ACKNOWLEDGEMENT

It gives us immense joy and pleasure to acknowledge the help of all the people who have helped us complete this project.

Our group owes more than it can say to the experience and the guidelines of our College Principal Dr. Marie Fernandes and the excellent faculty and staff of St. Andrews College Bandra.

We are greatly indebted to our __________________project guide Prof. __________________for her enthusiastic support and cooperation as also for her constant encouragement throughout the making of this project.

A special thanks to our friends and above all to our families for their unceasing love, support and encouragement. Their wisdom has helped us through the highs and lows of completing this project.

DECLARATION

We the students of St. Andrews College of t.y.b.b.i semester-1 hereby declare that we have completed the Project titled-----------for the subject princilples of management for the academic year 2011-12.

NAME

SIGN

ROLL NO

MILTON GRACIAS

ALSTON PEREIRA JEYSON BARBOZA CLIFFTON KINNY HEINRICH KINNY VICKY RAMESH KEVIN DSOUZA

CERTIFICATE

I ________________________________hereby certify that the following students of St. Andrews College of f.y.b.b.i semester-1 have completed the project titled----------for the subject princilples of management for the academic year 2011-12. S.N O 1 2 3 4 5 6 7 TOPIC INTRODUCTION AUDITORS INDEPENDENCE AUDITORS PROFESSIONALISM AUDITORS RESPONSIBILITIES RIGHTS OF COMPANY AUDITOR DUTIES OF COMPANY AUDITOR LIABILITIES OF AUDITORS

BIBLOGRAPHY

INTRODUCTION
Professional accountants have an important role in society, investors, creditors, employers and other sectors of the business community, as well as the government and the public at largely on professional accountant for sound financial accounting and reporting, effective financial management and competent advice on a variety of business and taxation matter. The attitude and behavior of professional accountants in providing such impact on the economic well-being of their community and country. Professional accountants can remain in this advantageous position only by continuing to provide the public with these unique services at a level which demonstrates that the public confidence is firmly founded. It is in the best interest of the worldwide accountancy profession to make users of the services provided by professional accountant that they are executed at the highest level of performance and in accordance with ethical requirement to ensure such performance. In order to achieve the objectives of the accountancy profession, professional accountants have to observe a number of fundamental principles as under:
Integrity: A professional accountant should be straightforward and

honest in performing professional services. Objectivity: A professional accountant should be fair and should not allow prejudice or bias, conflict of interest or influence of others to override objectivity.
Professional competence and due care: A professional accountant

should perform professional services with due care, competence and diligence and has a continuing duty to maintain professional knowledge and skill at a level required to ensure that a client or employer receives the advantages of competent professional service based on up-to-date developments in practice, legislation and techniques.

 Confidentiality: A professional accountant should respect the

confidentiality of information acquired during the course of performing professional services and should not use or disclose any such information without proper and specific authority or unless there is a legal or professional right or duty to disclose.
Professional behavior: A professional accountant should act in a

manner consistent with the good reputation of the profession and refrain from any conduct which might bring discredit to the profession.

AUDITORS INDEPENDENCE:
Independence is fundamental to the reliability of auditors reports. Those reports would Not be credible, and investors and creditors would have little confidence in them, if auditors were not independent in both fact and appearance. To be credible, an auditors opinion must be based on an objective and disinterested assessment of whether the financial statements are presented fairly in conformity with generally accepted accounting principles. As expressed by Council of the American Institute of Certified Public Accountants (AICPA) in a statement adopted in 1947:Auditor independence refers to the independence of the internal auditor or of the external auditor. It is essentially an attitude of mind characterized by integrity and an objective approach to the audit process. The concept requires the auditor to carry out his or her work freely and in an objective manner. The notion has been described as 'an impossible dream. Independence of the internal auditor means independence from parties whose interests might not be totally aligned with an effective risk management, an effective internal control, and an optimal governance. The Charter of Audit and the reporting to an Audit Committee generally provides independence from management, the code of ethics of the company (and of the Internal Audit profession) helps give guidance on independence from suppliers, clients, third parties...

 Independence of the external auditor means independence from parties, that have an interest in the financial statements of an entity. The support from and relation to the Audit Committee of the client company, the contract and the contractual reference to public accounting standards/codes generally provides independence from management, the code of ethics of the Public Accountant profession) helps give guidance on independence from suppliers, clients, third parties The following are some of the suggestions mooted in recent years for ensuring greater independence of auditors. 1. Setting up of an independent audit committee comprising of nonexecutive directors of the company to deal with all audit related functions and to act as in insulator between the management and the auditors. 2. Peer review of auditors to monitor whether an auditor is maintaining proper standards. 3. Probation on the auditor accepting goods, services or undue hospitality from a client. 4. Dissociation with audit where there is actual or threatened litigation with the client. 5. Not allowing auditors to render management services or other nonaudit services to the company under audit. 6. Prohibition on persons to act as auditors of a company if they are related to directors they have common financial interests with them. 7. Rotation of auditors.

AUDITORS PROFESSIONALISM:
Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organizations operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. In addition to fulfilling the duties described in the definition of internal auditing, professional internal auditors have several other characteristics in common. These characteristics, inherent professionalism at its best, define the level to which all internal audit practitioners should aspire, the degree of respect to which management and the board pays the internal audit function, and the extent of the value internal auditors can bring to their organizations ethical operations. Much is written about ethics and ethical behavior these days. From a global perspective, there appear to be discrepancies from country to country on what is considered ethical. Discrepancies on what is accepted as ethical behavior can also be found within the same country, from organization to organization. But this liberal view has no place in the world of internal auditing. Internal auditors are tasked with standing for what is right, for

adhering to the highest ethical code, and for never yielding to pressures to bend the rules and alter the path. Charged with monitoring organizational ethics, professional internal auditors adhere to The Institute of Internal Auditors (IIAs) Code of Ethics. They possess a high level of trust and integrity within the organization, the skills to be effective advocates of ethical conduct, and the competence and capacity to encourage the organizations personnel to comply with their ethical responsibilities.A case in point is Worldcoms internal auditor, Cynthia Cooper. She was unwavering in her integrity, her commitment to ethics, and her dedication to diligently performing her responsibilities. She admirably carried forth her duties of collecting and analyzing data, and then through the Appropriate chain of command, delivering the results to the audit committee. What Ms. Cooper exemplified was professionalism not heroism and internal audit practitioners everywhere would do well emulating the example she set. On a greater scale, ethics are as much an organizational issue as a personal issue. This is how the term tone at the top originated. Management should set, promote, and perpetuate an ethical climate at the very top of the organization. Only candidates with integrity and high ethics should be considered for positions within the organization, and the corporate culture should tolerate nothing less than ethical practices and behavior. The professional internal auditors role includes monitoring whether the organizations policies and procedures support ethical operations and whether processes are in place to mitigate any threats and risks to the organizations integrity and ethical reputation. This ties in closely, of course, with the internal auditors responsibility to analyze the organizations entire system of internal control and governance processes to ensure they are effective and strong. The bottom line is that an ethical environment from the boardroom to the mailroom is one of the smartest and strongest internal controls management could implement.

AUDITORS RESPONSIBILTIES:
The auditor is responsible for forming and expressing his opinion on the financial statements. The responsibility for their preparation is that of the management of the company. An auditor is a member of a valued profession. His primary duty is to report all the accounts and statement as prepared and presented to the members of the company by its directors. He has not only a responsibility to member of the company but also a duty to third parties such as creditors and investors. The statement on the responsibility of joint auditors issued by ICAI describes the professional responsibilities of the members undertaking joint audit. The main points of the statement are as follows:

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If the division of work between the joint auditors is such that a specific part of audit work in relation to a particular area is done by each auditor alone, each joint auditor will be responsible only for the work allocated to him. Division of work between joint auditors should be by mutual discussion and the client should be informed as to their respective areas of work. Matters requiring discussion, disclosure or application of judgment should be brought to the attention of the other joint auditors before finalization of audit Each joint auditor has a separate and specific responsibility to evaluate and review the existing system of internal control and determine the audit tests and depth of review. If audit of different branches or divisions has been entrusted to different auditors, each joint auditor will have specific and separate responsibility to review the returns of the respective branches and the divisions. It is not incumbent on any joint auditor to review the work done by other joint auditors and he is entitled to presume that they have carried out their respective parts of the work according to the normal standards laid down by the institute and generally accepted auditing standards. If the auditors do not agree in respect of the report each of them may then make a separate report. There is no question of majority or minority opinion in the case of a joint audit report, and each joint auditor has both a right and a duly to express his own opinion.

RIGHTS OF COMPANY AUDITOR:

To enable the auditor to discharge his duties effectively, the Act gives him certain rights. An auditor has the right of access to the books and vouchers of the company. He is also entitled to seek information and explanations from the officer of the company. He has the right to receive notices and other communications pertaining to all general meetings of the company and to attend any general meeting. These rights enable the auditor to carry out

his duty of reporting to the member of the company on the financial statement examined by him.
1) Access and vouchers: Sec227 (1) of the act provides that every auditor

of a company shall have a right of access at all times to the books and accounts and vouchers of the company, whether kept at the head office of the company or elsewhere. This right of the auditor to inspect books accounts and the supporting document is absolute. The term voucher includes of all documents, correspondence, agreements, etc. which support any of the transactions or data disclosed in the financial statements, directly or indirectly, similarly, the term books includes the financial, statutory, and statistical books.
2) Obtain information and explanation: Sec227 (1) of the act entitles the

auditor of a company to require from the officers of the company such information and explanations as the auditor may think necessary for the performance of his duties as auditor. In case any information or explanation are not given to him, he should report this fact to the members.

3) To visit branch offices and access to branch accounts: Sec228 (2)

of the act gives specific rights to the company auditor where the accounts of any branch office are audited by another person. Accordingly, the company auditor: a) Shall be entitled to visit the branch office, if he deems it necessary to do so for the performance of his duties as auditor, and b) Shall have a right of access at all times to the books and accounts and vouchers of the company maintained at the branch office: provided that in the case of a banking company having a branch office outside India, it shall be sufficient if the auditor is allowed access to such copies of, and extracts from, the books and accounts of the branch as have been transmitted to the principal office of the company in India. c) To receive notices and to attend General meetings: Sec231 of the act provides that all notices of, and other communications relating to, any general meeting of a company which any member of the company is entitled to have sent shall also be forwarded to the auditor of the company; and the auditor shall be entitled to attend any general meeting and to be heard at any general meeting which he attends on any part of the business which concerns him as auditor.

Thus, the auditor has the right to attend general meetings and speak on matters concerning him as auditor. However, the mere fact that he has made certain observations at the general meeting does not relieve him of his responsibility to makes proper disclosures in his report.

DUTIES OF COMPANY ADUITOR:

1. Duty to certify the statutory report: The auditor has to certify the correctness of the statutory report as far as: a. The number of the shares allotted by the company, whether against cash or for any other consideration; b. The total amount of cash received by the company in respect of all the shares allotted, distinguishing as aforesaid; c. An abstract of the receipts of the company and the payments made there out; 2. Duty to certify profit and loss account in a prospectus: Section 56(I) provides that a prospectus issued by an existing company shall contain a statement of profits and losses, year-wise company shall contain a statement of profits and losses, year-wise for the previous five years showing the rate of dividend paid each year and a statement of assets and liabilities of the company. Such a statement has to be certified by the auditor of the company. 3. Duty to assist investigators: An auditor is bound to assist the inspectors in every possible way when the affairs of the company are being investigated. 4. Duty as to declaration of solvency in members voluntary winding up : In case of members voluntary winding up of a company, a copy or the report of the companys auditor on the profit and loss account and the balancesheet for the period commencing from the date by which the last account was prepared and up to the date of declaration is to be sent along with the declaration of solvency. In the said report a statement of the companys assets and liabilities for the same period should also be included. The statutory duties of the auditors as stated above can be expanded but they cannot be curtailed either by the articles of association or by the directors of the company. 5. Duty of reasonable care: An auditor must act honestly and with reasonable care and skill; otherwise he may be sued for damages. Further, it is the duty of an auditor to verity with skill, care and caution which a reasonably competent, careful and cautious auditor would use. What is reasonable skill, care and caution must depend on the particular circumstances of each case. An auditor is not bound to be a detective or to

approach his work with a foregone conclusion that there is something wrong. He is a watch-dog but not a blood hound. He is justified in believing tried servants of the company and in assuming that they are honest provided he takes reasonable care.

THE LIABILITIES OF AUDITORS:

A. Liabilities of auditors under the companies Act,1956:
Under the companies act, 1956 an auditor may be subjected to civil and criminal liabilities. There are number of circumstances where the auditor may attract various types of liabilities on account of failure to properly discharge his responsibilities. Civil liabilities in the companies act: The civil liability arises when it is proved that the company has suffered losses as a result of the failure of the auditor to conduct his audit with due care and skill. i. Misfeasance (Section 543): It is simple procedure under the act for bringing an action against persons associated with promoter or management of a company under winding up. An auditor is covered within the scope of the liability as an officer of the company, pursuant to the definition of officer given in section 2(3) of the act. This section specifies a plain remedy to recover damages corresponding loss will not create any liability. If an auditor is found to be negligent and unskillful in the performance of his duties due to which the company suffers losses, he is liable at least to the extent the company has lost and proceedings may be taken against him. Violation of the requirement of section 227 and 229: Under section 233 of the act an auditor is liable to a penalty extending to Rs.1000 for willful default in complying with the requirements of section 227 and 229 of the companies act in regard to making of the auditors report or signing or authentication of any document of the company. Misstatement in prospectus: An auditor, as an expert, is exposed to liability for misstatement in prospectus under section 62 of the act. The auditor liable to such persons who may have subscribed to the shares or debentures of the company on the fairth of his report incorpated in the prospectus issued by company and have suffered loss due to existence of untrue statement in the report.

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B. Criminal Liabilities in the Companies Act:

i. Fraud and Deception: Section539 of the Act prescribes severe criminal penalties if fraudulent falsification of books is carried out by the auditor. An auditor may be held liable, if with intent to defraud or deceive any person (a) He has destroyed, altered, falsified, and secreted any books, paper or securities of a company. (b)He has made or is privy to the making of any false or fraudulent entry in any registry, books or account or document belonging to the company. The proceedings under the section can be taken in respect of a company under winding up and the punishment may extent to imprisonment for seven years. The auditor shall also liable to fine. ii. Offence in relation to the company: An auditor as an officer, is liable to be prosecuted under section 545 of the act, if he as a past or present auditor, has been guilty of offence in relation to the company. iii. False statement, etc: Under section 638 of the act, the auditor is liable to criminal prosecution if he, in any return, certificate, balance sheet, prospectus, statement or other document makes a statement which is false in any material particular, knowing it to be false or; omits any material facts knowing it to be material, is punishable with imprisonment for a term which may extent to two years and also with a fine.

BIBLOGRAPHY www.google.com www.wikipedia.com