Unit 2
Audit of Ltd. Companies
COMPANY AUDITOR
QUALIFICATIONS
An efficient auditors ought to have positive widespread qualifications similarly to their statutory qualifications. This lets in him to paintings effectively and smoothly. Auditor features labelled as follows.
- Professional qualification, that is, criminal qualification.
- Professional qualifications, that is, private qualifications.
- Personal features, that is, widespread features.
The info of them is as follows.
a. Professional qualifications | Legal qualifications of auditors
In the case of best buying and selling worries and partnerships, the regulation does now no longer offer for auditor qualifications. However, withinside the case of an auditor of a joint-inventory company, the auditor ought to be a chartered accountant withinside the means of the Chartered Accountant Act of 1949.
He ought to by skip the Chartered Accountant (C.A) examination performed through the Institute of Chartered Accountants of India (ICAI). Certified accountants ought to achieve certificates of exercise from the ICAI Council for price of the prescribed annual club rate for you to qualify for exercise.
There are classes of ICAI individuals: Associates and Fellows.
A man or woman is taken into consideration a companion member of the Institute if his / her call seems withinside the Institute's Membership Register. This will permit him to apply the letters A.C.A.
Associates who're individuals of the Institute and had been practising constantly in India for as a minimum five years below different Associates who've the qualifications prescribed through the Council of the Institute may be registered as Fellows of the Institute. You have the proper to apply the FCA characters after his call.
b. Professional Qualifications | Auditor's Personal Qualifications
Auditors are required to have many expert features, which range in nature. These are important for a hit audit effort. They are:
1. The auditor ought to have whole and whole expertise of accounting ideas, theories and practices. Auditors want to be acquainted with the diverse accounting structures and their aspects. He ought to be acquainted with all departments of accounting. He wishes to be privy to the trendy tendencies withinside the subject of accounting.
2. He ought to be acquainted with diverse legal guidelines governing commercial enterprise, inclusive of company regulation, Indian partnership regulation, financial institution coverage regulation, products income regulation, forex manage regulation, and Indian agreement regulation.
3. The auditor ought to have a whole expertise of auditing techniques. He wishes to be absolutely conscious of recent modifications and tendencies in audit ideas and practices.
4. The auditor ought to be acquainted with pc accounting and different computerized equipment used withinside the office.
5. In addition to expertise of industrial regulation, auditors ought to have whole expertise of diverse provisions associated with earnings tax, wealth tax, VAT, present tax, etc.
6. The auditor ought to be acquainted with financial regulation and the ideas of financial regulation. This is due to the fact the commercial enterprise wishes to characteristic inside positive financial legal guidelines and social environments, and the effect is manifested withinside the commercial enterprise.
7. The auditor ought to have expertise of data and mathematics. This enables you cope with complicated issues.
8. He wishes to look at critical judgments in audit cases. This enables outline the auditor's obligations, responsibilities, and responsibilities.
9. The auditor ought to have enough expertise of commercial enterprise organization, economic management, and business management.
10. The auditor ought to have expertise of the technical info of the commercial enterprise being audited.
c. Personal features | General features of the auditor
Individual features ate the vital screen of a hit auditor. The private features required of the judges are as follows.
1. Honesty: The auditor ought to be sincere with the task for you to be triumphant withinside the task. He ought to keep top ethical standards.
2. Cleverness: The auditor ought to be smart in interacting with the client's staff.
3. Ability to paintings hard: Auditors ought to have a painstaking mind-set and willingness to paintings hard.
4. Fairness: The auditor has to know, no longer be tormented by prejudice in appearing his obligations. He ought to be fair.
5. Be vigilant: Auditors ought to be vigilant of their paintings. He has to usually maintain his eyes open and be vigilant.
6. Orderly: He ought to carry out his obligations in an orderly manner, be thorough and whole his paintings.
7. Ability to music information and numbers: Auditors want to be practical approximately their paintings. He has to be capable of music information and numbers.
8. Always curious: The auditor has to know no longer be suspicious. He ought to usually be curious. He has too no longer be suspicious.
9. Courage: The auditor ought to be ambitious sufficient to perform his obligations. He has too no longer show what he suspects are genuine.
10. Ability to keep secrets: Auditors should have the ability to keep secrets and must not disclose the client's secrets to anyone.
11. Communication skills: Auditors must have the ability to produce audit reports correctly, powerfully, accurately, concisely and clearly.
12. Common sense: Auditors need to have good common sense. Auditors need to fully share common sense, which is the most valuable product. However, common sense is usually very rare in humans.
In addition to statutory and professional qualifications, auditors must comply with certain codes of conduct and professional ethics. The responsibility and attitude of a professional auditor can earn the trust and trust of the public.
Moreover, in the digital age, most commerce is done online. Your account is managed on your computer. The electronic data processing (EDP) system is running for account maintenance. No primary data is used to record the transaction. Therefore, the auditor needs to acquire knowledge of the EDP system. He himself must be capable of confronting the challenges of the new digital business world of E-Governance and E-Commerce.
DISQUALIFICATIONS
According to the provisions of Article 141 (3) of the Companies Act 2013, the following persons shall not be qualified as corporate auditors.
a) Non-LLP corporations registered under the 2008 LLP Act
b) Company officers or employees.
c) A partner or employer of a company officer or employee.
d) A relative or partner
• Holds security interests / profits of the company or its subsidiaries, or its holding company or affiliates or subsidiaries of such holding companies. In addition, it is stipulated that relatives may hold collateral or profits of a company whose par value does not exceed 1 rupee.
• Beyond Rs, you owe a company or its subsidiaries, or its holding company or affiliates, or a subsidiary of such a holding company. 5 race rupees
• In connection with the incompetence of a third party, we provide a guarantee or guarantee for value in excess of Rs to the company or its subsidiaries, or its holding company or affiliates or subsidiaries of such holding companies.
e) An individual or company that has a business relationship (directly or indirectly) with a company or its subsidiary, or its holding company or affiliate, or a subsidiary of such holding company or affiliate.
The business relationship here shall be construed as a transaction conducted for commercial purposes except as follows.
• A commercial transaction of the nature of a professional service authorized by an auditor or audit firm by a specialized body that regulates such members.
• Commerce in the normal business process of a company at an independent business-to-business price as a customer.
f) A person whose relatives are directors or who are employed by the company as directors or key managers.
g) People
• Someone who works full time elsewhere, or
• An individual or partner appointed as an auditor is the date of appointment or reappointment as an auditor for more than 20 companies.
h) A person who has been convicted by a court of crime, including fraud, and often less than a few years after the date of such conviction.
i) A subsidiary or affiliate or other form of entity engaged in consulting or professional services on the date of appointment in connection with the provisions of Article 144 of the Companies Act 2013.
Furthermore, according to the provisions of Article 141 (4) of the Companies Act 2013, a person appointed as an auditor of a company shall be disqualified from any of the disqualifications stated in Article 141 (3) of the Companies Act 2013 after the appointment. He will leave his office as such an auditor and such vacancies shall be deemed to be temporary vacancies of the auditor's officers.
It should be noted that the above provisions apply to all types of auditors: cost auditors, statutory auditors, and secretarial auditors.
Modes of Appointment of Auditors the First Auditor:
a) The first auditor of a company shall be appointed by the board of directors within one month of the date of registration of the company. If the Board fails to appoint within the said period of one month, the company in general meeting may appoint the first auditors.
b) The first auditors shall hold office from the date of appointment to the conclusion of the first annual general meeting of the company.
Appointment of Subsequent Auditors [Sections 224 (1), (IB) and (1C)]:
At every annual general meeting, the auditor is appointed or reappointed by every company by passing an ordinary resolution. The appointment of auditors at an annual general meeting is an item of ordinary business. Such auditor holds office from the conclusion of the meeting in which they are appointed to the conclusion of the next annual general meeting.
Appointment of Auditors by Central Government [Section 224(3)]:
Where at any Annual General Meeting, no auditors are appointed or reappointed, in that case within 7 days of such a meeting, the company shall intimate this to the central government who may appoint a person to fill the vacancy.
Compulsory Reappointment of Retiring Auditor (Section 224(2)]: At an annual general meeting, a retiring auditor by what so ever authority appointed, shall be reappointed except under any of the following situations:
(a) Where he is not qualified for reappointment
(b) Where he has given the company notice in writing of his unwillingness to be reappointed.
(c) Where a resolution has been passed at that meeting appointing somebody instead of him or providing expressly that he shall not be reappointed.
(d) Where notice has been given or an intending resolution to appoint some person in the place of a retiring auditor passed, but by reason of the death, incapacity or disqualification of that person the resolution cannot be proceeded with.
Appointment in case of Causal Vacancy [Sec. 224 (6)]:
Where a vacancy is caused by the resignation of an auditor, the company in a general meeting shall only fill the vacancy. The Board of Directors may fill casual vacancy in the office of an auditor caused by any other reason than a resignation, while any such vacancies continue the remaining auditor or auditors, if any, may continue to act the auditor or auditors. Any auditor appointment in a casual vacancy shall hold office until the conclusion of the next annual general meeting.
Appointment by special Resolution (Sec. 224 A):
In case of a company in which not less than 25% of the subscribed share capital is held, whether singly or in any combination, by
a. A public financial institution, or a government company or the Central Government or any state government, or
b. Any financial or other institution established by any provincial or State Act, in which a State Government holds not less than 51 % of the subscribed share capital, or
c. A nationalised bank or an insurance company carrying on general insurance business,
The appointment or reappointment at each annual general meeting of the company, an auditor or auditors shall be made by a special resolution. It the company fails to pass such a special resolution for making the appointment of an auditor or auditors
It shall be deemed that no auditor or auditors had been appointed by the company at its annual general meeting. In such a case, the Central Government may appoint a person to act as the auditor of the company.
Appointment of Auditors of Government Companies (Sec. 619):
Appointment of auditors in case of a government Company is subject to the provisions of Sec 619 which overrides Sec 224 to Sec 233 dealing with appointment, etc., of the auditors in the case of nongovernment companies. The auditor of a Government Company shall be appointed or reappointed by the Comptroller and Auditor General of India; however, the appointment shall be subject to ceiling limits as per Sec 224 (1B).
Rotation of Auditor is appointing a new auditor when
- An individual had been appointed as an auditor for more than one term of five consecutive years
- An audit firm had been appointed as an auditor for more than two terms of five consecutive years.
For the purpose of the rotation of auditors
- In case of an auditor (whether an individual or audit firm), the period for which the individual or the firm has held office as auditor prior to the commencement of the Companies Act, 2013 shall be taken into account for calculating the period of five consecutive years or ten consecutive years.
- The incoming auditor or audit firm shall not be eligible if such auditor or audit firm is associated with the outgoing auditor or audit firm under the same network of audit firms.
The term “same network” includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control.
c. a break in the term for a continuous period of five years shall be considered as fulfilling the requirement of rotation.
d. if a partner, who is in charge of an audit firm and also certifies the financial statements of the company, retires from the said firm and joins another firm of chartered accountants, such other firm shall also be ineligible to be appointed for a period of five years.
The mandatory rotation of the statutory auditors has been provided under Section 139(2) of Companies Act, 2013 which provides that no listed company or the company belonging to such class or classes of companies as may be prescribed shall appoint or reappoint: (a) An individual as auditor for more than one term of five consecutive years, and (b) An audit firm has auditor for more than two terms of five consecutive years. Therefore, the rotation of the statutory auditor is applicable to all listed companies and any other company or class of the company as may be prescribed. The Central Government has notified the Companies (Audit and Auditors) Rules, 2014 and prescribed that these provisions shall be applicable to following class of the companies excluding one person companies and small companies. a) All unlisted public companies having paid up capital of R10 crore or more. b) All private limited companies having paid up capital of R20 crore or more. c) All companies having paid up share capital of below threshold limit mentioned in (a) & (b) above and having borrowing from financial institutions, banks or public deposits of R50 crore or more. It means the provisions rotation of statutory auditors are not applicable to one person companies and small companies and shall be applicable to all companies having borrowings from financial institutions, banks or public deposits of R50 crore or more irrespective of threshold limit mentioned hereinabove. It is also provided in the Act that the cooling period for the outgoing auditor shall be for five consecutive years which means:
i)An individual auditor who has completed his term under clause (a) above shall not be eligible for reappointment as an auditor in the same company for five years from the completion of such term.
Ii) The audit firm which has completed its term under clause (b) shall not be eligible for reappointment as auditor in the same company for five years from the completion of such term.
In terms of section 92 of the Companies Act, 2008, the same individual may not serve as the auditor or designated auditor of a company for more than 5 consecutive financial years.
If an individual has served as the auditor or designated auditor of a company for 2 or more consecutive financial years, and then ceases to be the auditor or designated auditor, the individual may not be appointed again as the auditor or designated auditor of that company until after the expiry of at least two further financial years.
If a company has appointed 2 or more persons as joint auditors, the company must manage the rotation required by this section in such a manner that all of the joint auditors do not relinquish office in the same year
Different modes of removal:
(a) Removal of first auditors before expiry of term [Section 224(5)]: The company may remove the first auditor by passing an ordinary resolution at a general meeting (usually extra ordinary general meeting. No special notice is required for such removal under s. 225. However, procedure prescribed under section 225(2) and (3) shall be followed. Although Nomination notice is required to given to the members of the company at least 14 days before the date of the meeting by this way only any other person may be appointed in place of removed auditor.
(b) Removal of subsequent auditor before expiry of their term: The company may, after obtaining the previous approval of the Central Government, remove the auditors before the expiry of their term by passing an ordinary resolution. No special notice is required for such removal. However, procedure prescribed under section 225(2) and (3) shall be observed.
(c) Removal at an AGM of first or subsequent auditor: The company may, at an annual general meeting, provide expressly that a retiring auditor shall not be reappointed or appoint an auditor other than a retiring auditor. Special notice shall be required for such. The remaining procedure prescribed under section 225(2) and (3) shall be followed for his removal.
Procedure prescribed under section 225(2) and (3):
(b) The notice for removal of an auditor shall be sent forthwith by the company to the auditor.
(c) After receiving notice auditor has the following rights:
(i) Right to be heard orally at the meeting.
(ii) Right to make a representation in writing to the company (not exceeding reasonable length).
(iii)Right to get his representation circulated among the members.
(d) Where a request is made by the auditor to circulate the representation, it shall be the duty of the company:
(i) to send a copy of the representation to every member of the company; and
(ii) to state the fact of the representation having been made in the notice given to the members.
(e) When representation is not sent by the company:
If a copy of the representation which was not sent as aforesaid because the representation was received too late or because of the company’s default, the auditor may require that the representation shall be read out at the meeting by himself.
(f) Intervention by Central Government:
The copies of the representation need not be sent out and the representation need not be read out at the meeting if the Central government is satisfied that this right is being abused by the auditor to secure needless publicity for defamatory matter. The Central government may order the company’s costs on such an application to be paid by the auditor, notwithstanding that he is not a party to the application. The application to the Central government may be made either by the company or by any other remember or director or other person.
Remuneration of Auditors (apart from the first auditor) of the company will be determined by stakeholders in general meeting as per section 142 of Companies Act 2013.
The process of determination Remuneration of auditors
- The remuneration of the auditor of the company will be fixed in a general meeting or in such a manner as may be prescribed therein. Provided the Board of directors may fix the remuneration of the first auditor appointed by them.
- The remuneration will be the fees payable to the auditor, accompanied by the expenses that are incurred by the auditor with regard to the audit of the company & any facility extended to him by the Companies Act.
Section 142
- The Remuneration of the Auditor might be fixed in a general meeting or in such a manner as may be determined. Even though the Board of directors can fix the remuneration of the First Auditor.
- The Expenses which are paid to the auditors are in addition to the audit that he carries out in the Company.
RIGHTS OF AUDITORS [SECTION 227]-
Company auditor rights and authority
According to Article 227 (7) of the Companies Act, the corporate auditor has the following rights:
1. Access to accounting books: In accordance with Article 227 (1) of the Companies Act, all corporate auditors have the right to access the accounting books and vouchers of the company at any time, whether or not they are kept at the head office. Under Section 209 (1) (d), the company auditor also has the right to investigate the cost records that a particular company needs to maintain in connection with production, sales, stores, etc.
2. Right to obtain information and explanations: Auditors may request information or explanations from various officers of the company who may be required to perform their duties.
Apart from the auditor's right to obtain information and explanations, all officers of the company are obliged to provide the information to the company auditor without delay. If a director or officer of a company refuses to provide information because it does not need to be provided, the auditor reserves the right to include that information in the audit report.
3. Right to receive and attend notices and other communications related to the General Meeting: According to Article 231 the Auditor of the Company reserves the right to receive notices and other communications related to the General Meeting as well. As a member of the company.
Similarly, the auditor also has the right to attend the Annual General Meeting of Shareholders and to be attended by him and to be heard at those meetings relating to him as an auditor.
The auditor also has the right to make statements or explanations regarding the audited account. However, his auditor is not expected to answer questions at the General Assembly.
4. Right to visit a branch office: According to Article 228 of the company, the company auditor has the right to visit a branch office of the company.
You can also audit such accounts at a company's office if no auditor is qualified to audit the accounts of the company's branches. In such cases, the auditor has the right to access the books at any time. The number of accounts and vouchers the company maintains at the branch.
In addition, Article 226 of the Companies Act explains that if a company acquires a branch account audited by some local auditors, even the auditors can access the books at any time, explaining the company's vouchers, he also visits. If he feels he needs a branch, he stipulates that he can.
5. Right to correct false statements: Auditors must report to members of the company the accounting he has investigated for the final accounting and related documents submitted prior to the company at the shareholders' meeting.
6. Right to sign audit report: A person appointed as an auditor of the company, or a company operating in India, acting only if the company is so appointed, in accordance with Article 229 of the company. Only partners can sign audit reports. Authenticates other documents of companies that are required to be signed by law.
7. Right to Compensation: Under Article 633 of the Companies Act, the auditor is considered an officer of the company and is entitled to compensation from the company's assets for his liability in self-defence. For civil and criminal proceedings by the company if the auditor proves to have acted honestly, or if the judgment is in his favour.
8. Right to seek legal and technical advice: Company auditors have the full right to seek expert opinion and obtain their legal and technical advice in order to carry out their duties efficiently.
9. Right to Remuneration: In accordance with Article 224 (8) of the Companies Act, company auditors are entitled to remuneration only when they have completed the work they have done.
DUTIES OF AUDITORS:
Obligations to shareholders:
1. Report to shareholders approximately the trustworthy and truthful state of affairs of the employer
2. State that the stability sheet and profits announcement offer all of the facts required with the aid of using law
3. State that the stability sheet and profits announcement in shape the accounting books
4. State that the stability sheet and profits announcement meet accounting standards
5. State that he has acquired all of the essential facts
6. State whether or not the employer continues all of the books required with the aid of using law.
7. Please country the motive on your eligibility in his document
8. State which you have acquired an audit document on department money owed audited with the aid of using different auditors and what you've got executed in getting ready the document.
9. The auditor shall country withinside the document that:
a) The mortgage you borrowed is nicely secured and the phrases of the mortgage aren't towards the pastimes of the employer.
b) The mortgage supplied is displayed as a set deposit and the phrases of the mortgage aren't towards the pastimes of the employer.
10. Transactions recorded as bookkeeping aren't towards the pastimes of the employer
11. The private prices of the administrators aren't charged to the employer's profits a / c.
12. The employer meets the necessities of CARO2003.
Obligations to the employer:
1. Prospectus: According to Article 56, the auditor has to show earnings or losses, belongings and liabilities, dividends paid, etc. withinside the prospectus.
2. Legal Report: Section one hundred sixty-five calls for the auditor to certify the criminal document.
3. Public Deposits: Section 58AA calls for auditors to document whether or not the employer complies with all RBI regulations and hints concerning public deposits.
4. Signing the Audit Report: Section 229: It is the auditor's obligation to signal the audit document.
5. Bankruptcy (Section 488): It is the auditor's obligation to put together the profit’s announcement for the modern duration if the employer needs to be declared bankrupt.
Obligations to the government:
1. CARO-2003: The auditor has to Para wise document that the employer meets all of the necessities of CARO-2003.
2. Support Investigation u / s 237: It is the auditor's obligation to guide the research ordered with the aid of using CG u / s 237.
Obligations to the overall public:
1. His workplace has self-belief and faith. He has to be dependable in each respect.
2. He desires to reveal all crucial facts approximately the employer's state of affairs to the employer and the overall public.
3. While issuing the prospectus u / s 56, he desires to make certain that the prospectus does now no longer include any deceptive facts or material.
As per the AAS 28, the audit report should contain the following basic elements in it:
- Title of the Report.
- Addressee.
- Opening or Introductory Paragraph.
- Scope Paragraph.
- Opinion Paragraph.
- Signature.
- Place of Signature.
- Date of the Report.
1. Title of the Report
The title of the report should be appropriate i.e., Auditor’s Report, Cost Auditor’s Report, etc. It makes the readers to identify the auditor’s report and also differentiate it from the reports of others such as director’s report, accountant’s report, etc.
2. Addressee
The auditor’s report should be addressed to the person to whom it should be forwarded. Generally, it is submitted to the person who appoints the auditor. Hence, the addressee is a person who appoints the auditor and to whom the report is forwarded. In case of the statutory audit of a company, it is the shareholders who are the addressee.
3. Opening or Introductory Paragraph- It consists of the identification of the following aspects:
- Financial Statements Audited: Financial statements are identified by name of the company and the period covered by the financial statements.
- Clear Marking of Responsibility between the Management and the Auditor: It should state clearly that the financial statements are the responsibility of the entity’s management and that the responsibility of the auditor is to express an opinion thereon.
4. Scope Paragraph
The scope paragraph should specify the nature and scope of the work performed by the auditor. It should state that the audit was conducted as per the auditing standards generally accepted in India and that the audit was planned and performed to obtain assurance that the financial statements are free of material misstatement.
Then it should specifically describe the audit as including — an examination, on a test basis, of evidence supporting the financial statements, assessment of accounting principles followed and of significant estimates made by the management, and overall evaluation of financial statement presentation. Besides, it should also state that the audit provides a reasonable basis for the auditor’s opinion.
5. Opinion Paragraph
The opinion paragraph of the auditor’s report should clearly specify the financial reporting framework such as accounting principles generally accepted in India used to prepare the financial statements and state the auditor’s opinion as to whether the financial statements give a true and fair view in accordance with that financial reporting framework and whether they comply with the statutory requirements.
6. Signature
The auditor in his personal name should sign the auditor’s report. The audit report should be signed in the personal name of the auditor and also in the name of the audit firm if it was appointed as the auditor. While signing the report, the membership number of the partner or proprietor, assigned by ICAI should be mentioned.
7. Place of Signature
The report should specify the location, where the audit report is signed. That is the town or city where the report is signed should be mentioned specifically here.
8. Date of the Report
The date of auditor’s report on financial statements indicates the date when the report is signed by the auditor with his views and opinions about the financial statements of the company he audited. This gives a clear picture that the auditor has considered the effect, on the financial statements and on the audit report, of the events and transactions that occurred, and of which the auditor became aware, up to that date. Further, the auditor report should not predate than the date on which the financial statements are signed or approved by the management.
TYPES OF AUDIT REPORT
The audit report commented on the financial statements as to whether the auditor faithfully presented the company's financial position, financial performance, and cash flows in accordance with applicable financial reporting frameworks such as US GAAP, IFRS, and local GAAP. This is a report to express.
The purpose of the auditor is to express an appropriate opinion as to whether the financial statements are free of material misstatement. Similarly, there are four types of audit reports based on this perspective. 4 types of audit reports
These four types of audit reports include:
a) Inappropriate audit report
b) Eligible audit report
c) Unfavorable audit report
d) Opinion Audit Report Disclaimer
- Inappropriate audit report
A non-qualified audit report is a report in which the auditor expresses his opinion that there are no material misstatements in the financial statements. In this case, the financial statements are prepared according to the applicable accounting standards.
Of the four types of audit reports, non-qualified audit reports are those normally issued by the auditor. This is because non-qualified audit reports are only reports that state that the financial statements are okay (no material misstatements).
Similarly, if there is a material misstatement, the auditor usually proposes adjustments to the client's management for correction. And, in most cases, adjustments are made, resulting in the auditor issuing a non-qualified audit report.
In this type of audit report, the auditor usually says, "In our opinion, the financial statements give a true and fair view in all important respects ..." or "In our opinion, the financial statements. Is presented fairly in all important respects ... "
For example, the auditor issues an ABC Limited non-qualified audit report following IFRS. In this case, the extracted non-qualified audit report * typically looks like this:
* This is an extracted report because the audit report has several sections other than opinions, such as the section of management responsibility and the section of auditor responsibility.
b. Eligible audit report
A qualified audit report is a report in which the auditor gives a qualified opinion on the financial statements. In this case, the financial statements contain material misstatements that can be separated as part of the financial statements.
In other words, misrepresentation is important, but not widespread. It does not affect the overall financial statements.
In this type of audit report, the auditor states that there is a problem with the financial statements, but the problem is less serious.
The problem in this case is one of the following:
The auditor finds that there is a material misstatement in an account or balance in the financial statements, or
The auditor does not have sufficient evidence to ensure that a particular account or balance is free of material misstatement.
In a qualified audit report, the auditor typically states: "In our opinion, the financial statements fairly represent the true and fair present in all important respects, except as stated in the grounds for eligibility ..."
For example, the extracted qualified audit report issued by the auditor to ABC Limited's financial statements following IFRS is as follows:
Auditors use the phrase "exclude" in the opinion paragraph to point out issues that lead to eligibility. Similarly, a separate paragraph, Eligible Opinion Basis, is needed to explain the eligibility of an opinion.
c. Unfavorable audit report
An unfavourable audit report is a report issued by the auditor that has material misstatements and affects the overall financial statements. In this case, misrepresentation is important and widespread.
In the unfavourable audit report, the auditor expresses the opinion that the financial statements contain serious problems, that is, the financial statements are unreliable.
Similarly, this type of audit report usually indicates that the financial statements are unreliable and that the integrity of the client's management can be questionable.
Auditors usually state in unfavourable audit reports that "financial statements do not provide a true and fair view" or "financial statements are not presented fairly."
d. Opinion Audit Report Disclaimer
Rejection of Opinion An audit report is an audit report in which the auditor is unable to express his or her opinion on the financial statements. This is usually due to the auditor's lack of adequate audit evidence to form an opinion on the financial statements.
Also, in this type of audit report, transactions or balances for which the auditor could not obtain evidence are significant and widespread. Such issues affect the financial statements as a whole and cannot be separated.
Similarly, auditors may disagree in the face of situations with significant uncertainty or lack of independence. However, this usually happens only in rare situations.
LIABILITIES OF AN AUDITOR:
Certified accountants are associated with valuable professions. His main task is to present reports on the accounts and statements he has submitted to members of the company. He is responsible not only for the members of the company, but also for the third parties of the company: creditors, bankers, etc.
Auditor responsibilities are usually based on his work as a professional accountant and carry out his work with due diligence, attention and diligence. The nature of the auditor's responsibilities is described below.
1. Civil liability:
- Responsibility for negligence:
Negligence means breach of duty. The auditor represents the shareholders. He must perform his professional duties. He should take reasonable care and skill in performing his duties. If he does not, he will be liable for negligence. The auditor will be held liable if the client suffers a loss due to negligence. It should be noted that the auditor is not liable for any loss or damage if the negligence is not proven.
b. Responsibility for fraud:
Cheating means a breach of trust. The auditor is accused of tort if the company suffers a financial loss as a result of the auditor's misconduct in performing his or her duties. In such cases, the company may regain damages from the auditor or officer due to a breach of trust or tort of the company. If there is a false statement in the prospectus, or if the company is liquidated, you can initiate tort proceedings against the auditor.
2. Responsibility based on the Companies Act
The following are the responsibilities of the auditor under the Companies Act.
- Responsibility for misrepresentation of prospectus [Sec.35]:
The auditor is responsible for indemnifying anyone who applies for company stock or bonds, relying on the prospectus, including false statements as an expert. The auditor shall be liable to indemnify him for any loss or damage he suffered due to the false statements contained therein. The auditor can be exempt from liability if he proves that:
The prospectus will be issued without his knowledge or consent.
• He withdrew his consent in writing before submitting the prospectus for registration.
• He should have withdrawn his consent after the prospectus was issued and before the allotment of shares and reasonable public notice in this regard.
b. Criminal liability of auditors under the Companies Act:
i. False statement of prospectus [Sec.34]
The auditor is responsible for approving false or false prospectuses. If the prospectus contains false statements, anyone who approves the issuance of the prospectus will be imprisoned for a period of 6 months to 10 years, and / or a fine of three times the amount involved in the fraud.
Ii. Non-compliance by auditor [Sec. 143 and 145]:
If the auditor fails to comply with the preparation of the report, signs or approves the document and is deliberately neglected, the auditor shall be punished by imprisonment with work for not more than 1 year or a fine of not more than £ 1. Expandable up to £ 25,000. 5,00,000.
Iii. Failure to support investigation [Section 217 (6)]:
When the central government appoints an inspector to investigate the business of the company, it is the auditor's duty to maintain all books and documents and assist the inspector. Failure of this by the auditor will result in imprisonment of up to one year and a fine of up to £ 1,00,000.
Iv. Did not support the prosecution of the conviction [Sec.224]:
If the central government takes any action on a report submitted by an inspector, the auditor must assist in prosecution. If he does not, he will be convicted and punished.
v. Failure to return property, book or document [Sec.299]:
If the company is liquidated, the auditor will be present and will be subject to private inspection by the court and will also be responsible for returning property, books or documents related to the company to the court. If the auditor
Vi. Penalties for tampering with books [Sec.336]:
When the auditor destroys, cuts, falsifies, falsifies, or keeps the accounting books or documents belonging to the company confidential. He will be sentenced to imprisonment and fined.
Vii. Auditor prosecution [Sec.342]:
If the court finds the company's auditor guilty of a crime during the process of liquidation of the company by the court, it is the auditor's duty to provide all assistance in connection with the prosecution. If he does not provide assistance, he is liable to be fined over £ 25,000, which can be extended up to £ .1,00,000.
Viii. Intentional Fees or Penalties for Omission [Sec.448]:
If the auditor deliberately makes a statement containing false or material lack of facts in a report, certificate, balance sheet, outlook, etc., he will be imprisoned. It shall be punished by. For a period of 6 months to 10 years, you will be fined more than three times the amount involved in the fraud.
3. Criminal liability under Indian criminal law
If someone issues or signs a certificate related to the fact that such a certificate is false, he will be punished as if he had submitted false evidence. According to Article 197 of the Indian Criminal Code, the auditor is also responsible for falsification of books, materials and documents belonging to the company.
4. Responsibility under the Income Tax Act [Sec.278]
- Severe imprisonment of 6 months to 7 years if tax evasion exceeds £ .1,00,000.
- Anyone who causes another person to file a false tax return, a false tax return, or a false tax return will be punished by a fine of 3 to 3 months and imprisonment. Year. The auditor may also be charged if your account is authenticated incorrectly.
- Certified accountants can represent clients in front of income tax authorities. However, if he is guilty of illegal activity, he may be disqualified from practice.
- Auditors may be sentenced to up to two years in prison for providing false information.
5. Responsibility for professional illegal activity
The Certified Public Accountants Act of 1949 refers to a number of acts and omissions that constitute occupational offenses related to audit practice. The ICAI Council may remove the auditor's name for more than five years if the auditor is found guilty of professional misconduct.
6. Responsibility to third parties
Many people rely on the financial statements audited by the auditor to do business with the company without further inquiries. Creditors, bankers, tax authorities, future shareholders, etc.
- Responsibility for negligence:
The court ruled that the auditor was not liable to the third party because there was no contract between the auditor and the third party. He has no obligation to them.
b. Liability for fraud:
Even if there is no contractual relationship between the auditor and a third party, the third party can hold the auditor liable for any fraud on the part of the auditor. In some cases, the auditor's negligence can lead to fraud, which can hold the auditor liable to a third party. But we have to prove that the auditor did not act honestly and that he knew about it.
References:
- Fundamentals of Accounting and Auditing the Institute of Company Secretaries of India
- Practical Auditing Spicer and Peglar
Unit 2
Audit of Ltd. Companies
COMPANY AUDITOR
QUALIFICATIONS
An efficient auditors ought to have positive widespread qualifications similarly to their statutory qualifications. This lets in him to paintings effectively and smoothly. Auditor features labelled as follows.
- Professional qualification, that is, criminal qualification.
- Professional qualifications, that is, private qualifications.
- Personal features, that is, widespread features.
The info of them is as follows.
a. Professional qualifications | Legal qualifications of auditors
In the case of best buying and selling worries and partnerships, the regulation does now no longer offer for auditor qualifications. However, withinside the case of an auditor of a joint-inventory company, the auditor ought to be a chartered accountant withinside the means of the Chartered Accountant Act of 1949.
He ought to by skip the Chartered Accountant (C.A) examination performed through the Institute of Chartered Accountants of India (ICAI). Certified accountants ought to achieve certificates of exercise from the ICAI Council for price of the prescribed annual club rate for you to qualify for exercise.
There are classes of ICAI individuals: Associates and Fellows.
A man or woman is taken into consideration a companion member of the Institute if his / her call seems withinside the Institute's Membership Register. This will permit him to apply the letters A.C.A.
Associates who're individuals of the Institute and had been practising constantly in India for as a minimum five years below different Associates who've the qualifications prescribed through the Council of the Institute may be registered as Fellows of the Institute. You have the proper to apply the FCA characters after his call.
b. Professional Qualifications | Auditor's Personal Qualifications
Auditors are required to have many expert features, which range in nature. These are important for a hit audit effort. They are:
1. The auditor ought to have whole and whole expertise of accounting ideas, theories and practices. Auditors want to be acquainted with the diverse accounting structures and their aspects. He ought to be acquainted with all departments of accounting. He wishes to be privy to the trendy tendencies withinside the subject of accounting.
2. He ought to be acquainted with diverse legal guidelines governing commercial enterprise, inclusive of company regulation, Indian partnership regulation, financial institution coverage regulation, products income regulation, forex manage regulation, and Indian agreement regulation.
3. The auditor ought to have a whole expertise of auditing techniques. He wishes to be absolutely conscious of recent modifications and tendencies in audit ideas and practices.
4. The auditor ought to be acquainted with pc accounting and different computerized equipment used withinside the office.
5. In addition to expertise of industrial regulation, auditors ought to have whole expertise of diverse provisions associated with earnings tax, wealth tax, VAT, present tax, etc.
6. The auditor ought to be acquainted with financial regulation and the ideas of financial regulation. This is due to the fact the commercial enterprise wishes to characteristic inside positive financial legal guidelines and social environments, and the effect is manifested withinside the commercial enterprise.
7. The auditor ought to have expertise of data and mathematics. This enables you cope with complicated issues.
8. He wishes to look at critical judgments in audit cases. This enables outline the auditor's obligations, responsibilities, and responsibilities.
9. The auditor ought to have enough expertise of commercial enterprise organization, economic management, and business management.
10. The auditor ought to have expertise of the technical info of the commercial enterprise being audited.
c. Personal features | General features of the auditor
Individual features ate the vital screen of a hit auditor. The private features required of the judges are as follows.
1. Honesty: The auditor ought to be sincere with the task for you to be triumphant withinside the task. He ought to keep top ethical standards.
2. Cleverness: The auditor ought to be smart in interacting with the client's staff.
3. Ability to paintings hard: Auditors ought to have a painstaking mind-set and willingness to paintings hard.
4. Fairness: The auditor has to know, no longer be tormented by prejudice in appearing his obligations. He ought to be fair.
5. Be vigilant: Auditors ought to be vigilant of their paintings. He has to usually maintain his eyes open and be vigilant.
6. Orderly: He ought to carry out his obligations in an orderly manner, be thorough and whole his paintings.
7. Ability to music information and numbers: Auditors want to be practical approximately their paintings. He has to be capable of music information and numbers.
8. Always curious: The auditor has to know no longer be suspicious. He ought to usually be curious. He has too no longer be suspicious.
9. Courage: The auditor ought to be ambitious sufficient to perform his obligations. He has too no longer show what he suspects are genuine.
10. Ability to keep secrets: Auditors should have the ability to keep secrets and must not disclose the client's secrets to anyone.
11. Communication skills: Auditors must have the ability to produce audit reports correctly, powerfully, accurately, concisely and clearly.
12. Common sense: Auditors need to have good common sense. Auditors need to fully share common sense, which is the most valuable product. However, common sense is usually very rare in humans.
In addition to statutory and professional qualifications, auditors must comply with certain codes of conduct and professional ethics. The responsibility and attitude of a professional auditor can earn the trust and trust of the public.
Moreover, in the digital age, most commerce is done online. Your account is managed on your computer. The electronic data processing (EDP) system is running for account maintenance. No primary data is used to record the transaction. Therefore, the auditor needs to acquire knowledge of the EDP system. He himself must be capable of confronting the challenges of the new digital business world of E-Governance and E-Commerce.
DISQUALIFICATIONS
According to the provisions of Article 141 (3) of the Companies Act 2013, the following persons shall not be qualified as corporate auditors.
a) Non-LLP corporations registered under the 2008 LLP Act
b) Company officers or employees.
c) A partner or employer of a company officer or employee.
d) A relative or partner
• Holds security interests / profits of the company or its subsidiaries, or its holding company or affiliates or subsidiaries of such holding companies. In addition, it is stipulated that relatives may hold collateral or profits of a company whose par value does not exceed 1 rupee.
• Beyond Rs, you owe a company or its subsidiaries, or its holding company or affiliates, or a subsidiary of such a holding company. 5 race rupees
• In connection with the incompetence of a third party, we provide a guarantee or guarantee for value in excess of Rs to the company or its subsidiaries, or its holding company or affiliates or subsidiaries of such holding companies.
e) An individual or company that has a business relationship (directly or indirectly) with a company or its subsidiary, or its holding company or affiliate, or a subsidiary of such holding company or affiliate.
The business relationship here shall be construed as a transaction conducted for commercial purposes except as follows.
• A commercial transaction of the nature of a professional service authorized by an auditor or audit firm by a specialized body that regulates such members.
• Commerce in the normal business process of a company at an independent business-to-business price as a customer.
f) A person whose relatives are directors or who are employed by the company as directors or key managers.
g) People
• Someone who works full time elsewhere, or
• An individual or partner appointed as an auditor is the date of appointment or reappointment as an auditor for more than 20 companies.
h) A person who has been convicted by a court of crime, including fraud, and often less than a few years after the date of such conviction.
i) A subsidiary or affiliate or other form of entity engaged in consulting or professional services on the date of appointment in connection with the provisions of Article 144 of the Companies Act 2013.
Furthermore, according to the provisions of Article 141 (4) of the Companies Act 2013, a person appointed as an auditor of a company shall be disqualified from any of the disqualifications stated in Article 141 (3) of the Companies Act 2013 after the appointment. He will leave his office as such an auditor and such vacancies shall be deemed to be temporary vacancies of the auditor's officers.
It should be noted that the above provisions apply to all types of auditors: cost auditors, statutory auditors, and secretarial auditors.
Modes of Appointment of Auditors the First Auditor:
a) The first auditor of a company shall be appointed by the board of directors within one month of the date of registration of the company. If the Board fails to appoint within the said period of one month, the company in general meeting may appoint the first auditors.
b) The first auditors shall hold office from the date of appointment to the conclusion of the first annual general meeting of the company.
Appointment of Subsequent Auditors [Sections 224 (1), (IB) and (1C)]:
At every annual general meeting, the auditor is appointed or reappointed by every company by passing an ordinary resolution. The appointment of auditors at an annual general meeting is an item of ordinary business. Such auditor holds office from the conclusion of the meeting in which they are appointed to the conclusion of the next annual general meeting.
Appointment of Auditors by Central Government [Section 224(3)]:
Where at any Annual General Meeting, no auditors are appointed or reappointed, in that case within 7 days of such a meeting, the company shall intimate this to the central government who may appoint a person to fill the vacancy.
Compulsory Reappointment of Retiring Auditor (Section 224(2)]: At an annual general meeting, a retiring auditor by what so ever authority appointed, shall be reappointed except under any of the following situations:
(a) Where he is not qualified for reappointment
(b) Where he has given the company notice in writing of his unwillingness to be reappointed.
(c) Where a resolution has been passed at that meeting appointing somebody instead of him or providing expressly that he shall not be reappointed.
(d) Where notice has been given or an intending resolution to appoint some person in the place of a retiring auditor passed, but by reason of the death, incapacity or disqualification of that person the resolution cannot be proceeded with.
Appointment in case of Causal Vacancy [Sec. 224 (6)]:
Where a vacancy is caused by the resignation of an auditor, the company in a general meeting shall only fill the vacancy. The Board of Directors may fill casual vacancy in the office of an auditor caused by any other reason than a resignation, while any such vacancies continue the remaining auditor or auditors, if any, may continue to act the auditor or auditors. Any auditor appointment in a casual vacancy shall hold office until the conclusion of the next annual general meeting.
Appointment by special Resolution (Sec. 224 A):
In case of a company in which not less than 25% of the subscribed share capital is held, whether singly or in any combination, by
a. A public financial institution, or a government company or the Central Government or any state government, or
b. Any financial or other institution established by any provincial or State Act, in which a State Government holds not less than 51 % of the subscribed share capital, or
c. A nationalised bank or an insurance company carrying on general insurance business,
The appointment or reappointment at each annual general meeting of the company, an auditor or auditors shall be made by a special resolution. It the company fails to pass such a special resolution for making the appointment of an auditor or auditors
It shall be deemed that no auditor or auditors had been appointed by the company at its annual general meeting. In such a case, the Central Government may appoint a person to act as the auditor of the company.
Appointment of Auditors of Government Companies (Sec. 619):
Appointment of auditors in case of a government Company is subject to the provisions of Sec 619 which overrides Sec 224 to Sec 233 dealing with appointment, etc., of the auditors in the case of nongovernment companies. The auditor of a Government Company shall be appointed or reappointed by the Comptroller and Auditor General of India; however, the appointment shall be subject to ceiling limits as per Sec 224 (1B).
Rotation of Auditor is appointing a new auditor when
- An individual had been appointed as an auditor for more than one term of five consecutive years
- An audit firm had been appointed as an auditor for more than two terms of five consecutive years.
For the purpose of the rotation of auditors
- In case of an auditor (whether an individual or audit firm), the period for which the individual or the firm has held office as auditor prior to the commencement of the Companies Act, 2013 shall be taken into account for calculating the period of five consecutive years or ten consecutive years.
- The incoming auditor or audit firm shall not be eligible if such auditor or audit firm is associated with the outgoing auditor or audit firm under the same network of audit firms.
The term “same network” includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control.
c. a break in the term for a continuous period of five years shall be considered as fulfilling the requirement of rotation.
d. if a partner, who is in charge of an audit firm and also certifies the financial statements of the company, retires from the said firm and joins another firm of chartered accountants, such other firm shall also be ineligible to be appointed for a period of five years.
The mandatory rotation of the statutory auditors has been provided under Section 139(2) of Companies Act, 2013 which provides that no listed company or the company belonging to such class or classes of companies as may be prescribed shall appoint or reappoint: (a) An individual as auditor for more than one term of five consecutive years, and (b) An audit firm has auditor for more than two terms of five consecutive years. Therefore, the rotation of the statutory auditor is applicable to all listed companies and any other company or class of the company as may be prescribed. The Central Government has notified the Companies (Audit and Auditors) Rules, 2014 and prescribed that these provisions shall be applicable to following class of the companies excluding one person companies and small companies. a) All unlisted public companies having paid up capital of R10 crore or more. b) All private limited companies having paid up capital of R20 crore or more. c) All companies having paid up share capital of below threshold limit mentioned in (a) & (b) above and having borrowing from financial institutions, banks or public deposits of R50 crore or more. It means the provisions rotation of statutory auditors are not applicable to one person companies and small companies and shall be applicable to all companies having borrowings from financial institutions, banks or public deposits of R50 crore or more irrespective of threshold limit mentioned hereinabove. It is also provided in the Act that the cooling period for the outgoing auditor shall be for five consecutive years which means:
i)An individual auditor who has completed his term under clause (a) above shall not be eligible for reappointment as an auditor in the same company for five years from the completion of such term.
Ii) The audit firm which has completed its term under clause (b) shall not be eligible for reappointment as auditor in the same company for five years from the completion of such term.
In terms of section 92 of the Companies Act, 2008, the same individual may not serve as the auditor or designated auditor of a company for more than 5 consecutive financial years.
If an individual has served as the auditor or designated auditor of a company for 2 or more consecutive financial years, and then ceases to be the auditor or designated auditor, the individual may not be appointed again as the auditor or designated auditor of that company until after the expiry of at least two further financial years.
If a company has appointed 2 or more persons as joint auditors, the company must manage the rotation required by this section in such a manner that all of the joint auditors do not relinquish office in the same year
Different modes of removal:
(a) Removal of first auditors before expiry of term [Section 224(5)]: The company may remove the first auditor by passing an ordinary resolution at a general meeting (usually extra ordinary general meeting. No special notice is required for such removal under s. 225. However, procedure prescribed under section 225(2) and (3) shall be followed. Although Nomination notice is required to given to the members of the company at least 14 days before the date of the meeting by this way only any other person may be appointed in place of removed auditor.
(b) Removal of subsequent auditor before expiry of their term: The company may, after obtaining the previous approval of the Central Government, remove the auditors before the expiry of their term by passing an ordinary resolution. No special notice is required for such removal. However, procedure prescribed under section 225(2) and (3) shall be observed.
(c) Removal at an AGM of first or subsequent auditor: The company may, at an annual general meeting, provide expressly that a retiring auditor shall not be reappointed or appoint an auditor other than a retiring auditor. Special notice shall be required for such. The remaining procedure prescribed under section 225(2) and (3) shall be followed for his removal.
Procedure prescribed under section 225(2) and (3):
(b) The notice for removal of an auditor shall be sent forthwith by the company to the auditor.
(c) After receiving notice auditor has the following rights:
(i) Right to be heard orally at the meeting.
(ii) Right to make a representation in writing to the company (not exceeding reasonable length).
(iii)Right to get his representation circulated among the members.
(d) Where a request is made by the auditor to circulate the representation, it shall be the duty of the company:
(i) to send a copy of the representation to every member of the company; and
(ii) to state the fact of the representation having been made in the notice given to the members.
(e) When representation is not sent by the company:
If a copy of the representation which was not sent as aforesaid because the representation was received too late or because of the company’s default, the auditor may require that the representation shall be read out at the meeting by himself.
(f) Intervention by Central Government:
The copies of the representation need not be sent out and the representation need not be read out at the meeting if the Central government is satisfied that this right is being abused by the auditor to secure needless publicity for defamatory matter. The Central government may order the company’s costs on such an application to be paid by the auditor, notwithstanding that he is not a party to the application. The application to the Central government may be made either by the company or by any other remember or director or other person.
Remuneration of Auditors (apart from the first auditor) of the company will be determined by stakeholders in general meeting as per section 142 of Companies Act 2013.
The process of determination Remuneration of auditors
- The remuneration of the auditor of the company will be fixed in a general meeting or in such a manner as may be prescribed therein. Provided the Board of directors may fix the remuneration of the first auditor appointed by them.
- The remuneration will be the fees payable to the auditor, accompanied by the expenses that are incurred by the auditor with regard to the audit of the company & any facility extended to him by the Companies Act.
Section 142
- The Remuneration of the Auditor might be fixed in a general meeting or in such a manner as may be determined. Even though the Board of directors can fix the remuneration of the First Auditor.
- The Expenses which are paid to the auditors are in addition to the audit that he carries out in the Company.
RIGHTS OF AUDITORS [SECTION 227]-
Company auditor rights and authority
According to Article 227 (7) of the Companies Act, the corporate auditor has the following rights:
1. Access to accounting books: In accordance with Article 227 (1) of the Companies Act, all corporate auditors have the right to access the accounting books and vouchers of the company at any time, whether or not they are kept at the head office. Under Section 209 (1) (d), the company auditor also has the right to investigate the cost records that a particular company needs to maintain in connection with production, sales, stores, etc.
2. Right to obtain information and explanations: Auditors may request information or explanations from various officers of the company who may be required to perform their duties.
Apart from the auditor's right to obtain information and explanations, all officers of the company are obliged to provide the information to the company auditor without delay. If a director or officer of a company refuses to provide information because it does not need to be provided, the auditor reserves the right to include that information in the audit report.
3. Right to receive and attend notices and other communications related to the General Meeting: According to Article 231 the Auditor of the Company reserves the right to receive notices and other communications related to the General Meeting as well. As a member of the company.
Similarly, the auditor also has the right to attend the Annual General Meeting of Shareholders and to be attended by him and to be heard at those meetings relating to him as an auditor.
The auditor also has the right to make statements or explanations regarding the audited account. However, his auditor is not expected to answer questions at the General Assembly.
4. Right to visit a branch office: According to Article 228 of the company, the company auditor has the right to visit a branch office of the company.
You can also audit such accounts at a company's office if no auditor is qualified to audit the accounts of the company's branches. In such cases, the auditor has the right to access the books at any time. The number of accounts and vouchers the company maintains at the branch.
In addition, Article 226 of the Companies Act explains that if a company acquires a branch account audited by some local auditors, even the auditors can access the books at any time, explaining the company's vouchers, he also visits. If he feels he needs a branch, he stipulates that he can.
5. Right to correct false statements: Auditors must report to members of the company the accounting he has investigated for the final accounting and related documents submitted prior to the company at the shareholders' meeting.
6. Right to sign audit report: A person appointed as an auditor of the company, or a company operating in India, acting only if the company is so appointed, in accordance with Article 229 of the company. Only partners can sign audit reports. Authenticates other documents of companies that are required to be signed by law.
7. Right to Compensation: Under Article 633 of the Companies Act, the auditor is considered an officer of the company and is entitled to compensation from the company's assets for his liability in self-defence. For civil and criminal proceedings by the company if the auditor proves to have acted honestly, or if the judgment is in his favour.
8. Right to seek legal and technical advice: Company auditors have the full right to seek expert opinion and obtain their legal and technical advice in order to carry out their duties efficiently.
9. Right to Remuneration: In accordance with Article 224 (8) of the Companies Act, company auditors are entitled to remuneration only when they have completed the work they have done.
DUTIES OF AUDITORS:
Obligations to shareholders:
1. Report to shareholders approximately the trustworthy and truthful state of affairs of the employer
2. State that the stability sheet and profits announcement offer all of the facts required with the aid of using law
3. State that the stability sheet and profits announcement in shape the accounting books
4. State that the stability sheet and profits announcement meet accounting standards
5. State that he has acquired all of the essential facts
6. State whether or not the employer continues all of the books required with the aid of using law.
7. Please country the motive on your eligibility in his document
8. State which you have acquired an audit document on department money owed audited with the aid of using different auditors and what you've got executed in getting ready the document.
9. The auditor shall country withinside the document that:
a) The mortgage you borrowed is nicely secured and the phrases of the mortgage aren't towards the pastimes of the employer.
b) The mortgage supplied is displayed as a set deposit and the phrases of the mortgage aren't towards the pastimes of the employer.
10. Transactions recorded as bookkeeping aren't towards the pastimes of the employer
11. The private prices of the administrators aren't charged to the employer's profits a / c.
12. The employer meets the necessities of CARO2003.
Obligations to the employer:
1. Prospectus: According to Article 56, the auditor has to show earnings or losses, belongings and liabilities, dividends paid, etc. withinside the prospectus.
2. Legal Report: Section one hundred sixty-five calls for the auditor to certify the criminal document.
3. Public Deposits: Section 58AA calls for auditors to document whether or not the employer complies with all RBI regulations and hints concerning public deposits.
4. Signing the Audit Report: Section 229: It is the auditor's obligation to signal the audit document.
5. Bankruptcy (Section 488): It is the auditor's obligation to put together the profit’s announcement for the modern duration if the employer needs to be declared bankrupt.
Obligations to the government:
1. CARO-2003: The auditor has to Para wise document that the employer meets all of the necessities of CARO-2003.
2. Support Investigation u / s 237: It is the auditor's obligation to guide the research ordered with the aid of using CG u / s 237.
Obligations to the overall public:
1. His workplace has self-belief and faith. He has to be dependable in each respect.
2. He desires to reveal all crucial facts approximately the employer's state of affairs to the employer and the overall public.
3. While issuing the prospectus u / s 56, he desires to make certain that the prospectus does now no longer include any deceptive facts or material.
As per the AAS 28, the audit report should contain the following basic elements in it:
- Title of the Report.
- Addressee.
- Opening or Introductory Paragraph.
- Scope Paragraph.
- Opinion Paragraph.
- Signature.
- Place of Signature.
- Date of the Report.
1. Title of the Report
The title of the report should be appropriate i.e., Auditor’s Report, Cost Auditor’s Report, etc. It makes the readers to identify the auditor’s report and also differentiate it from the reports of others such as director’s report, accountant’s report, etc.
2. Addressee
The auditor’s report should be addressed to the person to whom it should be forwarded. Generally, it is submitted to the person who appoints the auditor. Hence, the addressee is a person who appoints the auditor and to whom the report is forwarded. In case of the statutory audit of a company, it is the shareholders who are the addressee.
3. Opening or Introductory Paragraph- It consists of the identification of the following aspects:
- Financial Statements Audited: Financial statements are identified by name of the company and the period covered by the financial statements.
- Clear Marking of Responsibility between the Management and the Auditor: It should state clearly that the financial statements are the responsibility of the entity’s management and that the responsibility of the auditor is to express an opinion thereon.
4. Scope Paragraph
The scope paragraph should specify the nature and scope of the work performed by the auditor. It should state that the audit was conducted as per the auditing standards generally accepted in India and that the audit was planned and performed to obtain assurance that the financial statements are free of material misstatement.
Then it should specifically describe the audit as including — an examination, on a test basis, of evidence supporting the financial statements, assessment of accounting principles followed and of significant estimates made by the management, and overall evaluation of financial statement presentation. Besides, it should also state that the audit provides a reasonable basis for the auditor’s opinion.
5. Opinion Paragraph
The opinion paragraph of the auditor’s report should clearly specify the financial reporting framework such as accounting principles generally accepted in India used to prepare the financial statements and state the auditor’s opinion as to whether the financial statements give a true and fair view in accordance with that financial reporting framework and whether they comply with the statutory requirements.
6. Signature
The auditor in his personal name should sign the auditor’s report. The audit report should be signed in the personal name of the auditor and also in the name of the audit firm if it was appointed as the auditor. While signing the report, the membership number of the partner or proprietor, assigned by ICAI should be mentioned.
7. Place of Signature
The report should specify the location, where the audit report is signed. That is the town or city where the report is signed should be mentioned specifically here.
8. Date of the Report
The date of auditor’s report on financial statements indicates the date when the report is signed by the auditor with his views and opinions about the financial statements of the company he audited. This gives a clear picture that the auditor has considered the effect, on the financial statements and on the audit report, of the events and transactions that occurred, and of which the auditor became aware, up to that date. Further, the auditor report should not predate than the date on which the financial statements are signed or approved by the management.
TYPES OF AUDIT REPORT
The audit report commented on the financial statements as to whether the auditor faithfully presented the company's financial position, financial performance, and cash flows in accordance with applicable financial reporting frameworks such as US GAAP, IFRS, and local GAAP. This is a report to express.
The purpose of the auditor is to express an appropriate opinion as to whether the financial statements are free of material misstatement. Similarly, there are four types of audit reports based on this perspective. 4 types of audit reports
These four types of audit reports include:
a) Inappropriate audit report
b) Eligible audit report
c) Unfavorable audit report
d) Opinion Audit Report Disclaimer
- Inappropriate audit report
A non-qualified audit report is a report in which the auditor expresses his opinion that there are no material misstatements in the financial statements. In this case, the financial statements are prepared according to the applicable accounting standards.
Of the four types of audit reports, non-qualified audit reports are those normally issued by the auditor. This is because non-qualified audit reports are only reports that state that the financial statements are okay (no material misstatements).
Similarly, if there is a material misstatement, the auditor usually proposes adjustments to the client's management for correction. And, in most cases, adjustments are made, resulting in the auditor issuing a non-qualified audit report.
In this type of audit report, the auditor usually says, "In our opinion, the financial statements give a true and fair view in all important respects ..." or "In our opinion, the financial statements. Is presented fairly in all important respects ... "
For example, the auditor issues an ABC Limited non-qualified audit report following IFRS. In this case, the extracted non-qualified audit report * typically looks like this:
* This is an extracted report because the audit report has several sections other than opinions, such as the section of management responsibility and the section of auditor responsibility.
b. Eligible audit report
A qualified audit report is a report in which the auditor gives a qualified opinion on the financial statements. In this case, the financial statements contain material misstatements that can be separated as part of the financial statements.
In other words, misrepresentation is important, but not widespread. It does not affect the overall financial statements.
In this type of audit report, the auditor states that there is a problem with the financial statements, but the problem is less serious.
The problem in this case is one of the following:
The auditor finds that there is a material misstatement in an account or balance in the financial statements, or
The auditor does not have sufficient evidence to ensure that a particular account or balance is free of material misstatement.
In a qualified audit report, the auditor typically states: "In our opinion, the financial statements fairly represent the true and fair present in all important respects, except as stated in the grounds for eligibility ..."
For example, the extracted qualified audit report issued by the auditor to ABC Limited's financial statements following IFRS is as follows:
Auditors use the phrase "exclude" in the opinion paragraph to point out issues that lead to eligibility. Similarly, a separate paragraph, Eligible Opinion Basis, is needed to explain the eligibility of an opinion.
c. Unfavorable audit report
An unfavourable audit report is a report issued by the auditor that has material misstatements and affects the overall financial statements. In this case, misrepresentation is important and widespread.
In the unfavourable audit report, the auditor expresses the opinion that the financial statements contain serious problems, that is, the financial statements are unreliable.
Similarly, this type of audit report usually indicates that the financial statements are unreliable and that the integrity of the client's management can be questionable.
Auditors usually state in unfavourable audit reports that "financial statements do not provide a true and fair view" or "financial statements are not presented fairly."
d. Opinion Audit Report Disclaimer
Rejection of Opinion An audit report is an audit report in which the auditor is unable to express his or her opinion on the financial statements. This is usually due to the auditor's lack of adequate audit evidence to form an opinion on the financial statements.
Also, in this type of audit report, transactions or balances for which the auditor could not obtain evidence are significant and widespread. Such issues affect the financial statements as a whole and cannot be separated.
Similarly, auditors may disagree in the face of situations with significant uncertainty or lack of independence. However, this usually happens only in rare situations.
LIABILITIES OF AN AUDITOR:
Certified accountants are associated with valuable professions. His main task is to present reports on the accounts and statements he has submitted to members of the company. He is responsible not only for the members of the company, but also for the third parties of the company: creditors, bankers, etc.
Auditor responsibilities are usually based on his work as a professional accountant and carry out his work with due diligence, attention and diligence. The nature of the auditor's responsibilities is described below.
1. Civil liability:
- Responsibility for negligence:
Negligence means breach of duty. The auditor represents the shareholders. He must perform his professional duties. He should take reasonable care and skill in performing his duties. If he does not, he will be liable for negligence. The auditor will be held liable if the client suffers a loss due to negligence. It should be noted that the auditor is not liable for any loss or damage if the negligence is not proven.
b. Responsibility for fraud:
Cheating means a breach of trust. The auditor is accused of tort if the company suffers a financial loss as a result of the auditor's misconduct in performing his or her duties. In such cases, the company may regain damages from the auditor or officer due to a breach of trust or tort of the company. If there is a false statement in the prospectus, or if the company is liquidated, you can initiate tort proceedings against the auditor.
2. Responsibility based on the Companies Act
The following are the responsibilities of the auditor under the Companies Act.
- Responsibility for misrepresentation of prospectus [Sec.35]:
The auditor is responsible for indemnifying anyone who applies for company stock or bonds, relying on the prospectus, including false statements as an expert. The auditor shall be liable to indemnify him for any loss or damage he suffered due to the false statements contained therein. The auditor can be exempt from liability if he proves that:
The prospectus will be issued without his knowledge or consent.
• He withdrew his consent in writing before submitting the prospectus for registration.
• He should have withdrawn his consent after the prospectus was issued and before the allotment of shares and reasonable public notice in this regard.
b. Criminal liability of auditors under the Companies Act:
i. False statement of prospectus [Sec.34]
The auditor is responsible for approving false or false prospectuses. If the prospectus contains false statements, anyone who approves the issuance of the prospectus will be imprisoned for a period of 6 months to 10 years, and / or a fine of three times the amount involved in the fraud.
Ii. Non-compliance by auditor [Sec. 143 and 145]:
If the auditor fails to comply with the preparation of the report, signs or approves the document and is deliberately neglected, the auditor shall be punished by imprisonment with work for not more than 1 year or a fine of not more than £ 1. Expandable up to £ 25,000. 5,00,000.
Iii. Failure to support investigation [Section 217 (6)]:
When the central government appoints an inspector to investigate the business of the company, it is the auditor's duty to maintain all books and documents and assist the inspector. Failure of this by the auditor will result in imprisonment of up to one year and a fine of up to £ 1,00,000.
Iv. Did not support the prosecution of the conviction [Sec.224]:
If the central government takes any action on a report submitted by an inspector, the auditor must assist in prosecution. If he does not, he will be convicted and punished.
v. Failure to return property, book or document [Sec.299]:
If the company is liquidated, the auditor will be present and will be subject to private inspection by the court and will also be responsible for returning property, books or documents related to the company to the court. If the auditor
Vi. Penalties for tampering with books [Sec.336]:
When the auditor destroys, cuts, falsifies, falsifies, or keeps the accounting books or documents belonging to the company confidential. He will be sentenced to imprisonment and fined.
Vii. Auditor prosecution [Sec.342]:
If the court finds the company's auditor guilty of a crime during the process of liquidation of the company by the court, it is the auditor's duty to provide all assistance in connection with the prosecution. If he does not provide assistance, he is liable to be fined over £ 25,000, which can be extended up to £ .1,00,000.
Viii. Intentional Fees or Penalties for Omission [Sec.448]:
If the auditor deliberately makes a statement containing false or material lack of facts in a report, certificate, balance sheet, outlook, etc., he will be imprisoned. It shall be punished by. For a period of 6 months to 10 years, you will be fined more than three times the amount involved in the fraud.
3. Criminal liability under Indian criminal law
If someone issues or signs a certificate related to the fact that such a certificate is false, he will be punished as if he had submitted false evidence. According to Article 197 of the Indian Criminal Code, the auditor is also responsible for falsification of books, materials and documents belonging to the company.
4. Responsibility under the Income Tax Act [Sec.278]
- Severe imprisonment of 6 months to 7 years if tax evasion exceeds £ .1,00,000.
- Anyone who causes another person to file a false tax return, a false tax return, or a false tax return will be punished by a fine of 3 to 3 months and imprisonment. Year. The auditor may also be charged if your account is authenticated incorrectly.
- Certified accountants can represent clients in front of income tax authorities. However, if he is guilty of illegal activity, he may be disqualified from practice.
- Auditors may be sentenced to up to two years in prison for providing false information.
5. Responsibility for professional illegal activity
The Certified Public Accountants Act of 1949 refers to a number of acts and omissions that constitute occupational offenses related to audit practice. The ICAI Council may remove the auditor's name for more than five years if the auditor is found guilty of professional misconduct.
6. Responsibility to third parties
Many people rely on the financial statements audited by the auditor to do business with the company without further inquiries. Creditors, bankers, tax authorities, future shareholders, etc.
- Responsibility for negligence:
The court ruled that the auditor was not liable to the third party because there was no contract between the auditor and the third party. He has no obligation to them.
b. Liability for fraud:
Even if there is no contractual relationship between the auditor and a third party, the third party can hold the auditor liable for any fraud on the part of the auditor. In some cases, the auditor's negligence can lead to fraud, which can hold the auditor liable to a third party. But we have to prove that the auditor did not act honestly and that he knew about it.
References:
- Fundamentals of Accounting and Auditing the Institute of Company Secretaries of India
- Practical Auditing Spicer and Peglar
