Duties of an Auditor [Sec.143]

Duties of an Auditor [Sec.143]

1. Statutory Duties

1. Duty to report to the Members [Sec.143 (3)]:

The auditor shall make a report to the members of the company on accounts and financial statements examined by him.

The report shall state:

a. Whether he has sought and obtained all necessary information and explanations.

b. Whether proper books of accounts has been kept.

c. Whether company’s Balance Sheet and Profit and Loss account are in agreement with books of accounts and returns.

2. Duty to Enquire [Sec.143 (1)]:

It is the duty to inquire into the following matters:

·           Whether loans and advances made by the company based on security have been properly secured and whether the terms on which they have been made are prejudicial to the interests of the company or its members.

·           Whether transactions of the company, which are represented merely by book entries, are prejudicial to the interests of the company.

·           Whether loans and advances made by the company have been shown as deposits.

·           Whether personal expenses have been charged to revenue account.

·           Whether it is stated in the books and documents of the company that any shares have been allotted for cash, whether cash has actually been received in respect of such allotment, and if no cash has actually been so received, whether the position as stated in the account books and the balance sheet is correct, regular and not misleading.

3. Duty to comply with Auditing Standards [Sec.143 (9)]:

·           Every auditor shall comply with the auditing standards.

·           The Central Government shall notify standards in consultation with National Financial Reporting Authority, (NFRA).

·           The  government  shall  also  notify that auditor’s report shall include a statement on such matters as notified.

4. Duty to report on Frauds [Sec. 143 (12)]:

When an auditor suspects an offence involving fraud is being committed by officers or employees of the company, he shall immediately report the matter to the Central Government in such manner as may be prescribed.

5. Duty to state the reasons for qualified or negative report [Sec.143 (4)]:

In case of negative or qualified report, the reasons must be stated in the report.

6. Duty to assist investigation:

It is the important duty of the auditor to assist the investigator to investigate the affairs of the company. Further, it is the duty of the auditor,

·           To provide and preserve the necessary documents which are in his custody to the investigator, and

·           To assist the investigator by providing all assistance in connection with the investigation.

7. Duty to certify Statutory Report: The auditor has to certify statutory report as correct to the extent of –

·           Shares allotted by the company,

·           Cash received in respect of such shares, and

·           An abstract of receipts and payments of the company.

8. Duty to certify Prospectus:

It is the duty of auditor to certify a report showing statement of profits or losses and assets and liabilities of the company and its subsidiaries. The report shall also include rates of dividend paid by the company for each of five financial years preceding the issue of prospectus.

9. Duty to report under Voluntary winding up:

When the company proposes for voluntary winding up, directors of the company have to make a declaration of solvency. The auditor has to certify a report upon the solvency based on the Profit and Loss Account and Balance Sheet.

10. Duty to preserve Working Papers: It is the duty of an auditor to preserve and produce all books and papers relating to the company which are in his custody and to assist the inspector appointed by the government for investigation.

2. Duties under Common Law

1. Duty to be honest and exercise proper care:

The auditor should be straightforward, honest and tactful and must not be influenced by others in discharge of his duties. He should be careful and cautious in performing his duties.

2. Duty to obtain knowledge about the company:

He should obtain detailed knowledge about the activities and affairs of the company.

3. Duty to perform additional work: The auditor besides performing the statutory duties is bound to perform additional work by passing a resolution in the general meeting or making a provision in the Articles of Association of the company.

4. Duty to verify assets held by the company:

It is the duty of the auditor to verify assets of the company.

3. Other Duties

1. Contractual Duties:

The auditor’s duty will depend upon the terms and conditions of his appointment between him and the party who appointed him.

1.  Professional Duties:

The auditor has to observe the ethics given by the Institute of Chartered Accountants of India. He should correspond with the previous auditor before accepting the assignment.