CHAPTER-5 :COMPANY AUDIT-1 Audit means Latin wordaudire

CONTENTS: 1. QUALIFIACATION AND DISQUALIFIACATION 2. APPOINTMENT AND REMOVAL 3. REMUNARATION 4. RESOLTION 5. AUDIT CELING 6. POWERS AND DUTIES OF AUDITOR 7. AUDIT REPORT 8. JOINT AUDIT 9. SPECIAL AUDIT 10. BRANCH AUDIT 11. COST AUDIT 12. STATUTORY AUDIT QUALIFICATIONS: 1. A ca under the ca act 1949 who is holding certificate of practice 2. Firms of charted accountants 3. Appointed under 1951 part-b .state law in the meaning of ca act 1949 and holding certificate of practices 4. A firm of charted accountants where in all partners are cas holding certificate of practice 5. A person who obtains certificate from central government under part-b state laws before 1951.he is also eligible and can be appoint as an auditor DISQUALIFICATIONS: 1. A body corporate 2. An officer or employee of the company auditor should be independent 3. A person who is a partner or under employment of an officer or employee of the company 4. A person who is indebted to company exceeds RS.1000 and who guarantees on behalf off 3rd person .he is also disqualified NOTE: 1. Payment received on progresses basic does not attract disqualification u/s.226 2. A person who is a security holder of company i.e equity share holder having voting rights also. 3. A person whos is disqualified to appoint as an auditor of company he is also disqualify to appoint as auditor to his holding company subsidiary company and subsidiary of the same

APPOINTMENT OF AUDITOR:
1 ST AUDITOR: Can be appointed by BOD with in the one month from the date of registration of company SUBSEQUENT AUDITOR: Can be appointed by share holders in each AGM (there is no provision of automatic of reappointment of auditor) APPOINTMENT BY CENTRAL GOVT.: In any AGM shareholders are defaulted to appoint auditor of the company then company shall inform to the central govt. with in 7 days from the date of AGM then C.G may appoint auditor of the company

CASUAL VACENCY: It may arises due to the following i. Death ii. Disqualification iii. Resignation Casual vacancy of auditor can be filed by BOD except vacancy arises due to resignation which should be filed by shareholders in general meeting GOVERNMENT COMPANY: The auditor of the govt. company is appointed by completer of audit general in India (CAG) REMUNERATION: 1. The remuneration of the auditor is fixed by appointing authority 2. How ever in case of govt. co., the remuneration is fixed by shareholders in the AGM 3. According to schedule-4 part-2 of the act the remuneration payable to auditor should disclosed separately RESOLUTION: 1. Auditor is appointed generally by passing ordinary resolution however if the co., is covered by sec.224A auditor shall be appointed by passing special resolution only 2. According to sec.224A if any of the following institutions holds not less than 25% of the subscribed capital auditor should be appointed by passing special resolution

i. Public financial institutions /central govt.,/state govt., and government company ii. Any financial institutions established by state or provincial laws iii. Any nationalized bank or insurance company caring general insurance business iv. Any combination of above AUDIT CELING: A practicing charted accountant can accept maximum of 20 public companies at a time simultaneously with in this 20 companies the company having paid up capital should not exceed 25 lakhs and more .should not exceed 10 companies While counting this 20 companies the following audits are included and excluded

INCLUDING AUDITS
1. JOINT AUDITS 2. SEC.25 COMPANY AUDITS 3. COMPANY LIMITED BY GAURENTEE HAVING SHARE CAPITAL

EXCLUDING AUDITS
1. PRIVATE COMPANY AUDITS 2. BRANCH AUDITS 3. AUDIT OF FORIGEN CO., 4. CO., LIMITED BY GAURENTEE NOT HAVING SHARE CAPITAL 6. AUDIT OF THE STATUTORY COORPORATION 7. AUDIT OF THE PUBLIC COORPORATION 8. SPECIAL AUDITS U/S 233A 9. INVESTIGATIONS

According to notification 53/2001 issued by council of ICAI ,a practicing charted accountant is guilty of professional misconduct if he accept more than 30 audits at a time which includes both public and private companies OTHER POINTS: 1. If the auditor is appointed in the AGM the company shall communicate to the auditor with in 7 days from the date of AGM 2. The auditor in return shall communicate to the Roc in prescribed form with in 30 days from the date of receipt. 3. Before accepting the appointment auditor should ensure the following 4. Check whether appointment is valid 5. Ensure compliance with sec 224(1B)

6. Communicate to the previous auditor in writing before accepting the appointment REMOVAL OF AUDITOR: 1.Before expiry of term: Prior sanction of central government Procedure defined u/s 225 PROCEDURE DEFINED UNDER SEC.225: 1. The interested shareholder shall give a notice to the company at least 14 days before the AGM 2. Company considers it as a special notice and circulate it the same to all share holders including retiring auditor 3. The retiring auditor shall be given an opportunity of being heard to give his written representation not exceeding reasonable length 4. If the retiring auditor unable to give his written representation with in a reasonable time another opportunity is given to read out the same in the AGM 5. However aggrieved shareholders or company can approach the central government to get order from government not to give such opportunity to the retiring auditor since auditor using this opportunity for unwarranted publicity of his professional practice 6. In the AGM by passing an appropriate resolution auditor stands remove

2.After the expiry of the term:

Procedure under sec.225

RIGHTS OR POWERS OF THE AUDITOR:

PROFFESSIONAL RIGHTS
RIGHT TO ACCESS BOOKS OF ACCOUNTS DOCUMENTS AND VOUCHERS RIGHT TO SEE INFORMATION AND EXPLANATION FROM MANAGEMENT RIGHT TO VISIT BRANCHES EXCEPT THE FORIGEN BRANCEHES OF BANKING COMPANIES RIGHT TO GET NOTICE OF AGM RIGHT TO SIGN ON AUDIT REPORT

EQUITY RIGHTS
RIGHT TO GET REMUNARATION RIGHT TO NE INDEMNIFIED

RIGHT OF LIEN: 1. A lein refers to right to retain or detain the property .auditor can excersice particularly as for following guidelines issued by institute of charted accountants of England and wales 2. Auditor can retain books of accounts only on the authority of management 3. Auditor can retain such books of accounts which are belongs to client 4. He can retain books of accounts on which he actually rendered services 5. Auditor can retain books of accounts on which he rendered services and fees overdue. DUTIES OF AUDITOR:.

1. DUTY TO ENQIRY U/S 227(1A): a. Whether loans and advances made by the company based on the security have been properly secured and terms and conditions are not harmful(prejudicial) to the interest of the company b. Whether any transactions of the company is representing mere book entries prejudicial to the interest of the company c. Were the company neither an investment company nor a banking company but much of its assets is in the form of securities and which have been sold at a price lesser than its purchasing price d. Whether loans and advances made by the company have been shown as deposits e. Whether personal expenses have been charged to revenue f. Were the company have allotted the shares for consideration of cash, whether cash has actually received if not whether the position has properly disclosed in the balance sheet. 2. DUTY TO REPORT:U/S.227(2) Whether p&l a/c is showing true and fair view of profit or loss for the given period Whether balance sheet is showing true and fair view of its state of affairs NOTE: Management is primarily responsible to prepare and present the financial statements in true and fair manner 3. DUTY TO REPORT: U/S227 (3) 1. Whether management as made and maintain proper records as required under law 2. Whether financial statements have been prepared incompliance with accounting standards as required u/s.211 (3C) 3. Whether financial statements are in agreement with the books of accounts

4. Whether the branch auditor has forwarded there report u/s228 and how he delta with the same 5. whether any director is being disqualified to appoint as director of a public co., u/s 274(G) of the act 6. Whether company has paid cess payable u/s 441A, if not the amount of cess not so paid NOTE: ANY ADVERSORY FOUND ON THE ABOVE MATTERS SHALL BE STATED IN THICK TYPE OR ITYALICS 4.DUTY TO MAKE STATEMENTS:U/S.227(4a) By exercising the power given under sec.227 (4A) the central government has issued COMPANIES AUDIT REPORT ORDER (CARO), 2003 Imposing additional reporting requirements on the auditors of the company (on around 21 matters) CARO, 2003 superseded MAOCARO,1988 CARO,2003 is applicable to all companies including foreign companies except the following Banking companies Insurance companies Companies licenmced u/s .25 of the act A private company subject to the following conditions The paid up capital and reserves of the company shall not exceed RS.50 lakhs The loans and advances taken from banks or financial institutions shall not exceed RS25 lakes The total turnover of the company on any point of time shall not exceed RS.5crores

5. OTHER STATUTORY DUTIES: ` Duty to citify certain matters in the statutory report Duty to certify certain matters in the prospectus Duty to assist inspectors appointed by Cog u/s 235 of the act to investigate into the affairs of the company Duty to certify certain matters the directors solvency declaration at the time of voluntary winding up of the company Duty to attend the meetings of audit committee of board of directors constituted u/s 292 A of the act STATUTORY REPORT:

Public limited company limited by shares shall held once units life time the meeting of share holders under sec.165 after the month but before the 6months from the date of commencement of business At least 21 days before the meeting company shall serve on all its shareholders a report known as statutory report DUTIES OF THE AUDITOR: Auditor shall certify the following three matters in the statutory report Number of shares allotted for consideration of cash The amount of cash collected by allotment of shares An abstract of cash receipts and a payments unto 7days from the date of statutory report Further auditor shall vouch the following Vouch the payment of preliminary expenses Vouch the payment of under writing commission Vouch the payment of brokerage etc.

COST AUDIT: Cost audit refers to audit of cost accounts by a cost accountant with in the meaning of CWA act ,1959 Cost audit is required only such company which are notified by central government in the official gazette Cost auditor is appointed by BOD with prior approval of CG All disqualifications mentioned u/s 226of the act is applicable to cost auditor further financial auditor of the company cannot be appoint as cost auditor of the same company Audit cling u/s 224(1B) is also applicable to cost auditor Cost auditor submit his report to the central government and simultaneously a copy is forwarded to the company with in120days from the close of the year for which audit pertains Company shall give explanation for which qualification or reservation raised by cost auditor to the C.G with in 30 days from the date of audit report SPECIAL AUDIT: Special audit is ordered by CG under the following three circumstances The affairs of the company is being managed in such a manner against sound business principles and prudent commercial practices The affairs of the company is being managed causing loss or injury to the whole business or industry or trade for which it pertains The affairs of the company are conducting in such a manner which might endanger us its own solvency position

Special auditor should be a CA but may or may not holding COP Special auditor submit its report to the CG If CG taken no action against the company based on the report with in the four months from the date of the report ,then CG shall forward the copy of report to the company then company may circulate the same to its members

JOINT AUDIT: 2. According to SA 299 on responsibilities of joint auditor, joint auditor share their work based on identifiable units or specified areas or in accordance with period of time 3. Joint auditor is responsible only to the extent of work allocated to them 4. How ever according to SA 299 the following 5 cases joint auditors are responsible jointly and severally In respect of audit work which is not divided among joint auditors In respect of matters relating to determination of nature timing and extent of audit procedures to be performed In respect of matters which is bring to the notice of joint auditors by new of the joint auditors and there is an agreement among them In respect of discloser requirements Matters relating to statutory compliance

AUDITORS REPORT
CONTENTS: i. TITLE: 1. Independent auditors report ii. INTRODUCTORY PARA: 1. Identification of financial statement audited namely pal accounts,b/s,cash flow statement iii. MANAGEMENT RESPONSIBILITY: 1. Reference to accounting standards issued by ICAI u/s 211(3C) 2. Management responsibility in relation to design, implementation and maintenance of internal controls of the entity iv. AUDITORS REPONSIBILITY: 1. Reference to standards on auditing issued by ICAI 2. A brief description of audit planned and performed 3. Reference to sufficient appropriate audit evidence (SAAE)

v. AUDITORS OPINION: 1. Opinion on the financial statements vi. OTHER LEGAL REPORTING RESPONSIBILITES: 1. `Reference to CARO,2003 as per sec.227(4A) 2. Reference to sec.227(C) reporting requirements vii. PLACE OF SIGNATURE viii. DATE OF SIGNATURE: 1. The date should not be earlier than the date on which financial statements are approved by the management ix. SIGNATURE BLOCK: 1. It consists of name, signature, membership no. and designation of auditor

BRANCH AUDIT: U/S.288 Branch auditor should be a person who is competent to appoint as company auditor Branch auditor is appointed by share holders in AGM Shareholders may by passing resolution authorize the BOD to appoint branch auditor in consultation with company auditor Branch auditor shall forward his report u/s.288 of the act to the company auditor COMPANY BRANCH AUDIT EXSUMPTION RULES, 1961: A branch may be exsumpted from audit in following two ways Based on the application to CG Based on quantum of activates

BASED ON THE APLLICATION TO CG: Company has made the satisfactory arrangements for scrutiny and check of books of accounts of the branch @regular intervals by a competent person The books of accounts of the branch as audited by a person who is other wise qualified to be appoint as auditor of company but he is an employee of the company With reference to nature and size of the business auditor is not available at reasonable cost Any other grounds as satisfied by CG

BASED ON THE QUNTAM OF ACTIVITY: A branch can get exsumpted from audit if the average quantum of activity of the branch is not exceeding highest of the following RS 2 lakes 2% of the total turnover of the company QUNTUM OF ACTIVITY REFERS TO The aggregate amount of goods manufactured ,processed or produced The aggregate amount of goods sold and service rendered The amount of expenditure incurred by the branch in that particular year which includes both revenue and capital NOTE: This rule is mainly applicable to the company engaged in manufacturing or processing or production or trading activity