DUTIES AND POWERS OF AUDITORS

Auditor’s Report:

The auditor shall make a report to the members of the company on accounts examined by him on every financial statements and report financial statement give a true and fair view of the state of the company’s affairs at the end of its financial year and profit or loss and cash flow for the year and such other matters. [Section 143(2)]

The auditor report shall also state:

• Whether he has sought and obtained all the necessary information and explanations,
• Whether proper books of account have been kept,
• Whether the report from branch auditor was sent to him and the manner he dealt with it,
• Whether company’s balance sheet and profit and loss account are in agreement with books of accounts and returns,
• Whether financial statements comply with accounting standards,
• The observations or comments on financial transactions or matters which have any adverse effect
• Whether any directors is disqualified from being appointed as director under section 164(2),
• Any qualification, reservation or adverse remark
• Whether company has effective internal control system and operative effectiveness, and
• Such other matters. [Section 143(3)]

Rule 11 of the Companies (Audit and Auditors) Rules 2014 prescribed that The auditor’s report shall also include their views and comments on the following matters, namely:-

(a) whether the company has disclosed the impact, if any, of pending litigations on its financial position in its financial statement;

(b) whether the company has made provision, as required under any law or accounting standards, for material foreseeable losses, if any, on long term contracts including derivative contracts;

(c) whether there has been any delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the company.

Branch Audit

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), or by any other person qualified for appointment as an auditor of the company, 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. 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. [Section 143(8)]

For the purposes of sub-section (8) of section 143, 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 as contained in sub-sections (1) to (4) of section 143. [Rule 12(1)]

The branch auditor shall submit his report to the company’s auditor. [Rule 12(2)]

The provisions of sub-section (12) of section 143 read with rule 12 hereunder regarding reporting of fraud by the auditor shall also extend to such branch auditor to the extent it relates to the concerned branch. [Rule 12(3)]

Fraud Reporting:

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. [Section 143(12)]

For the purpose of sub-section (12) of section 143, in case the auditor has sufficient 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 report the matter to the Central Government immediately but not later than sixty days of his knowledge and after following the procedure indicated herein below:

1. auditor shall forward his report to the Board or the Audit Committee, as the case may be, immediately after he comes to knowledge of the fraud, seeking their reply or observations within forty-five days;
2. on receipt of such reply or observations the auditor shall forward his report and the reply or observations of the Board or the Audit Committee along with his comments (on such reply or observations of the Board or the Audit Committee) to the Central Government within fifteen days of receipt of such reply or observations;
3. in case the auditor fails to get any reply or observations from the Board or the Audit Committee within the stipulated period of forty-five days, he shall forward his report to the Central Government along with a note containing the details of his report that was earlier forwarded to the Board or the Audit Committee for which he failed to receive any reply or observations within the stipulated time. [Rule 13(1)]

The report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by Registered Post with Acknowledgement Due or by Speed post followed by an e-mail in confirmation of the same. [Rule 13(2)]

The report shall be on the letter-head of the auditor containing postal address, e-mail address and contact number and be signed by the auditor with his seal and shall indicate his Membership Number. [Rule 13(3)]

The report shall be in the form of a statement as specified in Form ADT – 4. [Rule 13(4)]

The provision of this rule shall also apply, mutatis mutandis, to a cost auditor and a secretarial auditor during the performance of his duties under section 148 and section 204 respectively. [Rule 13(5)]

Form ADT – 4:

Report to Central government regarding fraud contains following information:

• Address of the office or location where the suspected offence is believed to have been or is being committed
• Full details of the suspected offence involving fraud (attach documents in support)
• Particulars of the officers or employees whoare suspectedto be involvedin the commission of the offence, if any:
  • Name(s) :
  • Designation
  • If Director, his DIN
  • PAN
• Basis on which fraud is suspected:
• Period during which the suspected fraud has occurred
• Date of sending report to the Board or Audit committee as per rule 13(1)
• Date of reply received from Board or Audit committee, if any and if so received, attach copy thereof and give gist of the reply
• Whether the auditor is satisfied with the reply of the Board or Audit committee. Yes _____ No _____.
• Estimated amount involved in the suspected fraud;
• Details of steps, if any, taken by the company in this regard; (Furnish full details with references)
• Any other relevant information