Rights and Duties of Company Auditors | Auditing Important Topics

Rights and Duties of Company Auditors
Auditing & Assurance

Introduction

In this article, we are going to discuss about Rights and Duties of Company Auditors asked in 2013, 2015, 2016 exam.

Rights and Powers of Company Auditors [Sec. 143]

A company auditor has the following rights:

1. Right of Access Books of Accounts:

As per Section 143(1) of the Companies Act every auditor of the company has the right to access at all times to the books of accounts and vouchers of the company, whether kept at the head office of the company or elsewhere. According to Sec. 148, A company auditor has the right to examine the cost records also which are required to be maintained by certain companies relating to production sales, stores etc.

2. Right to Obtain Information and Explanations:

An auditor can call for any information or explanation from different officers of the company which he may think necessary for the performance of his duties.

Apart from the auditor’s right to obtain information and explanation it is the duty of every officer of the company to furnish without delay the information to the company auditor. If the directors or officers of the company refuse to supply some information on the ground that in their opinion it is not necessary to furnish it, then the auditor has the right to mention that in his audit report.

3. Right to Receive Notices and Other Communication Relating to General Meetings and to attend them:

According to section 146 of the companies act an auditor of a company has the right to receive notices and other communications relating to the general meetings in the same way as that of the members of the company.

Similarly an auditor also has the right to attend any annual general meeting and also to be heard at those meetings which he attends and which concerns him as an auditor.

The auditor also has the right to make a statement or explanation with regard to the accounts he has audited. But he auditor is not expected to answer questions in the general meeting.

4. Right to Visit Branches:

According to section 143(8) of the companies act the auditor of the company has the right to visit the branch office or offices of the company. He can also audit such accounts of eh offices of the company provided that there is not qualified auditor to audit the accounts of the branch office or offices of the company, in such cases, the auditor has the right to access at all times to the books of accounts and vouchers that the company maintains at branch office or offices.

5. Right of Lien:

Auditor can exercise lien on books and documents placed at his possession by the client for non-payment of fees, for work done on the books and documents. [Sec. 128]

6. Right to Correct Any Wrong Statement:

The company auditor is required to make a report to the members of the company on the accounts examined by him of the final accounts and the related documents which are laid down before the company in the general meeting.

7. Right to sign the Audit Report:

As per section 145 of the companies act only the person appointed as auditor of the company or where a firm is so appointed, only a partner in the firm practicing in India, may sign the audit report or authenticate any other document of the company required by law to be signed.

8. Right to Being Indemnified:

An auditor is considered to be an officer of the company and he has the right to be indemnified out of the assets of the company against any liability incurred by him in defending himself against any civil and criminal proceedings by the company if it is proved that the auditor has acted honestly or the judgment is delivered in his favour.

9. Right to seek Legal and Technical Advice:

The company auditor has the full right to seek the opinion of the experts and to take their legal and technical advice so as to discharge his duties efficiently.

10. Right to Receive Remuneration:

As per Section 142 of the Companies Act, the company auditor has the right to receive remuneration provided he has completed the work which he has undertaken to do so.

Duties of Company Auditors

According to Sec. 143 of the Companies Act, 2013, the duties of auditors are classified under the following headings:

1. Duty to Enquire:

It is the duty of auditor to inquire into the following matters:

- Whether loans and advances made by the company on the basis of 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 accounts.

- Whether or not cash has actually been received from allotment of shares.

- Where the company not being an investment company or a banking company, whether so such of the assets of the company as consist of shares, debentures and other securities have been sold at a price less than at which they were purchased by the company.

2. Duty to make report:

The auditor shall make a report to the members of the company. In his report, the auditor shall report on:

- Whether he has sought and obtained all the information and explanations which to the best of his knowledge and belief necessary for the purpose of his audit and if not, the details thereof and the effect of such information on financial statements.

- Whether in his opinion, proper books of account are required by law have been kept by the company so far as appears from his examination.

- Whether the company’s balance sheet and profit and loss account dealt with in the report are in agreement with the books of accounts and returns.

- Whether in his opinion, the financial statements comply with the accounting standards.

- Whether any director is disqualified from being appointed as a director.

- Whether the company has adequate internal financial control system in place and the operating effectiveness of such control.

3. Such other matters as may be prescribed under rule 11:

The auditor’s report shall also include views and comments on the following matters.

- Whether the company has disclosed the impact, if any, of pending litigations on its financial position in its financial statement.

- Whether the company has made provisions, as required under any law or accounting standards, for material losses, if any on long term contracts including derivative contracts.

- Whether there has been any delay in transferring amounts, required to be transferred, to the investor education and protection fund by the company.

4. Duty to report on frauds u/s 143 and rules 13:

If an auditor of a company, in the course of the performance of his duties as auditor, has reason to believe that an offense 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 prescribed in rule 13.

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