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ACCOUNTS IN COMPANY LAW

Introduction
Meaning of Accounts: Section 128 of the Companies Act 2013
Section 128 of Companies act 2013 stated that every company need to maintain its
registered office books of accounts and other relevant papers and books for every
financial year which states the true and fair view of state of affair of company
including its all branches .

According to section 2 [13] of books of account it includes the record which


should be mentioned, they are as follows-
All the money received by company and matters in respect of which receipts and
expenditure takes place.
All the purchases and sales of goods by the company.
All the liabilities and assets of the company.
All the items of cost given under section 148 in case of company which belongs to
any class of companies given under that section.
As it is mentioned that section 128 requires books of account to be kept , however
the proviso to section 128[1] allows the company to keep its book of account to
any other place in India but it should be decided by board of directors. In this case ,
company need to give the notice to registrar in writing within seven days of
decision mentioning the address of other place.
It is required that all the branch offices periodically summarized the returns of
company and sent it to the registered office or any other place referred to section
128[1]. Proviso of section 128[1] states that company can also maintain the books
of account in electronic mode. In this case Rule 3 of companies accounts rules
2014 says that such book of account to remain accessible in India. They must be
maintain in that manner in which they were originally generated, sent or received.
The information which was received from branch office need to be original, there
will be no alteration. Company should have proper system where storage, display
and other relevant things are there and as considered by audit board. If the
company is using the service of a third party service provider for maintaining the
books and records in the electronic format, the company shall intimate to registrar ,
name of service provider and location of service provider.
There must be an inspection of books of account
Section 128[3] says that During business hours any director can inspect the books
of account and other papers.

Section 206[1] says that registrar can call for books of accounts, papers,
explanation by giving written notice. Registrar shall write his reason in writing for
giving the notice under section 206. In any special circumstances, central
government can appoint an inspector under section 206[5] for an inspection of
books of accounts, papers.
It is the duty of officers, directors and employees to produce all the documents,
statements, information which was asked by the registrar or inspector during
inspection.
The registrar and inspector can take the copies of books of account as a token of
inspection having been made.
Directors have also the Right of inspection- Section 128 [3] says that director can
inspect the accounts of books. Right of inspection is a statutory right , If a director
has been prevented from this right , he may enforce it from the court. Also this
Right is not an absolute in nature.

Shareholder has no statutory right of inspection books of accounts, he can only


inspect when this right is given through the article which is very rare.

Financial Statements: Section 129 of the Companies act 2013


Section 129 [1] says that every company need to maintain financial statement at
the end of financial year for the purpose of fair view of state of affairs of company.
Section 2[ 40 ] defines the financial statements , according to which financial
statements include-
Balance sheet
Profit and loss
Statement of changes in equity
Cash flow statement
Financial statement should be presented by board of directors before the Annual
general meeting of members, under section 129[2]. Financial statement need to be
ready within six months of close of financial year. Financial statement should be
prepared for every financial year. Section 2[41] says that financial year is 31 st
March every year. Also the income tax act 1961 says that all companies need to
submit their income tax returns on 31st March every year.

Reserves and Dividends


It may be cited that the recommendations of the board of directors with regard to
the amount of income to be paid as dividend, and the amount to be transferred to it
can also reserves do no longer lend finality to the matters in these regards. The
shareholder are free to reject the suggestions of the directors as regards the quantity
to be declared as dividend. They cannot, however make bigger the amount of
dividend endorsed by using the directors.

Circulation of financial statements


Section 134[7] says that a signed replica of every financial statements which
includes consolidated monetary statements shall be issued, circulated or published
with a reproduction of any notes annexed to or forming section of such financial
statements, the auditor’s record and the board’s report.

A copy of the financial statement such as consolidated financial statement,


auditor’s document and each and every different report required by way of
regulation to be annexed or connected to the monetary statements which are to be
laid before the annual general meeting of the company, shall be sent not less than
21 days before the meeting to each and every member of company.
Adoption and filing of financial statement- One of the company to be transacted at
an AGM is consideration and adoption of the monetary statements and the reviews
of the board of directors and auditors consisting of the stability sheet and the profit
and loss account [ section 102[2]. Every AGM other than the first AGM is required
to be held within six months of the close of financial year[ section 96 [1].

It may be additionally referred to that the financial statement are required to be


placed solely at an AGM, and now not at any different customary meeting . The
blended studying of section 96[1] and section 102[2] shows that the financial
statements shall be ready for placing before the AGM within 6 months of close of
financial year. In case the monetary statements are now not geared up for laying at
the appropriate annual general meeting, the company may adjourn the said annual
widespread meeting to a subsequent date when the annual debts are expected to be
equipped for laying .

Accounting standards
Section 129[1] says that financial statement shall comply with accounting
standards given under section 133

Financial statements ( Sec. 129) The Financial statements shall give a true and fair
view of the state of affairs of the company and it should comply with accounting
standards given u/s 133 & shall be in the form or forms as may be provided for
different class of companies in Schedule III. This does not apply to any insurance,
banking or any electricity company or to any other class of company for which a
form of financial statements has already been specified. The company shall
disclose in its financial statements for the deviation from the accounting standards
with reason and stating its affect on the financial statements.[section129(5)].
Consolidated financial statements in case of subsidiaries
The Companies Act, 2013 Act mandat”s consolidated financial statements (CFS)
for any company having a subsidiary, associate or a joint venture [section 129(3)].
Further, the 2013 Act requires adoption and audit of CFS in the same manner as
standalone financial statements of the holding company [section 129(4)].
The consolidation of financial statements of the company shall be made in
accordance with the provisions of Schedule III of the Act and the applicable
accounting standards.
Reopening of accounts on Court’s or Tribunal’s Orders (section130) and. Voluntary
revision of financial statements or board’s report (Sec 131)
The Companies Act 2013 act states that a company can re-open its books of
accounts and recast its financial statements after making an application in this
regard to the central government, the income tax authorities, the SEBI, or any other
statutory regulatory body or authority or any other person concerned, and an order
is made by a court of competent jurisdiction or the Tribunal under the following
circumstances:

Relevant earlier accounts were prepared in a fraudulent manner


The affairs of the company were mismanaged during the relevant period, casting a
doubt on the reliability of the financial statements
If it appears to the board of directors of the company that

The financial statement of the company or


The board report
Does not comply with the provisions of Sec. 129 and Sec. 134 of the Act in respect
of any of three preceding financial years, after obtaining approval from the
Tribunal. The Tribunal shall give notice to the central government and the income
tax authorities and shall take into consideration the representations, if any, made by
the government or the authorities before passing any such order. A revised
financial statement or report shall not be prepared or filed more than once within a
financial year and the detailed reasons for revision of such financial statement or
report shall also be disclosed in the board’s report in the relevant financial year in
which such a revision is being made. And the accounts so revised or recast shall be
final.
Constitution of National Financial Reporting Authority (Sec. 132)
The Central Government may, by notification, constitute a National Financial
Reporting Authority to provide for matters relating to accounting and auditing
standards.
Central government to prescribe accounting standards (Sec. 133)
The central government may prescribe the accounting standards recommended by
the Institute of Chartered Accountants of India, in consultation and after
examination of the recommendations of National Financial Reporting Authority.
Financial statement, Board’s report, etc (Sec. 134)
1.) The financial statement, including CFS, shall be approved by the Board of
Directors before they are signed on behalf of the Board. The FS shall be
signed at least by the

Chairperson of the company where he is authorised by the Board or by two


directors out of which one shall be managing director ;
The Chief Executive Officer, if he is a director in the company ;
The Chief Financial Officer and
The company secretary of the company,
Wherever they are appointed.
In the case of a One Person Company, the FS shall be signed only by one director,
for submission to the auditor for his report thereon.
2.) The auditors’ report shall be attached to every financial statement.
3.) There shall be attached to statements laid before a company in general meeting,
a report by its Board of Directors, which shall include—
a) The extract of the annual return as provided under sub-section (3) of section
92;
b) Number of meetings of the Board;
c) Directors’ Responsibility Statement;
d) A statement on declaration given by independent directors under sub-section
(6) of section 149;
e) in case of a company covered under sub-section (1) of section 178,
company’s policy on directors’ appointment and remuneration including criteria for
determining qualifications, positive attributes, independence of a director and other
matters provided under sub-section (3) of section 178;
f) Explanations or comments by the Board on every qualification, reservation
or adverse remark or disclaimer made—
i. by the auditor in his report; and
ii. by the company secretary in
practice in his secretarial audit report;

g) Particulars of loans, guarantees or investments under section 186;


h) Particulars of contracts or arrangements with related parties referred to in
sub-section (1) of section 188 in the Form AOC-2
i) The state of the company’s affairs;
j) The amounts, if any, which it proposes to carry to any reserves;
k) The amount, if any, which it recommends should be paid by way of dividend;
l) Material changes and commitments, if any, affecting the financial position of
the company which have occurred between the end of the financial year of the
company to which the financial statements relate and the date of the report;
m) The conservation of energy*, technology absorption**, foreign exchange
earnings and outgo*** {information should be given in detail as per the rules}
n) a statement indicating development and implementation of a risk
management policy for the company including identification therein of elements of
risk, if any, which in the opinion of the Board may threaten the existence of the
company;
o) The details about the policy developed and implemented by the company on
corporate social responsibility initiatives taken during the year;
p) Every listed company and every other public company having a paid up
share capital of twenty f crore rupees or more calculated at the end of the
preceding financial year shall include, in the report by its Board of directors, of its
own performance and that of its committees and individual directors.
q) Such other matters as may be prescribed.
4.) The report of the Board of Directors to be attached to the financial statement
shall, in case of a One Person Company, mean a report containing explanations or
comments by the Board on every qualification, reservation or adverse remark or
disclaimer made by the auditor in his report.
5.) The Directors’ Responsibility Statement referred to in clause © of sub-section
(3) shall state that—
a) in the preparation of the annual accounts, the applicable accounting
standards had been followed along with proper explanation relating to material
departures.
b) the directors had selected such accounting policies and applied them
consistently and made judgments and estimates that are reasonable and prudent so
as to give a true and fair view of the state of affairs of the company at the end of
the financial year and of the profit and loss of the company for that period;
c) the directors had taken proper and sufficient care for the maintenance of
adequate accounting records in accordance with the provisions of this Act for
safeguarding the assets of the company and for preventing and detecting fraud and
other irregularities;
d) The directors had prepared the annual accounts on a going concern basis;
and
e) The directors, in the case of a listed company, had laid down internal
financial controls to be followed by the company and that such internal financial
controls are adequate and were operating effectively.

Explanation.—For the purposes of this clause, the term “internal financial


controls” means the policies and procedures adopted by the company for ensuring
the orderly and efficient conduct of its business, including adherence to company’s
policies, the safeguarding of its assets, the prevention and detection of frauds and
errors, the accuracy and completeness of the accounting records, and the timely
preparation of reliable financial information.
f) the directors had devised proper systems to ensure compliance with the
provisions of all applicable laws and that such systems were adequate and
operating effectively.
6.) The Board’s report and any annexure shall be signed by its chairperson of the
company if he is authorised by the Board and where he is not so authorised, shall
be signed by at least two directors, one of whom shall be a managing Director, or
by the director where there is one director.
7.) A signed copy of every financial statement, including consolidated financial
statement, if any, shall be issued, circulated or published along with a copy each of

(a) any notes annexed to or forming part of such financial statement;
(b) the auditor’s report; and
© the Board’s report
8.) If a company contravenes the provisions of this section, the company shall be
punishable with fine which shall not be less than fifty thousand rupees but which
may extend to twenty-five lakh rupees and every officer of the company who is in
default shall be punishable with imprisonment for a term which may extend to
three years or with fine which shall not be less than fifty thousand rupees but
which may extend to five lakh rupees, or with both.
* Conservation of energy-(i) the steps taken or impact on conservation of energy,
(ii) the steps taken by the company for utilising alternate sources of energy;
(iii) the capital investment on energy conservation equipments
* *Technology absorption-
(i) the efforts made towards technology absorption;
(ii) the benefits derived like product improvement, cost reduction, product
development or import substitution;
(iii) in case of imported technology (imported during the last three years reckoned
from the beginning of the financial year)-
(a) the details of technology imported;
(b) the year of import;
© whether the technology been fully absorbed;
(d) if not fully absorbed, areas where absorption has not taken place, and the
reasons thereof; and
(iv) the expenditure incurred on Research and Development.
*** Foreign exchange earnings and Outgo-The Foreign Exchange earned in terms
of actual inflows during the year and the Foreign Exchange outgo during the year
in terms of actual outflows.

AUDIT AND AUDTIOR IN COMPANY LAW


Introduction
Over the past years, we have realised a need to strengthen corporate governance
globally. The audit function remains one of the pillars of corporate governance in
companies, and the auditor remains one of the keystones in implementing and
enforcing the standards of governance.

The purpose of an audit is to furnish company stakeholders with a specialist,


independent, valid, and fair perspective on the monetary undertakings of a
company. Autonomy of an auditor is, hence, the focal component to play out their
job “uninhibitedly, courageously, and objectively” to safeguard the bigger interests
of all stakeholders. In this article, relevant provisions of the Companies Act, 2013
will be discussed in relation to the rights and other roles of an auditor.
Concept of Audit under Companies Act 2013
Business enterprise carries on commercial enterprise with capital provided by
persons who are now not in control of the use of money supplied by them. They
would therefore like to see that their investment are safe are being used for meant
purpose and the annual account of the company to know the fair view of state of
affairs of company. For this purpose the debt of the company need to be checked
and audited by way of duly qualified and unbiased individual who is neither
employed in the organisation nor is in any way indebted or in any other case
obliged to the company. Originally the audit characteristic was primarily a public
function. Its objective was to become aware of fraud and error. There are some
objectives of audit, they are –

Detection of fraud
Detection of technical error
Detection of error of principles.
The ability for success of such an goal was a unique analysis of transactions.

Who can be appointed as an auditor


Section 141[1] says that what are the qualifications and disqualification for being
appointed as company auditor. An Auditor of business enterprise possessing the
qualifications prescribed in section 141 of the act is commonly regarded as the
statutory auditor of the company, as he derives his duties, energy and authority
from the statue that is the companies act. It is mentioned in section 141[1] that ‘
Any person can only be appointed as auditor if that person is chartered accountant.
Section 2[17] defines Chartered accountant as a CA who holds a valid certificates
of exercise under sub section [1] of section 6 of chartered accountant act 1949.

Accordingly only a chartered accountant holding a certificate of practice is eligible


to be appointed as an auditor of a company. It is further supplied that a firm.
Including a confined liability partnership, whereof majority of the partners
practising India are certified for appointment as auditor , may also be appointed
through its company name be the auditor of a company. In this regard, it might also
be referred to that underneath the chartered accountant act 1949, only a chartered
accountants conserving a certificate of practice can be engaged in the public
exercise of accountancy. However the chartered accountants act 1949 additionally
lets in the chartered accountants to enter into partnership with other professionals.
In such a case the section 141[2] of the act states that if a company[ including a
restricted liability partnership] is appointed as an auditor solely these companions
who are chartered accountants are approved to sign on behalf of the firm.

Appointment of first auditors


Section 139[6] lays down that the first auditor or auditors of a employer shall be
appointed by using the board of directors within thirty days of the date of
registration of the company. The auditor or auditors so appointed shall keep
workplace till the conclusion of the first annual general meeting . If the board of
directors fails to exercising its power , it shall inform the individuals of the
company. In such a case the first auditors are appointed through the members in an
extraordinary general meeting within ninety days.
Generally it is observed that the first auditors of a company are named in the
articles of association. Such appointment of auditors cannot be held valid because
the act grants it no recognition. The first auditors would validly appointed only by
a resolution of the board of directors or that of company in general meeting.
Auditor’s lien
In the general principles of law, any person having the lawful possession of
somebody else’ property, on which he has worked may retain the property for non
payment of the remaining dues on account of the work that is done on the property.
On this premise, auditor can exercise lien on books and files positioned at his
possession by the client for non price of charges for the work has been done on the
related books and documents. The Institute of chartered accountants in England
and Wales also says some similar things on regard on this following situations-

Document retained must belong to the client who owes the money.
Documents need to be in possession of the auditor on the authority which was of
client. It should not been received through any irregular or illegal means. In case of
company client they must be received on the authority of the board of directors.
The auditor can retain the documents only if he has done work on the documents
assigned to him.
Such of the documents can be retained which are connected with the work on
which fees have not been paid.
Limitation of auditor’s duties
No limitation can be placed upon rights or responsibilities of the auditor given
under section 143 either done by any articles of company or done by any other
resolution of the members. Where the articles of company provided:

Directors shall have power to form an internal reserve which was once no longer to
be disclosed in the balance sheet and which must be utilised in a way that directors
thought fit.
Auditors shall have access to accounts to relating to such reserve fund and that it
was once utilised to the functions of the company as mentioned in the special
articles , however that they should no longer disclose any data with regard to the
shareholders or otherwise; such provisions in the articles had been held to be
invalid as being hassle of the statutory responsibilities of the auditors

Who is an auditor
An auditor is a person appointed to validate the correctness of the accounting
records of the company. Under the Companies Act, 2013, a person practising
Chartered Accountant (hereinafter, “CA”) is qualified to be appointed as the
statutory auditor in a company. A person would not be qualified as a company’s
statutory auditor unless there is appropriation on the part of the person to perform
in the capacity of an auditor. Furthermore, as per the Companies Act, 2013, only a
practising Chartered Accountant is qualified to be appointed as a statutory auditor
in a company. Such appointments are possible if a majority of the partners are
executing Chartered Accountants.

Moreover, the partners can also be appointed in their individual capacities. A


Limited Liability Partnership (hereinafter as “LLP”) can also be appointed as an
auditor of a firm in its own name. Although to qualify for such a post, all LLP
partners must be engaged in full-time practice as Chartered Account.
In essence, what has been stated so far is that an auditor is an economic specialist
or a person who has the power to verify and review the accuracy of financial
records and fortifies that the company obeys tax laws.

Importance of Auditors/Auditing
Auditing is important because it increases the credibility of a set of financial
statements and convinces shareholders that the financial statements are accurate
and fair. It also helps to improve a company’s internal controls and systems.
Auditing helps in improving a company’s profitability and plays an essential role
in the public interest and the company’s trust factor.

Furthermore, auditors are important because they can provide an objective and
independent opinion on an organisation’s financial statements. It benefits
companies in several ways, such as finding errors in processing, maintaining
consistency, or detecting some kind of fraud. Furthermore, it objectively advises on
the matter related to the company, which involves the board of directors,
shareholders, or interest groups. An auditor’s ability to prepare fair financial
statements for a particular company also helps in reducing investor risk while
ensuring effectiveness. This, in turn, boosts the confidence of the investors.
Furthermore, an audit report provides an overview of a company’s financial
statements, indicating good corporate governance, if passed.

Auditing plays an extremely important role in India as in many family businesses,


it is very likely that a powerful group of promoters may put their own Interests
ahead of those of the remaining shareholders. An audit of a company’s financial
statements by an external auditor is crucial to ensure that data and accounts have
not been tampered with.

Types of Auditors

It is important to understand that auditors can be of two types, i.e., internal auditors
and external auditors.
Internal Auditors
According to Section 138 (1) of the Companies Act, 2013, read with Rule 13 of
Companies (Accounts) Rules, 2014, the following class of companies need to
appoint Internal Auditors:

Every listed company;


An unlisted public company having:
Paid-up share capital of fifty crore rupees or more during a financial year;
Outstanding loans or borrowings from a bank or public financial institutions
exceeding one hundred crore rupees and more during a financial year;
Outstanding deposits of twenty-five crore rupees or more during the financial year.
A private company having a turnover of two hundred crore rupees or outstanding
loans or borrowing from a bank exceeding one hundred crore rupees or more at
any point during the financial year.
Internal auditors work as employees of the company and, as part of their duties, are
required to review certain procedures within the company, such as its record
keeping. Internal auditors are the ones employed by the organisations they audit.
These auditors can review employee performance, compliance with company
standards, and financial and accounting systems. Internal auditors can keep
company executives informed about what is happening in the company and address
issues or concerns ahead of time. An Internal auditor then writes a report
highlighting the problem and recommending remedial action. Therefore, these are
employees of the company’s management and are not considered independent
auditors, unlike external auditors.

External Auditors
On the other hand, an external auditor is defined as an auditor who audits an
organisation from an independent perspective. They will look at several areas of
the organisation, such as risk management or financial processes and reporting, to
check whether they are working properly and being properly documented. For
example, after an audit is completed, an external auditor can provide their
objective audit to shareholders or stakeholders. A classic statutory audit, also
known as an audit or statutory audit, is performed by an external auditor.

The external auditor’s role is to determine whether the accounts are adequately
kept and whether the financial statements truthfully and fairly reflect the
company’s financial position. The external auditor’s report is critical because it
contains the auditor’s assessment of the company’s integrity. Financial statements
and audit reports are available to stakeholders, including the public. The judgment
of the external auditor is impartial and pure with the members of the companies.

Appointment of an Auditor under the Companies Act


According to Section 139(6) of the Companies Act, 2013, the first auditor of a non-
governmental company must be appointed by the board of directors within 30 days
of its establishment. If the board does not pass, an extraordinary general meeting of
shareholders will be held within 90 days to appoint the first auditor. The law does
not specify when the 90 days period is calculated. So the benefit of this is to
stricter view and explain that the 90-day period starts from the day the company is
formed, rather than at the end of the 30 days period.

Auditors are appointed in a way that they can exercise their powers until the
conclusion of the First General Meeting of Shareholders. The company must file
an ADT-1 form (hereinafter, Form for Appointment of First Auditor) with the
Registrar of Companies along with the prescribed fee. For government companies,
the first auditor will be appointed by the Auditor General of India within 60 days
from the date of incorporation of the company; if the Auditor General of India fails
to appoint the auditor within the said period, the board of directors of the company
will appoint the latter within the next thirty days. If not appointed by the board
within the next thirty days, members must approve an auditor within sixty days in
the Extraordinary General Meeting (hereinafter, EGM). The term of office for the
first auditor will be until the conclusion of the first annual general meeting.
Furthermore, the subsequent appointment of an auditor will be made by the
members, and he/she will hold office until the conclusion of the sixth annual
general meeting. However, it is important to note down that the company members
will permit an auditor’s appointment in every annual general meeting.

Pursuant to Rule 3(6) of the Companies (Auditors and Auditors) Rules 2014, if the
board decides not to reconsider the recommendation given by the Audit Committee
related to the appointment of a firm or an individual as an auditor, the board must
record the reasons for its disagreement with the committee, and submit its own
proposals for consideration of the members at the Annual General Meeting
(AGM).

Section 139 also provides that prior to any such appointment, the written approval
of the auditor for such appointment must be obtained, and the appointment of the
individual auditor or firm, if appointed, will comply with the prescribed terms.

Rule 4 of the Companies (Audit and Auditors) Rules, 2014, obligate the auditor to
submit a certificate that contains:-
He or the company (as the case may be) shall be entitled to an appointment and not
be disqualified under the Act, the Chartered Accountants Act 1949, and any rules
or regulations made therein;
The term of office to be appointed shall be the term prescribed by law;
The proposed appointment is within the scope of the law or is authorised by the
law;
The list of pending professional proceedings against the statutory auditor, the audit
firm, or a partner of the audit firm disclosed in the auditor’s report is true and
accurate.
The auditor’s certificate must also indicate whether the auditor also meets the
criteria of Section 141 of the Act (listed in the following paragraphs).
The firm must notify the applicable auditor of its appointment within fifteen days
of the meeting to appoint/re-appoint the auditor and file a notification of such
appointment with the Registrar on Form ADT-1.

Purpose of appointing an auditor


The role of corporate auditors is to protect the interests of shareholders. Auditors
are required by law to examine the books kept by directors and inform them about
the company’s true financial position. An auditor gives an independent opinion to
the company’s owners or shareholders to protect the company and keep the
company in a safe financial position.

Other reasons are that an auditor should have reasonable skills, caution, and care
depending on each case’s circumstances. There are several other purposes for
appointing an auditor, such as examining the company’s accounts; he or she should
not be biased and give an independent opinion to the company’s owners to keep
the company’s financial condition safe and protected from the threat. An auditor is
not obligated to be a detective and approach his work with suspicion or any
preconceived conclusion. If there is anything that might give rise to suspicion, he
should investigate, but if such issues are not there, then he has the only duty to take
reasonable care and caution.
Appointing an auditor is one of the key tasks a company has to face. As an auditor,
they have many responsibilities that serve the company’s interests, in addition to
reviewing consistent financial statement records and maintaining their occasional
maintenance. Auditors are appointed after a thorough examination and
consideration of the quality of the personnel. All these things make an auditor’s
role very important in a company’s development, and their paramount purpose in a
company cannot be ignored.

Duties of an auditor
Section 143 sets out the powers and duties of the auditor. Every auditor of the
company shall have the right to inspect the books and records of the company at
any time, whether kept at the company’s registered office or elsewhere, and shall
have the right to request such information as he deems necessary for the
performance of his acts. Statements necessary for the duties of auditors and
inquiries about the following, such as:

Whether loans and advances made by the company by way of security are properly
secured and whether the terms of the loans and advances are prejudicial to the
interests of the company or its members;
Whether the company’s transaction represented solely by the booking is
detrimental to the company’s interests;
If the company is not an investment company or bank; whether most of the
company’s assets (including stocks, bonds, and other securities) are being sold at a
lower price than when the company purchased it;
Whether the loans and advances made by the entity have been recorded as
deposits;
Whether personal expenses are included in the revenue account;
If the company’s books and documents indicate that shares were distributed as
cash, whether the distribution received cash, and if no cash was received, whether
the item is correct, regular, and not misleading as indicated on the books and
balance sheet.
The auditor of a company also has the power to examine the records of all its
subsidiaries in order to consolidate its accounts.

The auditor will report to the shareholders on its audited books and financial
statements to be submitted under this Act or to the company’s general meeting of
shareholders and prepare reports in accordance with the provisions of this Act, the
accounting and auditing standards, and the law or in accordance therewith. The
regulations enacted require matters to be included in the audit report and, to the
best of our knowledge and belief, declare that the above-mentioned financial
statements are a true and fair view of the company’s year-end profit and loss and
cash flow and other prescribed matters.
Work of an auditor
The work of an auditor has been laid down under the Companies Act, 2013, given
in Section 143. The Act further explains the duties of an auditor, while the list
provided is not exhaustive.

Prepare an audit report


An audit report is an appraisal of a business’s financial position. An auditor is
responsible for making an audit report of a company based on its financial
statements. The books of accounts maintained by him must comply with the
relevant laws. Furthermore, as an auditor, it’s his responsibility that the financial
statements should comply with provisions of the Companies Act, 2013. In addition,
the entire financial statement must be true and fair with regard to the company’s
financial position.

Compliance with audit standards is necessary


Such standards are issued by the Central Government in deliberation with the
National Financial Reporting Authority. These standards help the auditor follow his
duties with relevant ease and accuracy. As an auditor, they have to comply with
standards as this may increase their efficacy comparatively.

Actions against fraud


In some instances, while performing his duties, an auditor may feel certain
suspicion regarding fraud in the company, situations where financial statements
and figures don’t quite add up to each other. As an auditor, when he finds himself
in such situations, he must report such matters to the Central Government or matter
prescribed in Rule 13 of Companies (Audit and Auditors) Rules, 2014.

Assistance in the case of a branch audit


When an auditor is a branch auditor of a company, he/she will assist in fulfilling
the branch audit. He/she should prepare a report depending on the branch accounts
examined by him/her and then send it to the company’s auditor. Then that company
auditor will look into the main audit report of the company. Additionally, he/she
may assist an expert with their working papers to the company auditor to aid in the
given audit.

Auditing standards
The Central Government shall issue auditing standards in collaboration with the
National Financial Reporting Authority. These standards help the auditor to
perform his/her auditing tasks in the given subject manner. However, there lies a
responsibility on the auditor to comply with the standards while performing his/her
tasks because this will boost their efficiency.

Rights of an auditor

The Companies Act gives extensive rights to an auditor. Specific provisions are
specified in the Act, which states that an auditor cannot be prevented by anyone
from enjoying his/her rights. Some of the rights are as follows: –

Right to access accounts


According to Section 143(1) of the Companies Act, every auditor has full rights to
access books related to accounts, vouchers, and other relevant company documents
at all times during his/her term of office. He also has full rights to go for surprise
visits to check the entries in the books of accounts. Overall, he/she can check all
the documents which are related to the company’s concern.

Right to make suggestions


The auditor has a right to suggest suitable modifications in methods of accounting,
and if such suggestions are made, then the director should comply with them. If
such compliance is not done, the auditor has full authority to report the same to the
members. However, the auditor has no authority to alter the company’s accounts in
his own accords.
Right to report
The auditor has a right as well as a duty to make a report to the members on the
account examined by him/her to state whether it is In his opinion and to the best of
his knowledge and explanation stated by him. Auditors must explain whether the
financial statement given is true and fair to the company’s business.

Right to sign the audit report


As per Section 145 of the Companies Act, 2013, The person appointed as the
company’s auditor shall sign or certify the company’s audit report or any other
document presented in the audit report in accordance with Section 141(2) and the
qualifications, opinions or comments relating to financial transactions which have
any adverse effect on the functioning of the company must be read before the
general meeting of the company and available for inspection by every member of
the company.

Branch visits
As per Section 143(8) of the Companies Act, an auditor has full authority to visit
the branches to check all the works related to the company’s matter. However, the
auditor has no authority to visit foreign branches.

Right to receive a notice and attend meetings


As per Section 146 of the Companies Act, an auditor has full rights to receive the
notice and communications related to all the meetings during his/her term. The
company should send notice to the auditor even when his audited accounts are not
discussed in the meeting. As an auditor, he/she has full authority to attend the
company’s meeting. He/she can also speak at the meeting if any clarification is
needed for any matter related to the company’s concern.

Right to be indemnified
Under certain conditions, a company can take civil or criminal actions against the
auditor. If any legal action is taken against him, he generally defends himself
against the proceedings. However, if the judgment goes in his favour means in
favour of the auditor, then the company has to pay compensations for all the losses
incurred by him during the proceeding. These types of rights are general rights
given in most cases.

Right to make representation


The retiring auditor has the authority to receive a copy of the special notice
regarding the removal or appointment of any other person as an auditor. He/she
should have all the knowledge beforehand. The retiring auditor has an absolute
right to make his representation through writing and request the same to be
circulated among all the members. If the same thing has not been circulated, then
the representation will be read at the company’s general meeting.

Right to receive remuneration


The company determines the auditor’s remuneration in the general meeting.
However, when the Board of Directors appoints the company’s first auditor, they
can fix his remuneration. The remuneration is in addition to the fees paid to him. It
includes all expenses incurred by the auditor as a result of the audit and all
facilities granted to him. However, this remuneration does not include amounts
paid to him for services other than auditing.

Right to seek legal and technical advice


Auditors are entitled to obtain expert advice on legal or technical issues at the
Company’s expense. But in his report, he should express his own opinion, not that
of the concerned experts.

Conclusion
The Companies Act, 2013 comprehensively clarifies the law relating to statutory
audits and auditors in Sections 139 to 148. From this article, it became clear that
choosing the right auditor is extremely important for the growth of the company.
Several duties stated above prove that the auditor’s role in a company is extremely
important. Typically, an auditor reviews a company’s accounting practices and
determines whether they meet minimum requirements. Furthermore, statutory
auditors review a company’s accounting practices on an annual basis. The review
includes key accounting activities, internal controls, and reporting procedures.

An auditor works closely with senior management to gather the information


needed to do the required work. Since statutory auditors must always be considered
independent, any auditor should exercise caution in the relationship he or she
develops with the management. Some audit committees and boards limit any
additional work the statutory auditor can do for the company to ensure the
auditor’s independence.

In essence, it is important for a company to have an auditor so that he/she can look
at all the important work required for the company’s growth.
Frequently Asked Questions (FAQs)
What every auditor should know?
Ans: An auditor must know the company where they work. They should observe
people and the business culture. Learn to jargon things and put the best possible
outcome for the company’s benefit.

What are the qualities of a good auditor?


Ans: They should have analytical skills and advice and influence behaviour to the
highest level. However, these may lead to disagreement at times, so when such a
situation arises, the auditor should show integrity and resilience to come to a
constructive resolution. As an auditor, effective communication is very much
important to dealing with day-to-day work.

What are the primary functions of an auditor?


Ans:Make recommendations to improve poor internal controls.
Investigate suspected fraud (even those deemed inconsequential).
Perform financial and operational data reconciliation.
Ensure compliance with industry rules and standards.
What is the difference between an auditor and an accountant?
Ans: Auditors are considered as accountants. Auditors typically major in
accounting and identify the type of accountants they wish to be: public company
auditors, internal auditors, tax advisors, corporate accountants, etc. Public
company auditors are an alternative route.

Conclusion
The Companies Act, 2013 comprehensively clarifies the law relating to statutory
audits and auditors in Sections 139 to 148. From this article, it became clear that
choosing the right auditor is extremely important for the growth of the company.
Several duties stated above prove that the auditor’s role in a company is extremely
important. Typically, an auditor reviews a company’s accounting practices and
determines whether they meet minimum requirements. Furthermore, statutory
auditors review a company’s accounting practices on an annual basis. The review
includes key accounting activities, internal controls, and reporting procedures.

An auditor works closely with senior management to gather the information


needed to do the required work. Since statutory auditors must always be considered
independent, any auditor should exercise caution in the relationship he or she
develops with the management. Some audit committees and boards limit any
additional work the statutory auditor can do for the company to ensure the
auditor’s independence.

In essence, it is important for a company to have an auditor so that he/she can look
at all the important work required for the company’s growth.

Bibliography and Webliography


https://lawbhoomi.com/accounts-and-audit-a-brief-view-under-companies-act-
2013/

https://blog.ipleaders.in/dividends-audit-and-accounts-under-the-companies-act-
2013/

https://www.klaggarwal.com/others/accounts-under-companies-act-2013/

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