143. Powers and duties of auditors and auditing standards
(1) Every auditor of a company shall have a right of access at all times to the
books of account and vouchers of the company, whether kept at the registered office of the
company or at any other place and shall be entitled to require from the officers of the
company such information and explanation as he may consider necessary for the performance
of his duties as auditor and amongst other matters inquire into the following matters, namely:—
(a) whether loans and advances made by the company on the basis of security
have been properly secured and whether the terms on which they have been made are
prejudicial to the interests of the company or its members;
(b) whether transactions of the company which are represented merely by book
entries are prejudicial to the interests of the company;
(c) where the company not being an investment company or a banking company,
whether so much of the assets of the company as consist of shares, debentures and
other securities have been sold at a price less than that at which they were purchased
by the company;
(d) whether loans and advances made by the company have been shown as
deposits;
(e) whether personal expenses have been charged to revenue account;
(f) where it is stated in the books and documents of the company that any shares
have been allotted for cash, whether cash has actually been received in respect of
such allotment, and if no cash has actually been so received, whether the position as
stated in the account books and the balance sheet is correct, regular and not misleading:
Provided that the auditor of a company which is a holding company shall also have
the right of access to the records of all its subsidiaries in so far as it relates to the consolidation
of its financial statements with that of its subsidiaries.
(2) The auditor shall make a report to the members of the company on the accounts
examined by him and on every financial statements which are required by or under this Act
to be laid before the company in general meeting and the report shall after taking into
account the provisions of this Act, the accounting and auditing standards and matters
which are required to be included in the audit report under the provisions of this Act or any
rules made thereunder or under any order made under sub-section (11) and to the best of his
information and knowledge, the said accounts, financial statements give a true and fair view
of the state of the company’s affairs as at the end of its financial year and profit or loss and
cash flow for the year and such other matters as may be prescribed.
(3) The auditor’s report shall also state—
(a) whether he has sought and obtained all the information and explanations
which to the best of his knowledge and belief were necessary for the purpose of his
audit and if not, the details thereof and the effect of such information on the financial
statements;
(b) whether, in his opinion, proper books of account as required by law have
been kept by the company so far as appears from his examination of those books and
proper returns adequate for the purposes of his audit have been received from branches
not visited by him;
(c) whether the report on the accounts of any branch office of the company
audited under sub-section (8) by a person other than the company’s auditor has been
sent to him under the proviso to that sub-section and the manner in which he has dealt
with it in preparing his report;
(d) whether the company’s balance sheet and profit and loss account dealt with
in the report are in agreement with the books of account and returns;
(e) whether, in his opinion, the financial statements comply with the accounting
standards;
(f) the observations or comments of the auditors on financial transactions or
matters which have any adverse effect on the functioning of the company;
(g) whether any director is disqualified from being appointed as a director under
sub-section (2) of section 164;
(h) any qualification, reservation or adverse remark relating to the maintenance
of accounts and other matters connected therewith;
(i) whether the company has adequate internal financial controls system in
place and the operating effectiveness of such controls;
(j) such other matters as may be prescribed.
(4) Where any of the matters required to be included in the audit report under this
section is answered in the negative or with a qualification, the report shall state the reasons
therefor.
(5) In the case of a Government company, the Comptroller and Auditor-General of India
shall appoint the auditor under sub-section (5) or sub-section (7) of section 139 and direct
such auditor the manner in which the accounts of the Government company are required to
be audited and thereupon the auditor so appointed shall submit a copy of the audit report to
the Comptroller and Auditor-General of India which, among other things, include the
directions, if any, issued by the Comptroller and Auditor-General of India, the action taken
thereon and its impact on the accounts and financial statement of the company.
(6) The Comptroller and Auditor-General of India shall within sixty days from the date
of receipt of the audit report under sub-section (5) have a right to,—
(a) conduct a supplementary audit of the financial statement of the company by
such person or persons as he may authorise in this behalf; and for the purposes of
such audit, require information or additional information to be furnished to any person
or persons, so authorised, on such matters, by such person or persons, and in such
form, as the Comptroller and Auditor-General of India may direct; and
(b) comment upon or supplement such audit report:
Provided that any comments given by the Comptroller and Auditor-General of
India upon, or supplement to, the audit report shall be sent by the company to every
person entitled to copies of audited financial statements under sub section (1) of
section 136 and also be placed before the annual general meeting of the company at
the same time and in the same manner as the audit report.
(7) Without prejudice to the provisions of this Chapter, the Comptroller and Auditor-
General of India may, in case of any company covered under sub-section (5) or sub-section
(7) of section 139, if he considers necessary, by an order, cause test audit to be conducted of
the accounts of such company and the provisions of section 19A of the Comptroller and
Auditor-General’s (Duties, Powers and Conditions of Service) Act, 1971, shall apply to the
report of such test audit.
(8) Where a company has a branch office, the accounts of that office shall be audited
either by the auditor appointed for the company (herein referred to as the company’s auditor)
under this Act or by any other person qualified for appointment as an auditor of the company
under this Act and appointed as such under section 139, or where the branch office is
situated in a country outside India, the accounts of the branch office shall be audited either
by the company’s auditor or by an accountant or by any other person duly qualified to act as
an auditor of the accounts of the branch office in accordance with the laws of that country
and the duties and powers of the company’s auditor with reference to the audit of the branch
and the branch auditor, if any, shall be such as may be prescribed:
Provided that the branch auditor shall prepare a report on the accounts of the branch
examined by him and send it to the auditor of the company who shall deal with it in his report
in such manner as he considers necessary.
(9) Every auditor shall comply with the auditing standards.
(10) The Central Government may prescribe the standards of auditing or any addendum
thereto, as recommended by the Institute of Chartered Accountants of India, constituted
under section 3 of the Chartered Accountants Act, 1949, in consultation with and after
examination of the recommendations made by the National Financial Reporting Authority:
Provided that until any auditing standards are notified, any standard or standards of
auditing specified by the Institute of Chartered Accountants of India shall be deemed to be
the auditing standards.
(11) The Central Government may, in consultation with the National Financial Reporting
Authority, by general or special order, direct, in respect of such class or description of
companies, as may be specified in the order, that the auditor’s report shall also include a
statement on such matters as may be specified therein.
(12) Notwithstanding anything contained in this section, if an auditor of a company, in
the course of the performance of his duties as auditor, has reason to believe that an offence
involving fraud is being or has been committed against the company by officers or employees
of the company, he shall immediately report the matter to the Central Government within such
time and in such manner as may be prescribed.
(13) No duty to which an auditor of a company may be subject to shall be regarded as
having been contravened by reason of his reporting the matter referred to in sub-section (12)
if it is done in good faith.
(14) The provisions of this section shall mutatis mutandis apply to—
(a) the cost accountant in practice conducting cost audit under section 148; or
(b) the company secretary in practice conducting secretarial audit under
section 204.
(15) If any auditor, cost accountant or company secretary in practice do not comply
with the provisions of sub-section (12), he shall be punishable with fine which shall not be
less than one lakh rupees but which may extend to twenty-five lakh rupees.