority.

• Until such standards are notified, the standards which are issued by the ICAI Shall be deemed to be the auditing standards for the purpose of audit

• NFRA is regulatory authority for auditing, accounting and financial reporting, to advice on matters related to Auditing Standards in addition to Accounting Standards and also to act as a regulatory body for accountancy profession

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Section 143(11)

• The Central Government may in consultation with the National Financial Reporting Authority direct that the audit report in case of specific class of companies shall include a statement on such matters as may be specified therein.

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Section 143(12)-Reporting on Fraud

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• Auditor of the company in the course of performance of his duties as auditor has reason to believe– that an offence involving fraud is being or has been

committed – against the company by an officer or the employee of the

company – then the auditor should immediately report the matter to

the central government within such time and in such manner as may be prescribed.

• The auditor should forward his report to the board or the audit committee as the case may be immediately after he comes to know about the fraud seeking their reply or observations within 45 days.

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Continued……• On receipt on such reply or observations of the board or the

audit committee,– the auditor should forward his report along with the reply or

observations of the board or the audit committee and– his comments on such reply or observations to the central

government within 15 days.

• In case, no reply or observations has been received by the auditor from the board or the audit committee, then the auditor should send the audit report along with a note containing the details of his report that was earlier forwarded to the board or the committee for which he has failed to receive any comments or observations.

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Section 143(13)

• However, auditor will not considered as guilty of professional misconduct if he does his duty In good faith.– Example the duty of confidentiality will not be

effected in case auditor reports such matters to central govt in good faith as per second schedule of the Chartered Accountants Act, 1949.

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Note:-• It is important note that Only frauds against

company by officers/employees to be reported Frauds committed by the company (on outsiders/creditors/investors etc) are outside the scope of reporting requirements under section 143(12).

• If auditor reports frauds committed by the company, he cannot avail the immunity under section 143(13) and would be liable for professional misconduct for breach of confidentiality under clause (1) of Part I of the Second Schedule to the CA Act, 1949.

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Section 143(14)• This section shall apply to the – cost auditor conducting cost audit and – the company secretary doing secretarial audit

• Secretarial audit has been introduced newly in companies act 2013. It is a process to check compliances made by the Company under Corporate Law & other laws, rules, regulations, procedures etc. It is a mechanism to monitor compliance with the requirements of stated laws and processes.

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• If a secretarial auditor, has reason to believe that an offence involving fraud is being or has been committed – against the company by officers or employees of

the company, – he shall immediately report the matter to the

Central Government within such time and in such manner as may be prescribed

– Failure to do so shall attract a fine which shall not be less than 1 lakh rupees but which may extend to 25 lakh rupees.

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Section 143(15)-Penalties for non compliance

• If the– Chartered accountant, company secretary or the

cost auditor– do not comply with any of the provisions of this act

then he will be punishable with a fine which shall not be less than Rs. 1 lakh but which can be extend to Rs. 25 lakhs.

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Enough of Lecture….

Lets have humour

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• Banner in front of the Institute of Chartered Accountants of India …. “Drive slowly, don’t kill our students….. leave them to us……”

• Are you-– Emotionally Numb?– Romantically Starved?– Creatively Challenged?– Artistically Void?– Socially Outcast?–Congratulations You are a CA

Student!!!!!!!!!!!!

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• AUDITOR– A-accounting and others– U-underlying– D-data and– I-information– T-to give an– O-opinion in– R-the audit report

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Irritating audits, Fighting on stupid issues,Everyday classes, unknown Office HoursMore expenditure, Less stipend,People call it ARTICLESHIP, We call it LIFE.

• Nevertheless ………………………………….. We got to be Proud of something…………………..

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• 5 Years• 50 Laws• 500 Lectures• 5,000 Hours of Office Work• 50,000 Sections• 5,00,000 Rules• A normal human being can’t bear it.• The remaining are called• CHARTERED ACCOUNTANTS…………………..

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THANK YOU