Know Your Auditor
Companies act has made it mandatory to appoint a auditor within 30 days of incorporation of your company as apart of its post incorporation complainces, so it becomes very essential to know the duties, responsibilities and powers your auditors come equipped with. Ideally role of any statutory auditor is to examine the financial statements and give an opinion as to whether such financial statements portray true and fair view of the company. In such Examination it becomes important to know what all roles he should play in various circumstances, and what are powers and duties he is allowed with to ensure proper reporting of findings.
Companies Act, 2013 along with and Standards on Auditing practices has enacted various powers and duties on the auditors and given various guidance on how an auditor should go about an audit and what are his primary responsibilities.
Powers and duties of auditors as per Companies act, 2013
As per S.143 of the said Act, auditors have various responsibility below mentioned are few primary responsibility and duty
Duty to make inquiry into following matters
- Loans and Advances
- Are loans and advances made by the company on the basis of security are properly secured?
- Are the terms of such loans prejudicial to the interests of the company or its members?
- Are any loans advances made by the company shown as deposits?
Are merely represented by book entry prejudicial to the interest of company?
Are personal expenses charged to revenue account?
- Shares, Debentures and other securities
Are these sold at a price less than at which they are purchased? (For companies which are not investment or banking company
- Allotment for cash – Is cash received for allotment of shares in cash, if no whether the position in the account books and the balance sheet is correct, regular and not misleading?
- Whom should he report – members of the company?
- On what should he report? – on financial statements and accounts examined by him which are required under this Act to be laid before the company in general meeting
- On what basis report should be prepared – the report shall be prepared after taking into account the provisions of this Act, the accounting and auditing standards, CARO requirements.
- What should he report – financial statements and the said accounts give a true and fair view of the state of the company’s affairs as at the end of its financial year, profit or loss and cash flow for the year and such other matters as may be prescribed.
Responsibility of auditor as per Standards on Auditing Practices
SA 230 – Audit Documentation
Auditors need to maintain audit working papers to show that audit was done as per Standards and the same should be maintained for 7 years
SA 240 – Auditors Responsibilities relating to fraud
The primary responsibility of fraud rests with management and those charged with entity, however if auditor identifies a situation where misstatement due to fraud exist then he should apply additional procedures to confirm or dispel his suspicion
Further he is also required to report as per S.143(12) of the Companies Act, 2013.
Using the work of another auditor
||Principal Statutory auditor
||Principal is responsible for his opinion on entity as a whole and he should indicate division of responsibility in his report
||Should Report to Principal auditor
|Using the work of an Expert
||Check Competence, Capability and Objectivity of the expert
Check appropriateness of assumptions, Accuracy of source data and relevance of conclusions and findings used/made by expert
Overall responsibility is by auditor
|Usage of expert in case of
1. Valuation of complex instruments
2. Actuaries in case of Insurance contracts and gratuity
3. Interpretation of contracts, laws and regulations
1. Division of work
3. Reporting Responsibility
a. Joint auditors to arrive at an agreed report
b. Where auditors are in disagreement regards to matter covered in report each auditor can issue separate report.
c. A Joint auditor is not bound by the views of majority of auditor.
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