Notes on Company Audit Lecture

Definition of Auditor

• Auditor: An independent examination of financial information of any entity (profit-oriented or non-profit) irrespective of its size or legal form.
• Keywords for definition:
  • Independent examination
  • Financial information
  • Any entity
  • Opinion

Basics of Audit

• Independent Examination: Conducted to express an opinion on the financial statements.
• Examples of who prepares accounts: Shareholders, Board of Directors, Management.
• Companies Act 2013
  • Section 128: Shareholders' right to inspect accounts is limited.
  • Section 139: Shareholders can appoint auditors.
• Definition of Financial Information includes bills, journal, ledger, trial balance, cash flow statements, etc.

Auditor's Responsibilities

• The auditor's primary objective is to express an opinion on financial statements.
• Types of Audit Opinions (Section 700):
  • Unmodified Opinion: Clean report.
  • Qualified Opinion: Some issues but not pervasive.
  • Adverse Opinion: Financial statements are misleading.
  • Disclaimer: No opinion can be expressed due to lack of evidence.

Company Audit: Statutory Audit

• Governed by Sections of Companies Act 2013:
  • 139: Appointment of auditor
  • 141: Eligibility, qualifications, and disqualifications of auditors
  • 142: Remuneration
  • 143: Powers and duties
  • 145: Duty to sign audit reports
  • 146: Rights to attend or participate in annual general meetings (AGM)
  • 147: Punishment for violations

Section 141: Qualifications and Disqualifications for Auditor

• Qualifying Criteria: Chartered Accountants (CA) need a certificate of practice. Majority of partners should practice in India.
• Disqualifications include:
  • Officer/employee of the company
  • Holding company
  • Family related disqualifications
  • Indebtedness to the company exceeding certain limits
  • Providing certain prohibited services (Section 144).

Auditor's Rights and Duties

• Rights include accessing records, signing audit reports, attending AGMs, etc.
• Duties include performing inquiries, fraud reporting, and expressing opinions clearly.

Audit Reporting Requirements

• Additional Reporting (Section 143(1)) about fraud and other key matters.
• Reportable matters include transactions that affect financial interests.

Cost Audit

• Governed by Section 148 of Companies Act.
• Mandatory for companies above certain turnover limits and to maintain specific cost records.

Internal Control and Audit Process

• Internal Control: Policies and procedures to help achieve company objectives.
• Internal Audit: Reviews management practices and internal controls.

Other Special Audits

• Educational Institutions: Auditing procedures include checking donations, registrations, and other regulatory compliance issues.
• Cooperative Societies: Must adhere to specific regulations and legal obligations.
• Local Bodies: Focus on financial administration and management processes.

Conclusion

• The auditor’s role is critical in ensuring accountability and transparency in financial reporting for all types of entities.
• Understanding specific regulations and compliance requirements is vital for effective auditing.

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