Auditor: Power, Rights, Duties, Responsibilities, Scope

Rights & Powers of Auditor

1. Right of access to Books of account & Vouchers [Sec. 143(1)]
2. Right to obtain information & explanation [Sec. 143(1)]
3. Right to visit branch offices & access to branch account
4. Right to receive notice & attend general meeting
5. Right to make representation
6. Right to report to members
7. Right to sign audit report
8. Right of seeking opinion of an expert
9. Right to receive remuneration

Right of access to Books of account & Vouchers

The auditor has a right to access, at all times the books of accounts & vouchers of the company, whether kept at head office or elsewhere. It is an absolute right & is not subject to any restriction, exception or qualification.

The term book includes all types of books such as financial statutory or statistical books. The right of access at all times implies that an auditor can inspect the books, accounts & vouchers of the company during the normal business hours of the audit.

Right to obtain information & explanation

An auditor of the company is entitled to required from the officers, of the company such information & explanation as he may think necessary for the performance of his duties as an auditor. The auditor is bound to state in his report whether he has obtained all the information & explanations which to the best of his knowledge & belief were necessary for the purpose of the audit.

Right to visit branch offices & access to branch account

Where the accounts of any branch office are audited by a person other than the company’s auditor, the company’s auditor is entitled to visit the branches, if he deemed it necessary to do so for the performance of his duties as an auditor.

However, the auditor does not have right to visit foreign branches of a banking company & it will be adequate if he is allowed access to such copies of extracts from the books or accounts of the branch as have been sent to the principal office in India.

Right to receive notice & attend general meeting

The auditor has the right of receiving all the notices & other communications relating to any general meeting of a company which any member of the company is entitled to have. He is entitled to attend any general meeting & to be heard at any general meeting which he attend on any part of the business which concerns him as an auditor.

However, the auditor has no obligation to attend such meetings. Also, this right does not extend to board meeting.

Right to make representation

The retiring auditor is entitled to receive a copy of the special notice intending to remove him or proposing to appoint any other person as auditor. The retiring auditor has a right to make his representation in writing & request that the same is circulated among the members. In case the same could not be circulated, the auditor may require that the representation shall be read out at the general meeting.

Right to report to members

The auditor has right as well as duty to make a report to the members on the accounts examined by him & to state whether in his opinion & to the best of his information & explanation given to him. Auditor has to state whether the financial statements give a true & fair view of the state of affairs of the business of the company.

Right to sign audit report

The auditor has right as well as duty to sign the audit report & the balance sheet & the profit & loss account including all the documents attached or annexed therewith.

Right of seeking opinion of an expert

In respect of any special technical matters, the auditor is entitled to consult & take the opinion of an expert. He is also entitled to take legal advice so as to discharge his duties efficiently.

Right to receive remuneration

The auditor has an inherent right to receive remunerations for auditing the accounts of the company, though such rights accrue only after he has completed the work.

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Duties of Auditor

1. Report to members [Sec.143(2)]
2. Examination of accounts
3. Reporting on true & fair view
4. Duty as to Enquiry [Sec.143(1)]
5. Report as to additional matters
6. Duty to sign report
7. Duty as to statutory report
8. Duty as to prospectus [Sec.56]
9. Duty to assist investigation

Report to members [Sec.143(2)]

The auditor is required to make a report to the members of the company.

• On the accounts examined by him.
• On the balance sheet & profit & loss account.
• On every other document declared by the act.

His report must state whether in his opinion & to the best of his information & according to the explanations given to him the said accounts give a true & fair view in case of balance sheet, of the state of company’s affairs as at end of the financial year, & in the case of the profit & loss account for its financial year.

Examination of accounts

The auditor has to state in his report

• Whether he is obtained all the information & explanations which to the best of his knowledge & belief were necessary for the purpose of audit.
  
  
• Whether in his opinion proper book of accounts as required by law has been kept by the company & proper returns adequate for the purpose of audit have been received from the branches not visited by him.
  
  
• Whether any branch audit report under section 228 forwarded to him & how he has dealt with the same in preparing auditors report.
  
  
• Whether the company’s balance sheet & profit & loss account dealt with the report are in agreement with the book of account & returns.
  
  
• Whether in his opinion the balance sheet & Profit & loss account comply with the accounting standards.
  
  
• If any adverse effect on the functioning of the company is observed it needs to be comment in bold & italic font.
  
  
• Whether any director is disqualified from being appointed as director under sec. 274 (i) (g)
  
  
• Whether cess payable under sec. 441A has been paid & if not the details of the amount of cess.

Reporting on true & fair view

The primary duty of the auditor is to express his opinion whether the balance sheet shows true & fair view of the state of company’s affair as at the end of the financial year.

Scheduled VI refers only to the minimum disclosure requirement, if certain information has a material bearing on the representation made in the financial statements, it must be disclosed even if there is no legal requirement for its disclosure under schedule VI.

Before expressing his opinion on the truth & fairness of the financial statement, the auditor must ensure

• They are drawn up according to exact legal requirements.
  
  
• They show the financial position & profit & loss without any distortion.
  
  
• They do not contain any misstatement as to income or expenses.
  
  
• They have generally accepted principles of accounting have consistently been followed in drawing up financial statements.
  
  
• All necessary information is made available to shareholders as to the true financial position of the company.

Duty as to Enquiry

It is the duty of the auditor to enquire

• Whether loans & advances made by the company on the basis of security have been properly secured & whether the terms on which they have been made are not prejudicial to the interest of the company.
• Whether the transactions are represented merely by book entries are not prejudicial to the interest of the company.
• Whether the company is not an investment company or a banking company, whether so many of the assets of the company have been sold at a price less than at which they were purchased by the company.
• Whether loans & advances made by the company have been shown as deposits.
• Whether personal expenses have been charged to revenue account.
• Whether the position is stated in books of accounts & balance sheet is correct, regular & misleading.

The auditor is not required to report on the matters specified under this section unless he has any special comments to make on any of the items referred to therein. If he is satisfied as a result of the enquiries, he is not required to report that he is so satisfied.

Report as to additional matters

In exercise of this power, the Central Government has issued Companies ( Auditor’s Report ) Order CARO,2003. The auditor has to make a statement on each of the matters specified in the order.

Duty to sign report

It is the duty of the auditor to sign the auditor’s report or sign or authenticate any other document of the company required by law to be signed or authenticated by the auditor. In case of a firm, only a partner of the firm practicing in India can sign the report.

Duty as to statutory report: It is the duty of the auditor to certify as correct that part of the statutory report that relates toa. The shares allotted by the company. b. Cash received in respect of such share & c. Receipt & payments of the company.

Duty as to statutory report

It is the duty of the auditor to certify as correct that part of the statutory report that relates to

• The shares allotted by the company.
• Cash received in respect of such share
• Receipt & payments of the company.

Duty as to prospectus

Section 56 deals with matters to be stated & the reports that is to be set out in the prospectus. It is the duty of the auditor to certify this report for the purposes of the prospectus.

Duty to assist investigation

Where any investigation has conducted, it is the duty of auditor.

• To preserve & to produce all books & papers relating to the company to inspector.
• Give to the inspector all assistance in the connection with investigation.

It may be noted that no limitation can be placed upon the duties of the auditor under section 227, either by the articles of the company or by any resolution of the members.

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Scope of Duties of Auditor

The scope of duties of an auditor depends upon the nature of the business carried on by the concern. The duties & the responsibilities can be briefly summarized as follows:

• To verify that the statements of account are drawn up on the basis of the books of the business. However, the auditor is not liable for facts which are concealed & kept out of books which he can not verify in the ordinary course of the exercise of reasonable care & diligence.
  
  
• To verify that the statements of the account exhibit a true & fair state of affairs of the business.
  
  
• To confirm that the management has not exceeded the financial administrative power vested in it by the articles or by any specific resolution of shareholders passed at a general meeting.
  
  
• To investigate matters in regard to which his suspicion is aroused as to the result of a certain action on the part of the servants of the company.
  
  
• To perform his duties by exercising reasonable skill & care. He should not rely on the certificate of the management for those items which he can verify directly.