Section 143 of Companies Act 2013: Powers and Duties of Auditors Explained

Audit plays a crucial role in ensuring transparency, accountability, and accuracy in financial reporting. To institutionalize this, Section 143 of the Companies Act, 2013 clearly lays down the powers and duties of company auditors. Whether it’s a One Person Company (OPC), Private Limited, Public Limited, or in some cases, an LLP, understanding this section is essential for both company management and practicing professionals.

This article provides a comprehensive breakdown of Section 143, its applicability, audit mandate, reporting requirements, and how it intersects with the responsibility of statutory auditors under Indian company law.

Applicability of Section 143

Section 143 applies to:

• All Companies registered under the Companies Act, including:

  • Private Limited Companies

  • Public Limited Companies

  • One Person Companies (OPCs)

While Limited Liability Partnerships (LLPs) are governed under the LLP Act, 2008, and not directly under the Companies Act, the principles of auditing and financial disclosures often follow a similar framework when audit is applicable under the Income Tax Act or when LLPs meet specific thresholds under the LLP Rules.

Mandatory Appointment of Auditors

1. Private Limited Companies

• Appointment of a statutory auditor is mandatory within 30 days of incorporation.

• The first auditor is appointed by the Board, and subsequent appointments are made by shareholders at the AGM.

2. One Person Company (OPC)

• Even though OPCs are small entities with only one shareholder, the appointment of a statutory auditor is compulsory.

• The provisions related to rotation of auditors do not apply to OPCs.

3. Public Limited Companies

• Must appoint an auditor through shareholder resolution and are subject to stricter auditing requirements, including rotation and audit firm restrictions under Section 139 and 141.

4. LLPs (Limited Liability Partnerships)

• LLPs are not governed by the Companies Act. However:

  • Audit is mandatory if the turnover exceeds ₹40 lakh or capital contribution exceeds ₹25 lakh.

  • Such LLPs must appoint a Chartered Accountant in practice to audit the books of accounts.

  • Even though Section 143 doesn’t directly apply to LLPs, many of the principles and standards followed are derived from Companies Act provisions.

Powers of an Auditor under Section 143

Auditors are not just external consultants; they are watchdogs with specific legal authority. Under Section 143, the auditor has the right to:

1. Access Books and Records
   Auditors can access books of accounts and vouchers of the company at all times.

2. Ask for Information and Explanations
   Auditors can seek necessary information from company officers to ensure that financial statements present a true and fair view.

3. Audit Branch Accounts
   Auditors can access records of any branches and may appoint branch auditors if required.

4. Inquire on Specified Matters (Sub-section 1)
   The auditor must inquire into:

   • Loans and advances made without proper security

   • Transactions represented merely by book entries

   • Sales of company assets below value

   • Loans and advances shown as deposits

   • Personal expenses charged to revenue account

   • Whether cash has been received for shares issued

5. Report on Fraud (Sub-section 12)
   If an auditor believes that fraud is being or has been committed against the company, it is their duty to report it to the Central Government.

Duties of Auditors under Section 143

An auditor is obligated to:

1. Make a Report to Members
   The auditor must report to the shareholders of the company at the Annual General Meeting (AGM) on the accounts examined by them.

2. State Whether Financials Represent a True and Fair View
   The report must state:

   • Whether the balance sheet and profit and loss account comply with accounting standards

   • Whether proper books of accounts have been maintained

   • Observations, reservations, or qualifications (if any)

3. Compliance with Auditing Standards
   Auditors must follow the standards notified under Section 143(9) and recommended by the Institute of Chartered Accountants of India (ICAI).

4. Reporting on CARO (Companies Auditor’s Report Order)
   Certain companies (except for small companies, OPCs, and some private companies) must ensure their auditors file reports as per CARO guidelines in addition to the standard audit report.

Responsibilities Related to Fraud Reporting (Section 143(12))

Auditors who detect fraud while conducting their audit are required to report the matter to the Board or the Audit Committee. If the fraud exceeds a threshold prescribed by the government, it must be directly reported to the Central Government within the timeline prescribed.

Non-compliance with fraud reporting provisions can lead to severe penalties, including professional misconduct charges under the CA Act, 1949.

Exemptions and Relaxations under Section 143

Some categories of companies enjoy exemptions:

• OPCs and Small Companies are exempt from CARO reporting.

• Rotation of auditors is not mandatory for:

  • OPCs

  • Small Companies

  • Private Companies with paid-up share capital less than ₹50 crore and borrowings below ₹100 crore

Summary Table: Applicability Snapshot

10 Frequently Asked Questions (FAQs)

1. Is audit mandatory for every company under the Companies Act?
Yes, all companies including OPCs and Private Limited Companies must appoint a statutory auditor.

2. Is an LLP required to appoint an auditor under Section 143?
No, LLPs are governed under the LLP Act. However, audit is required if turnover exceeds ₹40 lakh or capital contribution exceeds ₹25 lakh.

3. What are the powers granted to an auditor under Section 143?
Auditors can access records, demand explanations, and must report frauds and misstatements.

4. Who appoints the auditor for an OPC?
The Board of Directors appoints the auditor for the first year; subsequently, the sole member does.

5. What happens if the auditor fails to report fraud?
Failure to report fraud can attract penalties and disciplinary action under ICAI regulations.

6. Are there any exemptions from CARO under Section 143?
Yes, CARO is not applicable to OPCs, small companies, and certain private companies.

7. Is audit report mandatory for income tax purposes as well?
Yes, in addition to Section 143, companies may also need to comply with tax audit requirements under Section 44AB of the Income Tax Act.

8. Can a company have joint auditors?
Yes, a company may appoint more than one auditor if required.

9. What are the consequences of not appointing an auditor?
Non-appointment can lead to penalties on the company and its officers in default under Section 147.

10. Are auditing standards mandatory under Section 143?
Yes, auditors must comply with the auditing standards prescribed by ICAI and notified under the Companies Act.