(For use by the Officials of the Indian Audit and Accounts Department only)

Office of the Principal Accountant General (Audit) Gujarat, Ahmedabad

MANUAL OF COMMERCIAL AUDIT WING (PART II)

Issued by Pr. Accountant General (Audit) Gujarat, Ahmedabad

2003

COMPTROLLER AND AUDITOR GENERAL OF INDIA

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Table of Contents PAGE No. Preface 4 -5 CHAPTER SUBJECT SECTION I I Introduction 6-19 II Commercial Audit HQrs. Section 20-30 III Commercial Audit (Report) Section 31-41 IV Local Audit 42-46 V General outlines Govt. Companies 47-77 VI Efficiencycum-performance Audit . and Planning for Audit 78-82 VII Energy Audit 83-84 SECTION - II VIII Gujarat Small Industries Corpn Ltd. 85-89 IX Gujarat Mineral Deve. Corpn. Ltd. 90-96 X Gujarat State Export Corpn. Ltd. 97-102 XI Gujarat State Textile Corpn. Ltd. 103-111 XII Gujarat State Handicrafts Dev. Corpn. Ltd. 112-116 XIII Gujarat State Construction Corpn. Ltd. 117-121 XIV Gujarat Communication & Electronics Ltd. 122-129 XV Tourism Corporation of Gujarat Ltd. 130-134 XVI Gujarat Tractor Corpn. Ltd 135-145 XVII Gujarat State Petroleum Corpn. Ltd. 146-152 XVIII Gujarat Rural Industries Marketing Corporation Limited. 153-158

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XIX Gujarat State Handloom Deve. Corpn. Ltd. 159-164 XX Gujarat State Civil Supplies Corpn. Ltd. 165-174 XXI Gujarat Tarns-Receivers Ltd. 175-183 XXII Gujarat Analgesics Ltd. 184-186 XXIII Gujarat Women Economic Deve. Corpn. Ltd. 187-190 XXIV The Film Deve. Corpn. of Gujarat Ltd. 191-194 XXV Gujarat State Leather Industry Deve. Corpn. Ltd. 195-202 XXVI Gujarat Growth Centres Deve. Corpn. Ltd. 203-205 XXVII Gujarat Fintex Ltd. XXVIII Gujarat Siltex Ltd. 206 XXIX Gujarat Tex fab Ltd. XXX Alcock Ashdown (Gujarat) Ltd. 207-211 XXXI Gujarat Industrial Investment Corpn. Ltd. 212-218 XXXII Gujarat State Investments Ltd. 219-221 XXXIII Gujarat State Financial Services Ltd. 222-224 XXXIV Gujarat Scheduled Castes Economic Deve. Corpn. Ltd. 225-228 XXXV Gujarat State Police Housing Corpn. Ltd. 229-233 XXXVI Sardar Sarovar Narmada Nigam Ltd. 234-244 XXXVII Gujarat Water Resources Deve. Corpn. Ltd. 245-252 XXXVIII Gujarat Agro Industries Corpn. Ltd. 253-262 XXXIX Gujarat Sheep & Wool Deve. Corpn. Ltd. 263-268 XXXX Gujarat Fisheries Deve. Corpn. Ltd. 269-274 XXXXI Gujarat Dairy Deve. Corpn. Ltd. 275-282 XXXXII Gujarat State Seeds Corpn. Ltd. 283-289 XXXXIII Gujarat State Forest Deve. Corpn. Ltd. 290-299 XXXXIV Gujarat State Rural Deve. Corpn. Ltd. 300-304 XXXXV Gujarat State Land Deve. Corpn. Ltd. 305-309 XXXXVI Gujarat Insecticides Ltd. 310-320 XXXXVII Agrocel Pesticides Ltd. 321-325

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XXXXVIII Gujarat Leather Industries Ltd. 326-345 XXXXIX Gujarat State Machine Tools Corn. Ltd. 346-348 L Gujarat Industrial & Technical Consultancy Organization Ltd. 349-351 LI Gujarat State Fertilizers & Chemicals Compny Ltd. 352-356 LII The Ahmedabad Electricity Company Ltd. 357-363 LIII Gujarat Power Corporation Ltd. 364-366 SECTION -III LIV Gujarat Electricity Board 367-385 LV Gujarat State Road Transport Corporation 386-398 LVI Gujarat State Financial Corporation 399-405 LVII Gujarat State Warehousing Corporation 406-410 LVIII Gujarat Industrial Development Corporation 411-416 LIX Organizational Chart of Commercial Audit Wing of I.A & A.D. 417 LX List of Books suggested for reading 418-419

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PREFACE

This is the first edition of Part-II of the Manual of Commercial Audit Wing of

the Office of the Pr. Accountant General (Audit) Gujarat, Ahmedabad. The Manual contains, in brief, the various procedures and practices being followed at present during local audit of various auditee organizations and by the C.A.D.(Headquarters) and C.A.D.(Report) Sections of the Commercial Audit Wing of this office and in three Resident Audit Offices at Gujarat Electricity Board (GEB), Baroda, Gujarat State Road Transport Corporation (GSRTC), Ahmedabad and Sardar Sarovar Narmada Nigam Limited (SSNNL), Gandhinagar.

The Manual broadly outlines the various operational aspects, accounting

systems and policies and the auditing methodology and audit techniques etc., applicable to each Government company and each Statutory corporation under the jurisdiction of this office. Besides, the broad principles to be followed in conducting the audit of a commercial auditee organisation and the special points which are material for audit of a particular organisation have also been incorporated in the Manual. The basic principles of the audit of various Commercial Public Undertakings such as, Government companies and Statutory corporations, are not reproduced in the Manual. The structure of the various Government companies including "deemed Government companies" and Statutory corporations including one Statutory corporation (GIDC) whose audit is conducted by this Office at the request of the management, duly approved by the Comptroller and Auditor General of India, i.e. on "consent basis" is dealt in Part II-B of the Manual.

As far as possible, the important instructions of the Comptroller and Auditor

General of India or an extract from those instructions have been included in the Manual, wherever considered necessary. In drawing out individual chapters on each Government company and Statutory corporations, the guidelines contained in the circular letter No.8-CA/O&M(R.C)9-80 Volume-II dated 20th January, 1984 of the Comptroller and Auditor General of India have been generally followed.

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The objective of the Manual is to provide necessary guidance and directions to the staff of the Commercial Audit Wing in carrying out audit of accounts of the companies and corporations. Besides, it will serve as a broad check-list dealing with the steps to be taken and stimulating the inquiry for audit.

Suggestions for modifications and improvements or changes in the Manual are

most welcome. Place: Ahmedabad (RAGHUBIR SINGH) Date:04 June 2003 Pr. Accountant General (Audit) Gujarat

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SECTION - I

CHAPTER I

ORGANISATION AND FUNCTIONS

1.1 Introduction

The public undertakings, the accounts of which are subject to audit by the Comptroller and Auditor General of India (CAG) may be classified as -

- Statutory Corporation formed under the specific Acts of the Legislature,

- Companies registered under the Companies Act, 1956 in which not less than 51 percentage of paid-up share capital is held directly by the Government of Gujarat or with one or more combinations mentioned under Section 619-B of the Companies Act, 1956; and

- Departmentally managed commercial undertakings. The Commercial Audit Department (CAD) of the Office of the Accountant

General (Audit) I, Gujarat, Ahmedabad is responsible for the aforesaid audit. The audit of the departmentally managed commercial undertakings of the State Government are conducted by the Office of the Accountant General (Audit)-II, Rajkot.

The Commercial Audit Department (CAD) in Gujarat comprises the

following:

1. CAD-Headquarter (General) Section

2. CAD-Headquarter (Report) Section

3. Resident Audit Office, Gujarat Electricity Board

4. Resident Audit Office, Gujarat State Road Transport Corporation

5. Resident Audit Office, Sardar Sarovar Narmada Nigam Limited,

6. Local Audit Parties

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The detailed functions of these sections/RAOs/Field Parties have been dealt in Chapter-II.

1.2 (i) Guiding principals in the audit of Public Enterprises. Audit of public enterprises covers financial compliance and regularity audit ; it

also extends to examination of efficiency, economy and effectiveness of their operations and fulfillment of their objectives and goals. The stress of audit of public enterprises except during supplementary audit/certification audit is however, more on the audit of three "E"s rather than checking of regularity of expenditure. Audit also examines the propriety of the expenditure directed towards examinations of management decisions in sales, purchases, and contracts etc., to ensure that these have been taken in the best interest of the enterprise and conform to accepted principals of financial propriety.

(Ref:CAD's letter No.625/CA-IV/8 dtd 22.11.1969)

1.2 (ii) Audit checks to be exercised with reference to the Statutory Audit and internal audit

The public enterprises have generally a well-defined financial and accounting

organisation along with an internal audit system. In Government Companies as well as in some Statutory Corporations, the accounts are audited by the Statutory Auditor appointed by the Ministry of Law, Justice and Company Affairs, Department of Company Affairs on the recommendations of the CAG. In such organisations, our audit may not cover the same field as covered by the internal audit or Statutory Auditors and may be limited to some percentage of audit checks on various types of transactions. The routine checks are exercised by the accounting and internal audit wings of the undertakings. However, it has to be seen that the internal audit adequately covers the entire field of operations that it is functioning effectively, that, its reports are properly considered as appropriate level and that necessary action is taken on them. In such cases, the main purpose of routine audit would be to see how far internal checks operates effectively. Our audit in this regard should be confined to efficiency-cum-propriety audit, the broad principles of which have been laid down in the Manual of Standing Orders (Audit).

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The Comptroller and Auditor General's (DPC)Act, 1971 defined the mandate and responsibility of CAG which extend to Public Sector audit practices and principles evolved in the Department. Manual of Standing Orders (Audit) contains the principles, practices and procedure of audit to be followed in the Indian Audit and Accounts Department. Section-II to VII of M.S.O. (Audit) set out the general principles and instructions that are to be observed in Auditing and reporting the results of audit and preparation of Audit Report. In Chapter -7, Section-II of the M.S.O. (Audit) main principles of "Audit of Commercial Accounts" have been included in abridged form. The detailed procedures of audit have been prescribed in this Commercial Audit Manual. A copy of Chapter-7 of Section-II-Audit of Commercial Accounts" of M.S.O. (Audit) is included as Annexure-A to this Manual.

The relevant provisions of the Companies Act, 1956 constitution of India and

CAGs (DPC) Act, 1971 are also included in the Annexure. These apart, the Statutory Auditors are required to submit a special report, on

completion of their audit of a Government Company, on the various points, covered by the directions of the CAG issued to them under section 619(3) of the Companies Act, 1956. The report not only gives information on various matters but also secures that the Statutory Auditors have discharged their functions well and with reasonable degree of efficiency. In view of this, there is no necessity to cover the entire field again during routine audit checks.

The annual accounts of these concerns viz., Balance Sheet, Profit & Loss

Account and Subsidiary Schedules are certified by the Statutory Auditors. Since, the routine checks have already been exercised by the internal audit/Statutory Auditors, it is not necessary that similar checks should be exercised by our audit; however, for certifying the correctness of annual accounts, certain checks will have to be conducted. It will be necessary to see that the annual accounts have been properly drawn up on the basis of the records, already checked.

(Ref:CAG's letter No.216-CA/61-1965, dtd.2-21966)

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To improve the Audit of accounts of Public sector Undertakings following decision were taken by HQrs. as communicated in CAG's letter No.14/3-CA-III/1834-93 dt.14th December 1994.

(A) Audit of Annual Accounts of Government Companies/Corporations. 1 Use of check lists

A detailed check list (Annexure B has been prescribed for adoption as a guide

for the comprehensive checks to be exercised during such Audit. The field parties may use this as an illustrative list during such audit which must be conducted with reference to the following : (a) Provisions of the Companies Act, 1956(or the relevant statutes governing the

Corporation concerned) (b) Memorandum and Articles of Association of the Company. (c) Instructions of the Government of India. (d) ICAI's following pronouncements:

(i) Accounting standards

(ii) Guidance Notes and Opinions

(iii) Statements on standard Auditing practices (SAPs) (e) IA & AD's Auditing standards. (f) International Accounting standards and International Auditing Guidelines

wherever ICAI's standards/ guidelines are not available. 2. Scrutiny of Auditor's report

The Auditor's Report should be pursued by the field party. The statement

included in the Auditor's Report in compliance of the Manufacturing and Other Companies (Auditor's report) Order 1988 is a constituent part of the Auditor, s Report and should be scrutinised in the same manner as the rest of the Auditors' Report. In respect of every reservation, qualification or adverse remarks contained in the Auditor's Report which is not accepted as correct by the Management, the Management may be asked to offer their explanation so that the field party can examine the matter with reference to the records and determine whether the reservation, qualification or adverse remark which is contested by the management needs to be commented upon.

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3 Pre-audit analysis The audit planning process should include analysis of the accounts of the

auditee for the earlier two years together with Statutory Auditors' report (including the supplementary report). An Audit plan should be prepared by the Sr.A.O. incharge of audit and this plan should be approved by the Group Officer/AG before commencement of detailed substantive checks.

The analysis should be used to decide the possible areas for intensive scrutiny

and for formulation of sub-direction under Section 619(3) of the Companies Act, 1956 for issue to the Statutory Auditors.

4 Meeting with Statutory Auditors

There is need of holding regular meetings with statutory Auditors before the

commencement of Audit During such meeting AG should bring to the notice of the Auditors, the areas of weakness to be enquired into by the auditors before they take up the audit and written sub-directions should be issued in time. In such meeting, the distribution of work among the auditors should also be ascertained and kept on record to ensure their accountability and assess their performance.

5 Allocation of work

The Group Officer should record special checks to be exercised by the audit

party. The Sr.Audit Officer shall be responsible for allotting the work to the individuals members, supervising the execution of the work, for documentation of work done and any time of work not allotted specifically shall be deemed to be the work of the Sr.AO/AO and on completion of the work for sending the list of checks not exercised.

6 Review of accounting polices in advance While conducting the audit, it should be ensured that accounting policies of

auditee should be reviewed for conformity with accounting Principles, Standards etc. While such review it should be kept in view that disclosure is not a substitute for proper accounting and that the use of improper or unsound method is not cured for disclosure.

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In several number of cases it was noticed that auditee has departed from accepted accounting principles by introducing an accounting policy which covered the erstwhile practice they were following and Auditors did not comment on it. Such cases if noticed, should be commented upon even if disclosure exists. These instructions are applicable to "Notes on accounts" also.

7 After the Audit

The Statutory Auditors may be requested to submit the report under section

619(3) of the Companies Act 1956 within one week of certification of the accounts of the Company.

During meeting with Auditor, the importance of Auditors submitting replies to

the audit observations within the time schedule fixed should be stressed so that the comments on the accounts can be finalised within time and the delay in submission may be considered for their poor performance.

Assessment of the performance of Statutory Auditors CAG has issued following guidelines (Vide CAG DO letter No 21-CAV/11-93

dated 6th January 1995) which may be considered for assessment of performance of Statutory Auditors. These are:

1. Has his report been drafted with due regard to the requirements of the Companies Act?

2. Does his report contain errors and omissions?

3. Has he completed the audit work promptly?

4. Has the Supplementary Report been delayed without justifications?

5. Has he responded promptly to the draft audit comments ?

6. Were any of his qualifications found to be incorrect?

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7. Were there any major comments made under section 619(4) on his report or supplementing it ?

8. Has he maintained cordial relations with the Management ?

9 Has he complied with the sub directions given by PDCA/AG?

10. Has he attended the Meetings convened by PDCA/AG ?

8 Miscellaneous other instructions. (A) Interaction with staff

In order to ensure uniformity of approach in conducting the audit of Annual

accounts the A.G's should hold periodical meeting with their Group Officers and Sr.AOs/AOs/AAOs/SOs, at least once in a year regularly in order to improve the efficiency and functioning of that office and use this opportunity to exchange the experiences and informations based on the last cycle of accounts audit and with reference to latest developments like new International or ICAI standards. opinions. Government Instructions or notifications (for example recently for depreciation). For such meetings HQ sections in the office should prepare a digest of important and interesting cases noticed during the last cycle of audit. These meetings should be utilised to draw attention of field parties to and discuss the implications of new standard, ICAI opinions, Government Notifications, instructions from HQ Office etc;

B. Maintenance of Data Bank for Audit.

At HQ Sections following data bank records should be maintained: (a) A Register of Important points and an Audit Note Book in respect of each auditee organisation should be maintained for handing over to the field party. (b) A Data Bank of each auditee organisation containing inter alia annual accounts for the last three years, Memorandum and Articles of Association of the Auditee company, Audit Report (including supplementary reports from statutory auditors) relating to the Auditee and week areas of accounting as assessed from past experience.

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(c) A compendium of all orders applicable to an auditee organisation i.e. instruction issued by the Administrative Ministry and the department of Public Enterprises.

(d) Latest copies of the ICAI's compendium of statements and standards of Auditing and Accounting.

(e) Other relevant guidance Notes and opinions and some standard text books relating to ratios and financial statements analysis.

This Data bank will form a prime document based on which the audit plan for

the year can be drawn up.

9. Sole Audits (i) Audit of Accounts of Statutory Corporations

The instructions relating to the audit of Government Companies such as are:

planning, maintenance of Data Bank, preparation of check list, documentation of checks exercised during audit, periodical meetings by the AGs and Group Officers/Sr.AOs/AOs/AAOs/SOs, except those relating to interaction with the statutory auditors, will also apply, mutatis mutandis, to the audit of PSUs/SEBs where CAG is the sole auditor. In addition, ICAI's "Guide to Company Audit" should be available as a reference document with the audit party.

(ii) Directions to audit parties Where CAG is the sole auditor, there is need to prepare a questionnaire similar

to that issued by way of directions under Section 619(3) of the Companies Act, 1956 and get the response of the party conducting the audit on similar points so that such points which get covered in the audit of Government Companies are not lost sight of in the audit of organisations where the CAG is the sole auditor.

It has, therefore, been decided that AGs should issue a questionnaire to their

parties, akin to directions under section 619(3) of the companies act, where CAG is the sole auditor, so that the weak or grey areas in the working of the organisation noticed can be probed/examined in detail.

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(iii) Separate audit report (SARs) The SARs on the accounts of Statutory Corporations should contain comments

on account as well as review of accounts which should indicate operational performance as well as the working results. Points of purely propriety nature should not be included in the SARs and should be taken up as draft paras. Specimen formats for SARs for State Electricity Board and State Road Transport Corporations are indicated in Annexure II & III which should be followed strictly. The SARs on the accounts of State Electricity Boards and other Statutory Corporation should be sent to the HQrs office for approval before issuing to the State Govt./SEB.

(iv) Quantum of Checks

The quantum of checks for bodies for which CAG is the sole auditor will

depend on (a) soundness of the internal control, (b) our past experience and familiarity with strong and weak points of the organisations, and (c) the relative importance of an area of operation to the organisation. The Quantum of checks to be exercised during the audit of accounts of Statutory Corporations under their audit control should be determined by the AG in the light of the above factors.

(v) Adverse reports on the accounts of Statutory Corporations In case where CAG is the sole auditor it will be our primary responsibility to

express an opinion about the truth and fairness of the financial statements being certified. If irregularities of a serious nature persist year after year, these should be brought to the notice of the highest authority of the organisation as well as of the Government for rectification. If such irregularities persist, adverse opinion or a disclaimer can be considered and the case should be brought to the notice of the HQrs Office for auditable direction.

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10 General Matters (a) Advice sought by statutory auditors

Under Section 619(3)(a), CAG has the power to direct the manner in which

the accounts shall be audited and to give instructions in regard to any matter relating to the performance of the Auditors' functions. If AG is approached by any of the auditors for advice on any problem area during the course of audit; AG should seek the query in writing and furnish the reply also in writing. (b) Revision of Accounts

CAG office circular letter No.58-CA-IV/89-79 dated 4.2.1988 provides that

suitable comments should be taken under section 619(4) of the Companies Act, 1956 in case the auditor does not disclose the full impact of revision of accounts in the notes/auditors reports on the account. Where accounts are revised at the instance of CAGs audit, the gross or full impact of CAG's observations should be disclosed in the notes on accounts by the company or audit; else, a comment should be made to bring out the full impact. (c) Arrears in Accounts of State Government Companies

The AG should brief the Chairman of the Committee on Public Undertakings

about arrears in finalisation of the accounts of the companies so that COPU could call the Chief Secretary to explain the action taken by the Government in tackling and overcoming the arrears.

1.3 Special Audit

The Accountant General may receive request from the State Government or

Management of the Government Companies/Corporations to undertake special audit. The following principles may be followed in such cases.

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State Government Companies In terms of Section 233-A of the Companies Act, 1956 Where the Central

Government is of opinion (a) that the affairs of the Company are not being managed in accordance with the sound business principles or prudent commercial practices; or (b) that any company is being managed in a manner likely to cause serious injury or damage to the interest of trade, industry or business to which it pertains; or (c) that the financial position of any company is such as to endanger its solvency; the Central Government at any time by order, direct that a special audit of the companies account for such period or periods as may be specified in the order, shall be conducted. However, audit in depth of the transaction can be conducted by this office under Section 619(3)(b) of the Companies Act, 1956. In the course of this audit, it should be possible to cover any particular transactions referred to by respective Government or the management of the company for special audit.

Normally, request for special audit as such need not be entertained. If such request is received and pressed for it should be examined on the merits and the proposal for conducting audit in depth of the concerned company under Section 619(3)(b) of the Companies Act 1956 be referred to CAG for approval.

Statutory Corporation The position varies from corporation to corporation. In certain corporation,

audit conducted by the statutory auditors while in others CAG is the sole auditor. The request if any for special audit relating to corporation are required to be examined with reference to the provisions contained in the relevant Acts and after taking into account other relevant factors. In such case, CAG will be approached for prior approval with recommendations of A.G. (Ref: CAGs letter No.119/ca-IV/Tech/1-80 dated 25.1.1980)

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1.4 Scrutiny of Minutes of Board Meetings Major decisions in Government Companies/Corporations are taken in the

meetings of the Board of Directors. The decisions and deliberations in brief are incorporated in the minutes of the meetings. The CAG has decided that the copies of the minutes together with connected agenda papers (where separately prepared) for submission to Directors, should be sent by the company/corporation to the Officer in charge of Audit Office concerned by name in a "Confidential cover". In respect of Companies, audit is entitled to get copies of Minutes, agenda etc, in terms of Section 619(3)(b) of the Act. The Officer receiving these documents should keep them in custody and review them and issue necessary instruction for detailed examination of selected items to be made locally.

Where the agenda papers are not separately prepared and the relevant files and

documents are put up to the Board of Directors, the authorities concerned should not be asked to compile separate information for being supplied to Audit. In such cases it may be possible to trace the relevant documents from other minutes of the Board Meetings. (Ref: CAG letter No.185-CA/87-RCA/63 dtd.14.7.1963)

The copies of the minutes and agenda papers from the date of commencement

of audit or the date of incorporation may be called for from the companies/corporations.

A review of minutes/agenda would give not only a clear picture of state of

affairs of the company/corporations, but also enable audit to appreciate the difficulties faced by the company/corporation, from time to time as well as steps taken or proposed to be taken to rectify them. Major decision taken in respect of purchases, sales, capital investment, projects undertaken, availability of funds, profitability analysis, etc., should be examined in detail to the extent possible and specific points should be marked for detailed examination during local audit.

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1.5 Audit Fee As authorized under respective Acts/Orders audit fees are realisable from

Gujarat State Road Transport Corporation, Gujarat Electricity Board and Gujarat Industrial Development Corporation for the party days utilised in connection with audit of these Statutory Corporations. The rate of audit fee is ascertained from the A.G. (Audit)-II, Gujarat. By application of such rate audit fees are calculated by the Audit Officer, CAD HQrs (General) Section and collected as receipts of Audit Department under the appropriate head of account. No audit fees is levied in respect of audit of Government Companies, conducted under the provisions of the Companies Act, 1956 and in respect of those Statutory Corporations where the audit by CAG is supplementary (i.e. in addition to that of the Statutory auditors).

The rates of the audit fees for recovery from the above mentioned Statutory

Corporations is calculated by the A.G. (Audit)-II, Gujarat, Rajkot on the basis of the formula laid down from time to time by the office of the CAG, the average cost of audit, calculated at the time of each revision of the time-scale of various categories of staff such as, AO, AAO, SO, Sr.Auditors and Auditor etc. is made applicable to the staff utilised during a particular year for the audit work conducted in the Resident Audit Officers at GEB, Baroda and GSRTC, Ahmedabad.

The local audit in respect of Head Office and various field offices of these

corporations is conducted by this office. Further, the daily rates of audit fees calculated as per the Headquarters office formula by the Accountant General (Audit)-II, Rajkot are made applicable to the staff utilised for local audit of various units of above mentioned three Corporations.

A register for watching recovery of the audit fees is maintained in CAD

(Headquarters) Section to ensure timely recoveries from the respective Statutory Corporations. The audit fees recoverable is intimated to the respective Corporation by 15th March every year and recovery of Audit Fees is effected by 31st March every year.

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1.6 State Audit Committee An Audit Committee was formed on 27th July 1988 in Gujarat State as per

CAG's suggestion for the purpose of expeditious settlement of outstanding inspection reports and paragraphs containing the audit objections on various activities of Government Companies and Statutory Corporations in Gujarat State.

(Ref: CAG's Circular letter No.292-CA-IV/92-85 dated 7-7-1988, Government of Gujarat, Finance Department D.O.No.JNV-1088/3230/A dtd.27-7-1988)

The following members are to act as members of the audit committee,

1. Director, Bureau of Public Enterprises

2. Deputy Accountant General

3. Representative of the respective Public Undertaking

4. Representative of the Administrative Department in case of major issues.

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CHAPTER - II

COMMERCIAL AUDIT (HEAD QUARTERS) SECTION

2 Constitution and Control At the Headquarter Commercial Wing of A.G.(Audit)-I there are two

controlling sections CAD (General) and CAD (Report) which functions under the supervisory charge of Group Officer(Commercial). Each Section is under the direct charge of an Audit Officer(Commercial). The duties and responsibilities of CAD HQrs, Report is dealt with in Chapter-III. This chapter deals with duties and responsibilities of CAD HQrs.(General) Section

2.1 CAD Head Quarter (General ) Section.

Peripatetic audit parties of the commercial audit department are controlled by

CAD (General) Section. The Administrative control of all the Resident Audit Offices located in the Head offices of Gujarat State Road Transport Corporations, Ahmedabad, Gujarat Electricity Board, Baroda, and Sardar Sarovar Narmada Nigam Limited, Gandhinagar also lies on this section.

2.2 Duties and Responsibilities The Commercial Audit( HQ) section is entrusted with the following duties and

Responsibilities:

(i) Arranging audit of Government companies and Statutory Corporations

The section is responsible to arrange audit of accounts received from the

Companies/Corporations and to arrange propriety audit so as to complete the audit work as per prescribed time schedule and taking follow up action for issue of comments on accounts of audit of annual accounts of Government Companies.

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The audit of accounts of Government Companies under Section 619(4) of the Companies Act, 1956 is selected by the Accountant General keeping in view the various Guide lines issued and criteria prescribed from time to time by the CAG. A "Non review " certificates may be issued by the Accountant General in case of companies not selected for audit. However such certificates may not be issued consecutively for three years an audit should be conducted at least once in three years.

As a result of supplementary audit under section 619(4)(b) of the companies

Act 1956 of the accounts, the draft comments should be issued to the Management and the Statutory Auditors with prescribing time limit for their reply. On receipt of their reply an aid memoir should be prepared with further audit remarks and submitted to CAG for approval. On receipt of approval, the same may be issued to the company for placing it before the Annual General Meeting, at the same time and manner in which Statutory Auditors Report is placed in accordance with Provisions of Section 619(5) of the Companies Act 1956. In case where no comment on the accounts is noticed as a result of audit under section 619(4) of the Act a "NIL" comment certificate may be issued by the AG to the Company.

In the light of the draft comments issued by the AG after conducting the audit

of its accounts under section 619(4) of the Act. If the Management of a Government Company decides to revise its annual accounts and specific disclosure regarding the revision of the accounts in the light of the AG's comments is made by the Management and the Statutory Auditors of the Company by way of a note to the revised accounts, a `Nil Comment certificate' may be issued by the AG after receipt of the revise accounts duly audited by the Statutory Auditors from the company. A copy of such certificate may be forwarded to the CAG for his informations as is done in the case of "Non Review Certificate" and "Nil comment certificate" on the accounts.

(CAG's instructions vide Confidential letter NO.58-CA-IV/89-39 dated 4-2-1988)

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As per CAG's circular letter No 625-CA-IV/91-81dated 3rd September 1982, a review on the accounts of Government Companies (excluding in case of companies u/s 619(b) of the companies Act 1956 vide CAG's letter No 75-CA IV/156-75 dated 27-1-1976)alongwith the comments u/s 619(4) of the companies Act 1956 has to be issued to the companies who are required to publish as an annexure to the Directors Report as per instructions issued by the State Government in respect of Companies under their control. The review of accounts need not be sent to CAG Office for approval. In case of non-agreement by a Company to publish the review of accounts as an annexure to Directors Report, comment to that effect may be issued u/s 619(4) of the Companies Act 1956.

Thus duty of CAD General section include -

(i) To edit and issue the draft comments on the annual accounts of

Government Companies (including deemed Government Companies (under 619(b) u/s 619 (4)/read with section 619(3)(b) of the companies Act 1956 and also to check and issue the review of accounts, received from the local audit parties, with the relevant instructions of the CAG in this regard.

(ii) To scrutinize the replies to the draft comments as furnished by the Statutory

Auditors and the Management of the Government Companies and to finalise the comments on the annual accounts and to forward the same to the CAG for its approval.

(iii) To verify and issue the comments on the annual accounts of Government

Companies, as approved by the CAG, to the Managing Director of the Company. To furnish a copy of the issued comments to CAD (Report) Section

Efficiency -cum-propriety audit (i) To edit, process and issue the inspection reports as a result of efficiency -

cum Propriety Audit conducted and to pursue the same with the Management till the Inspection reports are finally settled/closed.

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(ii) To check the Statutory Auditors report on the accounts of Government Companies under section 619(4) of Companies Act and to send the recommendation of the Accountant General regarding the performance of the Statutory Auditors, to the CAG, for the purpose of their appointment in future by the Department of Company Affairs for audit of the Company.

(iii) To watch the receipts of printed annual accounts of Government

Companies after completion of audit and to forward two copies of the annual accounts to the Comptroller and Auditor General (CAG).

(iv) To select from the issued inspection reports of Government Companies, the

Potential Draft Paragraphs and to furnish copies of "PDP" alongwith the key documents relating thereto, to CAD(Report) Section for its further processing, and finalisation for inclusion in the Audit Report(Commercial) of the CAG.

General (i) To furnish the required material in respect of Government Companies and

summarised Financial Results of each Government Company to CAD(Report).

(ii) To inform to the CAG as and when paid up capital of the Government

Company exceeds Rupees One Crore for issue of the directions under section 619(3)(a) of the Companies Act 1956 and to keep watch over the receipts of special reports from the Statutory Auditors of those Government Companies and to issue sub directions of the AG to the Statutory Auditors. To review such reports, select the important deficiencies pointed out by the Statutory Auditors in respect of the accounting system and other procedures of the company and intimate the same to CAD (Report Section) for inclusion in the Audit (Report) Commercial

(iii) To scrutinize the Memorandum and Articles of Association of newly

formed Government Company. To scrutinise the accounting manuals of Government Companies, on its receipt from them.

(iv) To scrutinise minutes of the meetings of the Board of Directors and

Executive Committee of Government Companies including "deemed Government Companies."

(v) To deal with all general matters relating to Government companies and

Statutory Corporations of Government of Gujarat. (vi) Prepare Annual Audit Plan as per CAG Office instructions for submission

to the AG who will compile for the entire office for submission to CAG Office.

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(vii) To finalise tour programme of the local audit parties and resident audit parties and issue them to the Inspecting Officers and Resident Audit Officers. To issue audit intimation letters to Government Companies and Statutory Corporations to be visited by the audit parties. To supply the audit parties with the records relating to auditee organisation viz. outstanding inspection report files, Audit Note Book, register of minutes/agenda papers selected for detailed audit and office orders etc., as may be required by them for the purpose of audit.

Staff Matters: (a) To finalise the staff proposals and submit the same to the CAG. (b) To check the T.A. bills of the Commercial audit parties with their approved

tour programmes and weekly diaries of work done and other records maintained at CAD(Head Quarters) Section and to forward the same to the Bills Section of the office for its sanctioned disbursement.

(c) To arrange for the maintenance of Guard files of the circulars received

from the CAG of India and arrange for their circulation to the commercial audit parties and Resident Audit parties and also to Audit Officers/Inspection Officers to serve as their guide for the audit work.

(d) To act as a controlling and coordinator section in respect of CAD (Report)

Section, various Resident Audit Officers and local/resident audit parties working in Commercial Audit Department.

2.3 Framing of Audit Programmes: (i) Periodicity On receipt of the accounts from the companies/ corporations, audit

programmes is framed by CAD General section. After approval of this programme by the Group Officer this is issued to Audit parties and Resident Audit Officers.

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(ii) Duration of audit There are no well-laid down norms for fixing the duration of audit. The time

allocation is closely reviewed to decide the duration of audit keeping in view the availability of audit resources and increase in the volume of activities of the auditee units.

The Inspecting Officers may indicate their suggestions for increase in the

duration of audit for future audits in the Title sheet while forwarding the draft inspection reports. In consideration of these aspects duration of audit may be decided by CAD General Section. However, as decided by the C&AG, the duration of audit should not exceed 50 working days at a time.

The composition of local audit party may normally be one AAO/SO and two

Auditors or two AAO/SOs and one Auditor keeping in view the nature, and complexity of the work of auditee organisation. The audit party may, before proceeding for audit, study the working of the company and details from data bank created. Besides, the supervision at Sr.DAG/DAG and AOs level may be done closely for important audits. Duration for supervision may also be provided after review of availability of audit resources and volume/ importance of activities of auditee organisation.

(iii) Communication of Programme An intimation of audit should be sent to the management of the concerned

auditee unit at least two weeks in advance. Monthly/ Quarterly tour programmes as approved by the Group Officer(Commercial) should be intimated to the Inspecting Officers and local audit parties well in advance. A programme register shall be maintained by CAD(Headquarters) Section which should contain the following information:

a) List of institutions to be audited :

b) Period of audit

c) Periodicity of audit

d) Date of Commencement of audit

e) Date of completion of audit.

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f) Names of officers who conducted audit

g) Sanctioned mandays for the audit. The names of new institutions as and when formed, may be entered in the

programme register. Any deviation in the tour programme is required to be approved by the

Sr.DAG(C).

2.4 Verification of outstanding paras of old IRs

The local audit parties shall strive to settle as far as possible, all the

outstanding paras of previous inspection reports after verification of their compliance by the management. If necessary the paras may be settled after discussion with the head of the office audited.

The results of verification may be recorded in the verification sheet of

Inspection Reports which may be submitted to the Group Officer(CAD) for final orders of settlement of the paras in the following format:

Sr. Ref. to Subject Points to be Verification Further No. minute in scrutinised results remarks Item No. brief by LAP by CAG H. Qrs.

2.5 Receipt of documents from local Audit parties After the audit is completed the draft Inspection Report and other records are

required to be submitted to Group Officer CAD) through CAD HQ General/CAD HQ report or Resident Audit Office, GEB/GSRTC/SSNNL as the case may be for further action. The draft Inspection Report is required to be issued within one month of its receipt. The potential PDP approved by the DAG(C) may be sent to CAD(R) section for further process.

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2.6 Processing of materials after completion of Audit The following documents received from the Local audit Party are to be

processed as detailed below:

(i) Title sheet and Inspection Report

(ii) Review sheet of settlement of paras of previous Inspection Reports

(iii) Preliminary audit observation memos issued to the management by local audit party and the replies thereto, if any

(iv) Any entries made by Local Audit Party in the Audit Note book

(v) Results of verification of items of minutes and agenda notes selected, recorded by LAP in the register of Minutes

(vi) Entry made on the first page of the draft Inspection Report regarding its discussion with the head of the auditee unit

The draft Inspection Report duly edited/vetted is to be submitted to the

Sr.DAG(C) for approval and issued within one month. The potential Draft Paragraphs cases if any are required to be sent to the CAD(Report) Section alongwith a copy of the para of the Inspection report and all its related papers for its further processing for Audit Report(Commercial) Government of Gujarat.

2.7 Issue and pursuance of Inspection Report

After obtaining approval of the Inspection Reports from the Group Officer it

should be issued to the Head of the institution concerned with instructions to furnish replies thereto within one month. In case of non-receipt of replies, the periodical reminders may be issued at appropriate level till it is settled.

2.8 Register for watching the receipt and issue of inspection reports is

maintained. The following time schedule should be followed in this regard:

Number (in days) i) Submission of report by LAPs/IRs after completion of audit to RAOs in case of GEB and ST and CAD HQrs.in case of Government Companies. 5 days

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ii) Examination at RAO/CAD HQrs. 8 days

iii) Editing and approval etc., by AO/CAD HQ/Sr.DAG(C) 7 days

iv) Typing comparison and issue 7 days

The issue of inspection report must in no case be delayed beyond one month

from the date of completion of audit.

2.9 Special Report of Statutory Auditors under Section 619(3)(a ) of the Companies Act, 1956 A register shall be maintained in CAD Headquarter Section to watch the

receipt of Statutory Auditors' reports under Section 619(3)(a) of the Companies Act, 1956 prepared as per the directions issued by the C&AG in case of the Companies whose paid up share capital exceeds rupees one Crore. 2.10 Accounting Manuals

Each Government Company and Statutory Corporation is required to prepare a

separate Manual describing its organisational set-up, its financial and accounting arrangement, general systems and procedures followed in running the day-today administration and so on. In case, the Manual is not prepared, the necessity of such manuals should be impressed upon by audit. However, vetting of Manual by audit is not necessary unless it is specially requested by the Company/Corporation.

2.11 Review of Balance Sheets of Companies

The Companies other than Government Companies in which the State Government either individually or alongwith other State Government Central Government have invested more than 25% of the paid-up Capital Rs.5 lakhs whichever is less. Their Annual Report any observation of statutory auditors should be obtained and examined to ascertain the financial stability of the concern and adequacy of the return on the money invested by the Government.

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In case where the Companies are continuously running at loss for several years, the position should be brought to the notice of Government and commented upon in the Audit Report if necessary.

2.12 Miscellaneous Duties of CAD(Headquarters) as controlling section

(i) Progress Report of Issue of Inspection reports To watch the prompt disposal of draft inspection report received from the field

parties and the RAO(GEB), RAO(GSRTC, a return is to be submitted to the Sr.DAG(C) on 5th of every month. The Branch Officer incharge of the Section should ensure its submission. (ii) Inward Register

An Inward Register to watch the disposal of important correspondence

received from CAG and Govt. etc., will be maintained in CAD HQrs. section A weekly report of outstanding letters are to be prepared and submitted to the Sr, DAG and once in a quarter to AG

(iii) Monthly Arrears Report The Monthly Arrears report received from RAOs, GEB and GSRTC are

reviewed and consolidated with the monthly arrears report of CAD(HQrs & Report) Section. The consolidated monthly arrear report(MAR) is submitted to the Sr.DAG(C) by 5th of every month and to the A.G.(Audit)-I, Gujarat, Ahmedabad by 10th of each month.

(iv) Staff proposals Every year during June the proposals for continuance and/or increase of staff

at CAD Hrs. and Report Section, Resident Audit Offices in GEE, GSRTC and SSNNL and Peripatic Audit parties will be prepared by the CAD HQrs, section and the same are furnished to the Admn. Section.

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(v) Dealing with General Matters CAD HQrs. Section shall deal with all general matters relating to the C A

Wing and necessary instructions in the form of circulars etc., are issued after getting approval of Group Officer. The calendar of returns shall be maintained by the CAD(HQrs.) and the various returns may be submitted on due date to the Group Officer, AG & C&AG etc.,

(vi) Register of Weekly diaries A register to watch the receipt of weekly diaries from LAPs should be

maintained by CAD HQrs. The weekly diaries on receipt, may be entered in the registered with shall be put up to be a AO/CAD HQrs. for approval. In case of supervised audits, the weekly diaries are to be countersigned by the Inspecting officers. The LAPs are required to submit these diaries in form SY 324 on each Monday to the CAD Headquarters.

(vii) Register of TA Bill

The register is intended to record the receipt of the TA Bill from Sr.Auditors

and SOs /AAOs posted in the LAPs. The T.A. Bills shall be verified with reference to the tour programmes, dairies and leave account etc. and forwarded to the AO/Bills section for sanction and disbursement to the employees. The Inspecting Officers may submit the TA Bills directly to AO/Bills.

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CHAPTER - III

COMMERCIAL AUDIT (REPORT) SECTION

3.01 GENERAL

The Commercial Audit (Report) Section works under the charge of Group Officer (Commercial). This Section is directly supervised by an Audit Officer (Commercial).

Duties and responsibilities of the Section :

(i) Preparation, finalisation, printing and issue of Audit Report (Commercial) as per the prescribed time schedule.

(ii) Selection of the topics (Government Companies and/or Statutory Corporations) for attempting comprehensive appraisal reviews for its incorporation in the Audit Report (Commercial) and obtaining the approval of Comptroller and Auditor General for this selection.

(iii) Finalisation of Draft Paragraphs and Comprehensive Reviews for inclusion in the Audit Report (Commercial) and to make related correspondence with the State Government and Comptroller and Auditor General of India.

(iv) Attending to the C & A.G's queries and remarks on the Draft paragraphs and Reviews and preparation of annotated copies of the material of Audit Report for submission to the C&AG within the prescribed time schedule.

(v) Vetting of the replies to the paras of Audit Report forwarded by the COPU secretariat and preparation of questionnaire for discussion of the Audit Reports by the Committee on Public Undertakings.

(vi) Assisting A.G./Group Officer in attending COPU meetings for discussion of Audit Report and framing Report thereon.

(vii) The Section should function as Bureau of Research and Vigilance while Reviewing the Reports of COPU and Audit Reports (Commercial) of other states.

(viii) To deal with editing issue and pursuance of S.A.R's and I.Rs in respect of all Statutory Corporations.

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3.02 Selection of topics for Review

The Section should prepare and submit the proposals for selection of Companies/Corporations for review to be incorporated in the Audit Report(Commercial) every year. For the purpose necessary proposals may be called for from the RAO's (GEB)/(GSRTC)/ (SSNNL) and the various administrative offices of Government of Gujarat who control the various Government Companies and Statutory Corporations.

The Comptroller and Auditor General has decided that while sending proposals for selection of topics for review the information in the prescribed proforma annexure _____ should be forwarded.

(CAG's letter No.135-CA-II/271-81 dated 25.1.92)

Management of Review audit parties

After approval for selection of topics for review by the C & A.G. the audit parties may be formed. Thereafter, detailed guidelines with audit plan, audit objection and steps to be taken to achieve them may be prepared. The actual review work should proceed thereafter.

AUDIT PLAN

As a part of planning for audit clear-cut guidelines/instructions should be issued to the Audit Parties by the Accountants General before they take up local audit. The essential aspect of planning for comprehensive appraisal is to consider it as a project which may be divided into convenient working components by the Accountant General as per their requirement. For each component of the project detailed audit programme should be prepared. This audit plan will serve as complete guidelines for the audit personnel and should be prepared after the survey of audit entity. The audit plan should also contain the manpower requirement, division of work among the audit personnel, periodicity of report to Group Officer and Accountant General. Time allowed for field work, drafting, issue of preliminary observations, discussion with management, first and final draft should also be specified. A sample copy of the audit plan for the Review pertaining to Gujarat State Civil Supplies Corporation Limited adopted for the Audit Report (Commercial) 1992-93 is enclosed in Annexure.

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The CAD (Report) Section should closely watch the progress of Review work and should initiate steps so as to adhere to the prescribed time for finalising the draft Review/Paras/ other Report materials by the Comptroller and Auditor General.

3.03. (a) Instructions on collection of Information for DPs and Reviews.

The parties undertaking Review work should collect all incidental information/data during their first visit to the concerned company so that any supplementary question from the HQrs. office may be replied without having re-examined the records. The data may be analysed and presented in tabular form. Purely descriptive material should be reduced to the minimum and more emphasis is to be given to the Audit Comments on specific irregularities.

Reporting Style

The reporting style should be direct, simple and precise. Long and complicated sentences should be avoided. Legal jargons and complex words may be avoided as far as possible. The parties have to adhere to the audit guidelines and objectives. The `Auditing Standards' of IAAD contains detailed guidelines regarding the reporting style of the Department.

Quality of Reports

The relevance and quality of material included in the appraisals draft paras and comments which constitute the final product of the views of the Department in Commercial Audit, is of utmost importance.

The high standards expected and maintained by the Department have to be

continuously updated and should not only be directed at improving the functioning of the Commercial undertakings, but should also serve as aid and guidelines to the Management. The C&AG office issues instructions in this regard from time to time. This should be taken into account and followed scrupulously by field offices in their day to day functioning.

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(b) Time schedule for Draft material of Audit Report (Commercial)

The material of Audit Report (Commercial) should be sent to the C&AG's office in convenient batches within the time schedule fixed therefor. The C&AG's comments may be attended promptly within a fortnight. The Annotated Chapters need not be sent to C&AG in batches.

c) Procedure for finalisation of Reviews.

The Reviewing Officer is required to submit the review materials complete in all respects to the Group Officer by due dates for approval. The Draft Paragraphs are to be submitted to the Group Officer by the Audit Officer (Report). The review/DPs received in CAD(R) Sn. are entered in the register of DPs and the disposal of the same is watched.

3.04 Issue of Draft Review/Paragraphs

The Reviews/DPs proposed for inclusion in the Audit Report (Commercial) should be sent to the Secretary of the respective Administrative Department by name and he may be requested to furnish his remarks/replies within six weeks of issue of copies of the DPs. The copies of the DPs should be endorsed simultaneously to the Finance Secretary to the Government and the Chief Executive of the concerned Company by name.

3.05 Layout of Audit Report (Commercial)

The layout of the Audit Report (Commercial) for inclusion of CAG's approved material shall be as under :

Preface

Overview

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Chapter - I

General view of Government Companies and Statutory Corporations.

INTRODUCTION

Government Companies General view

Statutory Corporations - General aspects

Chapter - II

Reviews relating to Government Companies

Chapter - III

Reviews relating to Statutory Corporations

Chapter - IV

Miscellaneous topics of interest relating to Government Companies and Statutory Corporations

ANNEXURES

Annexure `A' : List of Companies in which Government has invested more than Rs.25 lakhs but which are not subject to audit by the Comptroller and Auditor General of India.

Annexure `B' : Statement showing particulars of up-to-date paid-up capital,

outstanding loans, amount of guarantees given, etc.

Annexure `C' : Summarised financial results of Government Companies for the year for which accounts were finalised.

Annexure `D' : Summarised financial results of all Statutory Corporations for the year for which accounts have been finalised.

The prefatory remarks include a mention about certain Companies whose accounts are not audited by the CAG.

The format, get up and printing style of the C&AG's Audit Report

(Commercial) for the State of Gujarat for 1993-94 may be followed as far as possible as a model for the Audit Reports.

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3.06 Procedure for the Finalisation of Draft Audit Report

Draft paras on important financial irregularities and cases of losses etc., are to be sent to CAG's office in convenient batches, as soon as they are ready, irrespective of whether they have been accepted by the Management or not. Three copies of each Draft Paragraphs should be sent in each batch consisting 5 or more draft paras for approval of CAG.

All DPs and reviews to be sent to CAG should be typed in half-margin with double space between the lines and atleast one copy should be on thick paper. On receipt of comments of CAG on the DPs/Reviews action should be taken to finalise the same by revising, modifying or amplifying them wherever necessary.

The Draft Audit Report should be got typed in 4 copies and sent to CAG for

approval after incorporating the Government's remarks on DP s if received by that time. Out of 4 typed copies of the Draft Audit Report, 2 copies should contain replies to the queries of the CAG. Copies of the DPs containing CAG's observations should also be returned alongwith the Draft Audit Report. The marginal remarks if any on the approved Audit Report may be attended promptly and their reply may be sent to the CAG's office after verification.

3.07 Printing of Audit Reports

(i) The Audit Report is printed in Government Press, therefore, AG should keep close contact with the Government for getting the Report printed expeditiously. The entire expenditure on the printing of Audit Reports will be borne by the State Government. Out of 1600 copies of the Audit Report, 25 copies may be bound in rexine, of which 10 copies without facimal signature of AG/CAG and 15 copies with card board title cover. The number of ordinary copies with paper title cover are to be decided by the A.G.. Overview should be printed in light colour papers prescribed by CAG. Detailed instructions have been issued by CAG's office regarding the font, letter size and the word processing of the texts of the Report at the Bond Copy stage.

Proof reading of the Audit Report should be done carefully to ensure that all

errors are avoided in the final copies of the Audit Report.

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(ii) After a bond copy of the Audit Report (Commercial) Government of Gujarat, approved by the CAG is received, the printing thereof is to be got done in the State Government Press. A period of two months is considered reasonable for printing of the Audit Report. Time schedule for printing the Report should be worked out in such a way that Audit Report is presented to State Legislature during the budget session of the next year. As far as possible photo offset method in printing may be adopted for saving time. In order to save time, Accountant General may also explore the possibility of the State Government getting the Audit Report printed in private presses without compromising the confidentiality of the Report.

3.08 Despatch of printed copies of approval

Nineteen printed copies of the Audit Report (12 ordinary copies and 7 copies bound in rexine) should be forwarded to CAG. 4 rexine bound copies should be dated, signed by Accountant General and space for counter signature of Comptroller and Auditor General left blank. 2 rexine bound copies, countersigned by CAG, when received back by AG are intended for submission with a Confidential letter addressed to the Finance Secretary to the Government. AG has to arrange for the delivery of the cover containing Audit Report to the Government. One rexine bond copy countersigned by CAG should be preserved for record of the Accountant General's Office and may be kept under safe custody of AG's Secretary. The date of signatures of the AG and CAG on the Audit Report is to be incorporated in the final copies of Audit Report by means of dated rubber stamp. A Press brief on Audit Report should be prepared strictly based on the overview and no separate approval of CAG to it is necessary. In this connection detailed instructions contained in 1321-Rep(s)/97-87 Circulated vide CAG's letter No.General Circular No. 25-Rep(5)/88 dated 30th November, 1988 must be followed.

3.09 Correction to the Final Audit Report

The CAG has ordered that the correction slips on the Audit Report should be issued in exceptional cases after the Audit Reports have been submitted by the CAG to the Finance Department but before these are presented to the State Legislature.

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3.10 Placing of Audit Report before Legislature :

The Commercial Audit (Report) Section should keep a liaison with the Finance Department and Legislature Secretariat regarding the receipt of assent of the Governor for placing the Audit Report before the Legislature. A copy of the press brief should be handed over to the Finance Secretary for necessary action. The date of placing of the Audit Report before legislature should be intimated to the CAG promptly.

3.11 Action on the copies of Audit Reports received from other Audit Officers.

On receipt of Audit Reports from other Audit Offices, these should be carefully studied and important comments from these Reports should be circulated to the Inspecting Officers and Staff. In order to watch the receipt of copies of Audit Report, a register should be maintained in the following format.

Sr. From whom Date of Date of Initials of No. received receipt submission A.O. to A.G suggesting paras for circulation -- ---------- ----------- -------------- --------------- (1) (2) (3) (4) (5) Date of receipt Date of Initials of Remarks of intimation submission A.O. of presentation of note to of the Report A.O regarding to Legislature circulation of from the A.G. paras approved concerned (6) (7) (8) (9)

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The register should be reviewed by the Audit Officer and reminders for non-receipt of the Audit Report wherever necessary may be issued.

3.12 Distribution of Audit Repot

The copies of Audit Report (Commercial) of Government of Gujarat may be supplied to other States A.G. Offices as soon as these are formally submitted by CAG to the Secretary, Finance Department (These should be sent Confidentially to the A.G. by name until their presentation to the State Legislature to avoid breach of privilege of the Legislature).

3.13 Committee on Public Undertakings.

The Committee on Public Undertakings (COPU) of Gujarat Legislature was constituted on 30th March 1968. The Committee consist of a Chairman and fourteen other members elected by the Gujarat State Legislative Assembly from amongst its members according to the principle of proportional representation by means of a single transferable vote.

The functions of the Committee shall be :

(a) To examine the reports and accounts of the Public Undertakings specified in the Third Schedule and such other undertakings as may be decided by the House from time to time.

(b) To examine the reports if any, of the C&AG of India on the said undertakings.

(c) To examine, in the context of autonomy and efficiency of the Public

Undertakings, whether the affairs of the Public Undertakings are being managed in accordance with sound business principles and prudent commercial practices.

(d) To perform such other functions vested in the Public Accounts Committee and Estimates Committee in relation to the Public Undertakings specified in the Third Schedule as are not covered by clauses above or (a) to (c) as may be assigned to it by the Speaker of the House from time to time.

Provided that the Committee shall not examine and investigate any of the following matters namely ;

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(i) Matters of Major Government Policy as distinct from business or Commercial functions of the Public undertakings ;

(ii) Matters of day to day administration ;

(iii) Matters of the consideration of which, a machinery is established by the

statute under which the Public Undertaking is established.

The Committee also takes up on its own independent examination of

investigation into the State of affairs of a Company/Corporation. The Accountant General is generally requested by the Committee to attend the meetings when matters pertaining to such examination are taken up. He can also assist the Committee in pursuing such investigations, if asked to do so.

3.14 Rules of Procedure.

Rules of Procedure (Internal Working) of the Committee on Public Undertakings were framed and adopted by the Committee (COPU) on 12th August, 1968.

3.15 Preparation of Memo on Important Points :

Under Rule 14-A ibid, the Committee may request the Accountant General to assist them during oral evidence when Audit Paras relating to various undertakings are examined. The A.G. attends the meetings of COPU by special invitation on every occasion and helps members to understand the importance of a paragraph or an irregularity and what exactly can they do in dealing with difficult issues.

In order to help the COPU to deal with the important points, A.G.'s Office may prepare a memo of important points dealt with in the Audit Report, and send sufficient copies thereof Confidentially to the Legislative Assembly for distribution among the members of the COPU.

Audit is not entitled to disclose to COPU any discussion between Audit and

Government on matters not referred to in the Report.

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The Secretariat of COPU can not call for particulars and documents regarding the irregularities etc., direct from audit for scrutiny and inspection by members of the Committee.

3.16 Watching progress of action taken on recommendation of COPU

(i) It is the duty of the Legislative Secretariat to watch the action taken or proposed to be taken by the Government on the recommendations of the COPU arising out of the Audit Reports. A register is maintained in the Report Section to monitor the progress of action taken by the Department on the recommendations of COPU. The action taken by Government on the recommendations of COPU has to be reported to the Committee.

(ii) Recommendations of High Powered Committee under the Chairmanship of Sh.S.L. Sakhder. On 1-8-1992 the CAG constituted a High Powered Committee to study the response of the State Governments (and their public enterprises) to his Audit Reports, and to the recommendations of the concerned Public Accounts Committee and Committees on Public Undertakings in the context of those reports.

3.17 Statutory Corporations - Matters to be dealt with in the Conventional Audit Reports and Separate Audit Reports :

The Separate Audit Report for the Statutory Corporations, to be placed before the Legislature will contain important points arising out of the Audit of the Annual Accounts - of Statutory Corporations, which are considered essential to bring to the notice of Legislature and the Government. This report will be distinct from the Conventional Audit Report which will contain such material falling under propriety Audit as is considered necessary to be brought to the notice of legislature. Any important matter in regard to which audit considers it necessary to express a view critical of the Administration should be reserved for the Conventional Audit.

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CHAPTER - IV

LOCAL AUDIT

4.01 Duties and responsibilities of Local Audit Parties.

(i) Local audit of Government Companies is taken up for audit of Annual Accounts under Section 619(4) of the Companies Act, 1956 and for efficiency-cum-propriety audit.

(ii) Local audits arrange by CAD(HQ) General Section :

(a) Efficiency-cum-propriety audit of Government Companies, Statutory Corporations viz. Gujarat Industrial Development Corporation, Gujarat State Financial Corporation, Gujarat State Warehousing Corporation, unit offices of Gujarat State Road Transport Corporation and unit offices of Gujarat Electricity Board. Audit of records maintained at Head Offices of Gujarat Electricity Board and Gujarat State Road Transport Corporation is conducted by the respective Resident Audit Officers.

(b) Audit of Annual Accounts of Gujarat State Road Transport Corporation which

are centrally finalised at its Head Office is done by Resident Audit Officer, GSRTC.

In case of Gujarat Electricity Board, Trail Balance is prepared at its various circle offices and consolidated at its Head Office. Audit of Trial Balance at Circle units is done by Audit parties departed by CAD(HQrs.) and consolidated Annual Accounts are audited by Resident Audit officer, Gujarat Electricity Board.

Audit of Annual Accounts of Government Companies including deemed Government Companies and other Statutory Corporations viz. Gujarat State Financial Corporation, Gujarat Industrial Development Corporation and Gujarat State Warehousing Corporation is conducted by deputing Audit parties by CAD(HQrs.) General Section.

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(iii) The Resident Audit Officer (GEB) conducts the audit of final accounts and various records maintained at GEB Head Office located at Baroda. Audit parties are provided local Audit of various field offices of GEB and also audit of Government Companies in case such need arises. Similarly RAO, GSRTC conducts the audit of records maintained at GSRTC Head Office except the audit of the unit offices (including those locates in the premises of Head Office at Ahmedabad) The CAG has prescribed the quantum of audit checks for audit of accounts and other records of GEB and GSRTC. AG is authorised to issue Audit Certificates on the final Accounts of these Corporations after obtaining approval of CAG for the separate Audit Reports on the accounts of GSRTC and GEB

(iv) The audit of Gujarat State Financial Corporation and Gujarat State Warehousing Corporation is conducted on supplementary basis. The Statutory Auditors in these Corporations are appointed in accordance with the provisions of the Statutes governing them. The audit party conducts the audit in the Head Office of each Corporation and also audit of certain Units selected by Local Audit Party and approved by the CAD(HQrs.) Section. The separate Audit Reports are issued by A.G. after obtaining the approval thereto from the C.A.G.

(v) The audit of Gujarat Industrial Development Corporation is entrusted to the Accountant General by the Government of Gujarat under the provisions of Gujarat Industrial Development Corporation Act, 1962. Presently this audit is entrusted for the period upto 1996-97. The Local Audit Party conducts the audit of annual accounts and efficiency-cum-propriety audit in the Head Office of the Corporation and also conducts audit of selected field office's after obtaining the approval of the Group Officer. The Separate Audit Report is issued by the A.G. after it is approved by the Comptroller and Auditor General.

4.02 Procedure for Local Audit :

The annual accounts present the financial pictures of a Company/ Corporation. The audit party should apply its mind to appreciate any transaction in its proper perspective. The party should study the systems of internal check and control, budget manual, administrative orders and annual report and should also review the agenda and minutes to form an idea of the institution as a preclude to commence the audit.

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The purpose of checks to be exercised by local Audit Party may be summarised as under :

(i) To ascertain the authorities competent to sanction expenditure to receive or pay money or to incur liabilities on behalf of the institution.

(ii) To understand the system of accounts followed by the institution.

(iii) To check as far as possible, the accuracy of original records viz., Cash book, Cash Vouchers, Receipt and Issue Vouchers of Stores, Bin Card, Stores ledger posting in financial ledgers etc.;

(iv) To see that all transactions are in accordance with the decisions contained in the minutes of the meetings of Board of Directors ;

(v) To investigate unusual items of expenditure ;

(vi) To review the procedure of stock taking and of the pricing of goods on hand ;

(vii) To check the final results of working of the institution through the annual accounts ;

(viii) To check the compilation of annual accounts from the original records and to suggest the corrections in the classification of transactions.

During the course of audit, the audit observations may be communicated/issued to the Head of the office by way of "Preliminary Observations Memo", a copy of which should be kept by the Audit Party. This is done with a view to obtain the reply of the Department to the audit observations. The acknowledgement of the person receiving the Memo should be obtained and kept in a systematic and chronological order on record by the Audit Party.

Every effort may be made to get the replies to the audit queries. However, the

drafting of inspection report should in no case be delayed due to non-receipt of replies to Preliminary Observations Memo. It is the primary responsibility of the Management to satisfy audit by furnishing replies to the audit observations. The inforamtions/figures required during audit may be compiled by the Audit Party from the files, records and reports. However, a confirmation of the figures compiled should be obtained from the Management.

No objection should be dropped without the specific approval of the Audit Officer incharge of the party or the Audit Officer Incharge of CAD(HQrs.) Section. If any objection has been dropped from the draft Inspection Report during its discussion with the head of the office, the minutes of such discussion should be kept to enable Headquarters to understand the circumstance under which the objection has been dropped.

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4.03 Audit Note Book :

The Comptroller and Auditor General has now decided that the maintenance of Audit Note Book may be discounted.

(CAG Circular letter No.120-CA IV/69-81 dated 18th March 1988)

4.04 Inspection Report

The Inspecting Officer would examine and verify the replies to the Preliminary Observations Memos (POMs) received from the institution and decide the matters to be included in the inspection report. The draft Inspection Report(DIR) may be prepared and finalised after discussion with the head of the office.

The party should forward to CAD(HQrs.) Section the D.I.R./ certified annual

accounts and draft comments of the accounts, title sheet (in revised form as per Annexure) and rough notes etc., with a covering list immediately after the audit but in any case not later than five days after completion of audit.

4.05 Conduct of Staff during Inspection ;

All the members of the audit inspection party should conduct themselves professionally and try to avoid any misunderstanding or friction with the members of the auditee institution. They should not indulge in verbal criticism and avoid frivolous objections.

4.06 Attendance of Audit Party

The AAO/SO of each Local Audit Party is supplied with an Attendance Register which should be submitted, after having signed by each member of the party, to the Inspecting Officer when he visits the Party.

The Casual Leave (CL) may normally be availed by members of the Audit

Party after its prior sanction by the sanctioning authority. The CAD (HQrs.) Section should maintain the C.L. account of Local Audit Party (LAP) members.

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4.07 Quantum of Checks :

The Inspecting Officers (SO/AAO/AO/Sr.AO) while doing the original work are required to supervise the work of Auditors/Sr.Auditors.

In compliance with the instructions of the CAG, the CAD(HQrs.) has then fixed and circulated the duties of RAO/AO/AAO/SO and Auditors/Sr.Auditors in Headquarters Section and in LAP/RAO etc. which should be followed in discharging duties by the officers of the Audit Party.

The special points to be seen during a specific audit have been dealt with separately in this manual which should be kept in view by the LAPs during the concerned audit.

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CHAPTER - V

GENERAL OUTLINE OF GOVERNMENT COMPANIES

5.01 INTRODUCTION

Government Company means any Company in which not less than fifty one percent of the paid-up share capital is held by the Central Government or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments and includes a Company which is a subsidiary of a Government Company. (Section 617 of the Companies Act).

The following special features are applicable in the case of a Government Company :

(i) The auditor of a Government Company shall be appointed or re-appointed by the Ministry of Law Justice and Company Affairs, Department of Company Affairs of the Government of India on the advice of the Comptroller and Auditor General of India (Section 619(2) of the Act ibid)

(ii) The C.A.G. shall have power to direct the manner in which the Company's accounts hall be audited by such auditors; and to conduct a supplementary or test audit of the Company's accounts by such person or persons as he may authorise in his behalf (Section 619(3) of the Act.).

(iii) The auditor of a Government Company shall submit a copy of his audit report to C.A.G who shall have the right to comment upon, or supplement the audit report (Section 619(4) of the Act).

(iv) It is obligatory on the part of the Company to place the C.A.G's comments under sub-section (4) of Section 619 alongwith the audit report before the annual general meeting of the Company (Section 619(5) of the Act.).

(v) The Central Government/State Government or both (as the case may be, by virtue of share-holding in the Company) shall cause an annual report on the working and affairs of that Company to be prepared, within three months of the Annual General Meeting, to be laid before the Parliament/State Legislature alongwith the audit report and C.A.G's comments referred to above (Section 619 of the Act).

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(vi) The Central Government is empowered to modify any of the provisions of the Act (other than Sections 618, 619, and 619 A) by notifications, as agreed by both Houses of Parliament, specifying in the notification that any of the provision shall not apply ; or shall apply, with modification, to any Government Company (Section 620 of the Act).

5.02 Memorandum of Association and Articles of Association.

The Memorandum of Association is the principal document, which, upon registration, gives the Company its legal existence (with the Certificate of Incorporation) and defines the scope of its activities.

Articles of Association are the rules relating to the management of the internal affairs of a Company. Unlike Memorandum of Association, Articles are only the subsidiary document dealing with the manner in which the objects for which the Company has been formed are to be carried out.

Nature of Scrutiny when a new Company is incorporated

On receipt of intimation of incorporation of a new Government Company, Memorandum of Association and Articles of Association should be called for and examined in the C.A.D.Headquarters Section or by the party undertaking the first audit of the Company to see that it has no contradictory provisions than of the Companies Act, 1956 ; and to see that

The Governor/State Government has reserved to themselves sufficient powers in the Memorandum and Articles in respect of the matters specified below ;

(i) Power to issue mandatory direction/instructions to the Company

(ii) Power to appoint vis-a-vis remove Managing Director and other Directors.

(iii) Power of sanctioning of posts carrying pay exceeding a specified limit.

(iv) Power of incurring capital expenditure on schemes over a specified limit.

(v) Sale, buy or dispose of or otherwise part with the whole or substantially the whole of the undertaking of the Company.

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(vi) Power of formation of a subsidiary Company.

After completion of scrutiny, the documents are forwarded to the C.A.G. with the remarks of A.G. If, as a result of the scrutiny, it appears that the Memorandum and/or Articles require some amendments, the question of such amendments can be taken up with the State Government only after obtaining the instructions of C.A.G. in this regard.

5.03 Books : Statutory/Optional

Every limited Company, whether large or small is required to maintain books for the purpose of recording financial transactions, as well as other happenings in the life of the Company. These books can be grouped under two heads :

A : Statutory or Compulsory Books

B : Statutory or Optional Books

Statutory Books are those which a Company is required to keep under the provisions of the Act. Non-maintenance of these books exposes the management of the Company to penal action. The following are the Statutory books for Companies :

(i) Register of Members and Index thereof.

(ii) Register of Debenture holders and Index thereof

(iii) Register of Mortgages and Charges

(iv) Register of Directors, Managing Director and Secretary

(v) Register of contracts, Companies and firms in which Directors are interested

(vi) Register of Company's investment in Companies in the same group

(vii) Register of Company's investment not held in its own name

(viii) Register of Director's Share holding

(ix) Minutes Book

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(x) Accounts Book

(xi) Branch Register, if any and its duplicate at the Registered Office

(xii) Register of investments made in shares and debentures of bodies corporate in the same group

Optional Books are those which a Company is not bound, under the law, to keep. But all Companies find it desirable to maintain for the purpose of keeping proper records. These books are termed as non-statutory books. The following are the optional books generally maintained by Companies :

1. Register of Transfers 2. Register of Documents sealed 3. Share certificate Books 4. Register of Probates and letter of Administration 5. Director's Attendance Book 6. Log Book.

Register of Company's Investments (Section 372)

A Company is required to maintain a register called Register of Company's investments and when it makes investments in Shares, debentures of a Company or companies in the same group, it has to enter therein within three days of making of investments, the following particulars :

(a) Name of the Company in which investments is made

(b) Date on which made

(c) Nature and extent of investment.

Accounting Books

In terms of Section 209 of the Act, every Company must keep at its registered office or any other place in India, as the Board of Directors think fit, books of accounts in respect of :

(a) All sums of money received and spent by the Company together with details as to receipts and expenditure.

(b) All sales and purchases of goods by the Company ; and

(c) All assets and liabilities.

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In case of a Company which has a Branch Office, whether in or outside India, it is required that proper books of accounts pertaining to transactions at that branch office must be kept at that office and summarised returns of the same, prepared quarterly sent to the registered office or any other place as decided by the Board.

A Company may keep the books of accounts of the Company at any other

place in India other than the registered office of the Company ; but in that case, the Company must file with the Registrar a notice in writing giving the full address of the other place, within seven days of the decision of the Board. The Act has not prescribed what exact books of accounts should be maintained by a Company, except what have been enumerated supra. It is for the accountants and auditors of the Company to decide what books should be maintained. However, the following books are commonly in use in any Company :

1. Journal

This books is to record opening and closing entries rectifying entries and other transactions which can not commonly be passed through any other books.

2. Cash Book

This book is to record all transactions in which cash is either received (Debit) or paid (Credit) by the Company.

3. Ledger

This is the book in which all business transactions finally find their place under their respective account heads. The transactions are entered either on debit side or on credit side as per nature of transactions.

For the convenience of posting and for classification, ledgers are divided into :

(i) Sales ledger for recording personal accounts of debtors ;

(ii) Purchases ledger for recording personal accounts of creditors;

(iii) General ledger or Impersonal ledger for recording nominal accounts and real accounts ; and

(iv) Private ledger for recording such accounts as are to be kept confidential.

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4. Sales Book

In this Book are entered particu