Amended and updated notes on section 143 of Companies Act 2013. Detail discussion on provisions and rules related to powers and duties of auditors and auditing standards.
Chapter X (Sections 139–148) of the Companies Act, 2013 (CA 2013) deals with the provisions related to audit and auditors. Section 143 of CA 2013 provides for powers and duties of auditors and auditing standards.
Recently, we have discussed in detail section 142 (Remuneration of auditors) of CA 2013. Today, we learn the provisions of section 143 of Companies Act 2013.
The provisions of section 143 are effective from 1-April-2014. You may refer Notification No. S.O. 902(E) issued dated 27.03.2014. In this article, you will learn detail of the provisions of section 143 of the Companies Act 2013 read with the Companies (Audit and Auditors) Rules, 2014.
This section mainly dealt with the rights of an auditor and his duties in respect of the company in which he has appointed as an auditor. Additionally, this sections also describe the auditing standards which has to be followed by the auditor while conducting audit functions of any company.
| Name of Act | The Companies Act 2013 |
|---|---|
| Enacted by | Parliament of India |
| Administered by | Ministry of Corporate Affairs (MCA) |
| Number of Chapters | 29 |
| Number of Sections | 484 (470-43+57) |
| Number of Schedules | 7 |
| You are reading: | |
| Chapter No. | X |
| Chapter Name | Audit and Auditors |
| Section No. | 143 |
| Section Name | Powers and duties of auditors and auditing standards |
| Monthly Updated Edition | Company Law PDF |
Section 143(1) – Rights and Powers to access and enquire by Company Auditors
In accordance with the provisions of section 143(1) of CA, 2013, the auditor have right to access the books of account and vouchers of a company and the records of all its subsidiaries, if any, in relation to the Consolidation of Financial Statements (CFS).
Note that auditor have power to access such records at all times even the same has been kept at the registered office or elsewhere. He shall also be entitled to require from the officers of the company such information and explanation as he may consider necessary for the performance of his duties as auditor.
Following are the other matters which may inquire by the auditor of a company:
(a) Secured Loans:
Secured loans and advances made by the company should be properly secured and terms are not prejudicial to the interests of the company or members.
(b) Book Entries:
Transactions represented merely by book entries are not prejudicial to the interests of the company.
(c) Sale of Securities:
Assets consisting of shares, debentures and other securities of the company except investment or banking company have not been sold at below purchase price.
(d) Loans and Advances as Deposits:
Loans and advances made by the company have not been shown as deposits.
(e) Personal Expenses:
Personal expenses have not been charged to revenue account.
(f) Allotment of Share for Cash:
If any shares have been allotted for cash, the same has actually been received otherwise the position as stated in the books of account is correct, regular and not misleading.
Section 143(2) – Auditors Report to Members of a Company
In compliance with the provisions of section 143(2) of CA, 2013, the auditor shall provide a report on accounts examined and on financial statements required by or under this Act to be laid down in General Meeting (GM) of the company.
Such report shall be made after taking into account the provisions of CA, 2013 and rules made thereunder in addition to the Accounting Standards (AS) and Standards on Auditing (SA) and such other matters as may be prescribed.
Note that to the best of his information and knowledge the audited accounts and financial statements shall give a true and fair view of the state of the company’s affairs as at the end of its financial year and profit or loss and cash flow for the year.
Section 143(3) – Additional Matters to be stated in Auditors Report
In addition to the above mentioned information the auditor’s report shall also state:
(a) Obtain Information:
The auditor shall sought and obtained information and explanations necessary for audit purpose otherwise he shall state the details thereof and the effect of such information on the financial statements.
(b) Proper Books of Account:
In the opinion of the auditor, the books of account has been kept properly as per law and proper returns have been received from branches not visited by him.
(c) Incorporate Branch Audit Report:
The auditor of the company shall receive the branch audit report and shall state the manner in which he has dealt with the same in his report.
(d) Financial Statement in consistent with Books of Account:
The auditors shall state whether the B/S and P/L account are in agreement with the books of account and returns.
(e) Comply AS:
The financial statements shall comply with the Accounting Standards.
(f) Adverse effect of Auditors Comment:
The observations or comments of the auditors on financial transactions or matters which have any adverse effect on the functioning of the company.
(g) Disqualified Directors:
Whether any director is disqualified from being appointed as a director u/s section 164(2) of the Companies Act, 2013.
(h) Maintenance of Accounts:
Any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith.
(i) Internal Control System:
Whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls.
For the financial years commencing on or after 1st April, 2015 (FY 2015-2016), the report of the auditor shall also state about existence of adequate internal financial controls system and its operating effectiveness as required by the newly inserted Rule 10A (w.e.f. 14th Oct, 2014) of the Companies (Audit and Auditors) Amendment Rules, 2014.
(j) Other Matters:
Such other matters as may be prescribed.
Section 143(4) – Negative or Qualified Report by Auditor
Section 143(4) provides that if any matters is answered in the negative or with a qualification the reasons for the same should be stated by the auditor in his report of the company.
Section 143(5) – Government Company Auditor and Audit Report
The provisions of sub-section (5) of section 143 has been amended vide the Companies (Removal of Difficulties) Seventh Order, 2014 [S.O. 2226(E)] issued dated 4th September, 2014.
Accordingly, in exercising the powers conferred u/s 139(5) or 139(7), the Comptroller and Auditor-General (C & AG) of India shall appoint the auditor of a Government company or any other company owned or controlled either by the Central Government or State Governments.
Further, the C & AG of India shall direct such appointed auditor the manner in which the accounts of the company are required to be audited.
Thereafter, a copy of audit report shall be submitted to C & AG of India by the auditor so appointed after taking into account the directions, if any, issued by CAG of India and the action taken thereon and its impact on the accounts and financial statement of the company.
Section 143(6) – CAG Right to Supplementary Audit of Government Company
The CAG shall within 60 days from audit report received u/s 143(5) have right to conduct a supplementary audit by the person authorised by him to require additional information on matters and in form as directed by him.
Then, the CAG shall comment upon or supplement such audit report and the same shall be sent by the company in compliance with the first proviso of section 143(6) to every member, trustees for debenture-holder and persons so entitled to copies of audited financial statements u/s 136(1) and also be placed before AGM at the same time and in the same manner as the audit report.
Note that if CG is a member of a Govt. company then CG shall cause u/s 394(1) an Annual Report on the working and affairs of that company to be prepared within 3 months of AGM before which the comments given by CAG and audit report is placed under the proviso to section 143(6).
Section 143(7) – CAG Power to Test Audit of Government Company
The CAG may also by an order cause test audit of the company covered under section 139 (5) or (7) of the companies act, 2013. The report of such test audit shall apply the provisions of section 19A of the Comptroller and Auditor-General’s (Duties, Powers and Conditions of Service) Act, 1971.
Section 143(8) – Branch Audit of a Company
The accounts of branch office of a company shall be audited by:
A) For Branch Office in India
- i) The company’s auditor; or
- ii) Any other qualified person appointed u/s 139 as auditor.
B) For Branch Office outside India
- i) The company’s auditor; or
- ii) An accountant; or
- iii) Any other qualified person to act as an auditor in accordance with laws of that country.
The duties and powers of the company’s auditor shall be prescribed with reference to the branch audit the branch auditor.
The branch auditor shall send report to the auditor of the company who shall deal with it in his report in such manner as he considers necessary.
Section 143(9) – Mandatory to comply with SAs
In accordance with the provisions of section 143(9) of the companies Act, 2013, the auditing standards must be complied with by every auditor.
The term “Auditing Standards” has been defined in clause (7) of section 2 of CA, 2013 which means the standards of auditing or any addendum thereto for companies or class of companies referred to in sub-section (10) of section 143.
Section 143(10) – Auditing Standards prescribed by CG or specified by ICAI
The Central Government prescribes Standards of Auditing (SA) as recommended by the Institute of Chartered Accountants of India (ICAI) in consultation with and after examination of the recommendations made by the National Financial Reporting Authority (NFRA).
Note that until any SAs are notified by CG, any SA specified by CA Institute shall be deemed to be the auditing standards.
Section 143(11) – Statement on specified matters (CARO – 2015) in Auditors Report
The Central Government may direct by issuing an order in consultation with the NFRA that the auditor’s report of certain class or description of companies shall also include a statement on specified matters.
Accordingly, such reporting requirements has now been prescribed by the Ministry of Corporate Affairs (MCA) under the Companies (Auditor’s Report) Order, 2015 (CARO – 2015) issued vide Order No. S.O. 990(E) w.e.f. 10-04-2015.
Section 143(12) – Reporting of Fraud committed against Company
The provisions of sub-section (12) of section 143 has been wholly substituted by the Companies (Amendment) Act, 2015 and shall override all other provisions of this section.
If the auditor has sufficient reason to believe that an offence of fraud involving such amount or amounts as may be prescribed, is being or has been committed against the company by its officers or employees, the auditor shall report the matter to the CG within 60 days of his knowledge.
In case of a fraud involving lesser than the specified amount, the auditor shall report the matter to the audit committee constituted u/s 177 or to the Board in other cases within 45 days and in such manner as may be prescribed.
However, the companies shall disclose the details about such frauds in the Board’s report in such manner as may be prescribed if auditors have reported frauds to the audit committee or the Board but not reported to the Central Government.
Additionally, as per new clause (ca) inserted in sub-section (3) of section 134 by the Companies (Amendment) Act, 2015 w.e.f. 29-05-2015, a board report including details in respect of frauds reported by auditors u/s 143(12) other than those which are reportable to the CG, shall be attached to statements laid before a company in general meeting.
Note that as per Rule 12 and 13 of the Companies (Audit and Auditors) Rules, 2014, the duties of fraud reporting by the auditor shall also extend to branch auditor to the extent it relates to the concerned branch.
Section 143(13) – Duties of Auditor done in Good Faith
No duty shall be regarded as contravened if it is done in good faith by the auditor of a company while reporting the matter referred to in section 143(12) of CA, 2013.
Section 143(14) – The provisions also apply to CS and CMA in Practice
The provisions of section 143 shall also apply to the Company Secretary (CS) in practice conducting secretarial audit u/s 204 or the Cost Accountant (CMA) in practice conducting cost audit u/s 148.
In sub-section (4) of section 148, it has also been clearly stated that an audit conducted under section 148 shall be in addition to the audit conducted under section 143.
Section 143(15) – Punishment for Contravention in Fraud Reporting
If any auditor, CS or CMA in practice do not comply with the provisions of sub-section (12) of section 143, he shall be punishable with fine of ₹ 1,00,000 – ₹ 25,00,000.
Punishment for not complying with provisions of Section 143
Section 143 is mandatory in nature and therefore, an auditor should not ignore any provisions mentioned therein. In other words, all provisions of section 143 of CA, 2013 must be complied with by the auditor of a company otherwise in accordance with section 147(2) he shall be punishable with a minimum fine of ₹ 25000 (twenty-five thousand rupees) and the same may be extend upto ₹5,00,000 (five lakh rupees) or four times the remuneration of the auditor, whichever is less.
Moreover, if an auditor has contravened the provisions of section 143 knowingly or wilfully with the intention to deceive either of the following:
- i) Company; or
- ii) Shareholders; or
- iii) Creditors; or
- iv) Tax Authorities,
he shall be punishable with imprisonment for a term which may extend to ONE YEAR and with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees or eight times the remuneration of the auditor, whichever is less.
Section 143 of Companies Act 2013: Powers and duties of auditors and auditing standards
Section 143 shall come into force on 1st April, 2014 vide Notification No. S.O. 902(E) issued dated 27.03.2014.
(1) Every auditor of a company shall have a right of access at all times to the books of account and vouchers of the company, whether kept at the registered office of the company or at any other place and shall be entitled to require from the officers of the company such information and explanation as he may consider necessary for the performance of his duties as auditor and amongst other matters inquire into the following matters, namely: —
- (a) 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;
- (b) whether transactions of the company which are represented merely by book entries are prejudicial to the interests of the company;
- (c) where the company not being an investment company or a banking company, whether so much of the assets of the company as consist of shares, debentures and other securities have been sold at a price less than that at which they were purchased by the company;
- (d) whether loans and advances made by the company have been shown as deposits;
- (e) whether personal expenses have been charged to revenue account;
- (f) where 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:
Provided that the auditor of a company which is a holding company shall also have the right of access to the records of all its subsidiaries and associate companies in so far as it relates to the consolidation of its financial statements with that of its subsidiaries and associate companies.
(2) The auditor shall make a report to the members of the company on the accounts examined by him and on every financial statements which are required by or under this Act to be laid before the company in general meeting and the report shall after taking into account the provisions of this Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of this Act or any rules made thereunder or under any order made under sub-section (11) and to the best of his information and knowledge, the said accounts, financial statements give a true and fair view of the state of the company’s affairs as at the end of its financial year and profit or loss and cash flow for the year and such other matters as may be prescribed.
(3) The auditor’s report shall also state—
- (a) whether he has sought and obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit and if not, the details thereof and the effect of such information on the financial statements;
- (b) whether, in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books and proper returns adequate for the purposes of his audit have been received from branches not visited by him;
- (c) whether the report on the accounts of any branch office of the company audited under sub-section (8) by a person other than the company’s auditor has been sent to him under the proviso to that sub-section and the manner in which he has dealt with it in preparing his report;
- (d) whether the company’s balance sheet and profit and loss account dealt with in the report are in agreement with the books of account and returns;
- (e) whether, in his opinion, the financial statements comply with the accounting standards;
- (f) the observations or comments of the auditors on financial transactions or matters which have any adverse effect on the functioning of the company;
- (g) whether any director is disqualified from being appointed as a director under sub-section (2) of section 164;
- (h) any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith;
- (i) whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls;
- (j) such other matters as may be prescribed.
(4) Where any of the matters required to be included in the audit report under this section is answered in the negative or with a qualification, the report shall state the reasons therefor.
(5) In the case of a Government company or any other company owned or controlled, directly or indirectly, by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, the Comptroller and Auditor-General of India shall appoint the auditor under sub-section (5) or sub-section (7) of Section 139 and direct such auditor the manner in which the accounts of the company are required to be audited and thereupon the auditor so appointed shall submit a copy of the audit report to the Comptroller and Auditor-General of India which, among other things, include the directions, if any, issued by the Comptroller and Auditor-General of India, the action taken thereon and its impact on the accounts and financial statement of the company.
(6) The Comptroller and Auditor-General of India shall within sixty days from the date of receipt of the audit report under sub-section (5) have a right to, —
- (a) conduct a supplementary audit of the financial statement of the company by such person or persons as he may authorise in this behalf; and for the purposes of such audit, require information or additional information to be furnished to any person or persons, so authorised, on such matters, by such person or persons, and in such form, as the Comptroller and Auditor-General of India may direct; and
- (b) comment upon or supplement such audit report:
Provided that any comments given by the Comptroller and Auditor-General of India upon, or supplement to, the audit report shall be sent by the company to every person entitled to copies of audited financial statements under sub section (1) of section 136 and also be placed before the annual general meeting of the company at the same time and in the same manner as the audit report.
(7) Without prejudice to the provisions of this Chapter, the Comptroller and Auditor-General of India may, in case of any company covered under sub-section (5) or sub-section (7) of section 139, if he considers necessary, by an order, cause test audit to be conducted of the accounts of such company and the provisions of section 19A of the Comptroller and Auditor-General’s (Duties, Powers and Conditions of Service) Act, 1971, shall apply to the report of such test audit.
(8) Where a company has a branch office, the accounts of that office shall be audited either by the auditor appointed for the company (herein referred to as the company’s auditor) under this Act or by any other person qualified for appointment as an auditor of the company under this Act and appointed as such under section 139, or where the branch office is situated in a country outside India, the accounts of the branch office shall be audited either by the company’s auditor or by an accountant or by any other person duly qualified to act as an auditor of the accounts of the branch office in accordance with the laws of that country and the duties and powers of the company’s auditor with reference to the audit of the branch and the branch auditor, if any, shall be such as may be prescribed:
Provided that the branch auditor shall prepare a report on the accounts of the branch examined by him and send it to the auditor of the company who shall deal with it in his report in such manner as he considers necessary.
(9) Every auditor shall comply with the auditing standards.
(10) The Central Government may prescribe the standards of auditing or any addendum thereto, as recommended by the Institute of Chartered Accountants of India, constituted under section 3 of the Chartered Accountants Act, 1949, in consultation with and after examination of the recommendations made by the National Financial Reporting Authority:
Provided that until any auditing standards are notified, any standard or standards of auditing specified by the Institute of Chartered Accountants of India shall be deemed to be the auditing standards.
(11) The Central Government may, in consultation with the National Financial Reporting Authority, by general or special order, direct, in respect of such class or description of companies, as may be specified in the order, that the auditor’s report shall also include a statement on such matters as may be specified therein.
Provided that until the National Financial Reporting Authority is constituted under section 132, the Central Government may hold consultation required under this sub-section with the Committee chaired by an officer of the rank of Joint Secretary or equivalent in the Ministry of Corporate Affairs and the Committee shall have the representatives from the Institute of Chartered Accountants of India and Industry Chambers and also special invitees from the National Advisory Committee on Accounting Standards and the office of the Comptroller and Auditor-General.
(12) Notwithstanding anything contained in this section, if an auditor of a company in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud involving such amount or amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed:
Provided that in case of a fraud involving lesser than the specified amount, the auditor shall report the matter to the audit committee constituted under section 177 or to the Board in other cases within such time and in such manner as may be prescribed:
Provided further that the companies, whose auditors have reported frauds under this sub-section to the audit committee or the Board but not reported to the Central Government, shall disclose the details about such frauds in the Board’s report in such manner as may be prescribed.
(13) No duty to which an auditor of a company may be subject to shall be regarded as having been contravened by reason of his reporting the matter referred to in sub-section (12) if it is done in good faith.
(14) The provisions of this section shall mutatis mutandis apply to—
- (a) the cost accountant conducting cost audit under section 148; or
- (b) the company secretary in practice conducting secretarial audit under section 204.
(15) If any auditor, cost accountant or company secretary in practice do not comply with the provisions of sub-section (12), he shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees.
Exception/ Modification/ Adaptation:
Clause (i) of sub-section (3) of section 143 shall not apply to a private company:-
- (i) which is a one person company or a small company; or
- (ii) which has turnover less than rupees fifty crores as per latest audited financial statement or which has aggregate borrowings from banks or financial institutions or any body corporate at any point of time during the financial year less than rupees twenty five crore.”.