TYPES OF AUDIT UNDER COMPANIES ACT
Rajya Sabha recently passed the companies Bill 2012.The new legislation, which would replace the nearly 50-year old Companies Act, 1956 and would encourage companies to undertake social welfare voluntarily instead of imposing the social responsibility.Auditing
After a decade India is set to get a new Company Law that is modern, growth oriented and seeks to shift from control to self regulation.
Key industry chambers welcomed the passage of bill.
The Companies Law is one of the most important and comprehensive legislation after the Constitution of the Nation. This directly indirectly affects all citizens. This bill has 470 Sections and 7 Schedules. This bill provides basis and flexible framework. The Bill has leaved so many matters for subordinate legislation; rules, regulation, circulars etc.
Various types of Audit prescribed under Companies Act,2013:-
- Statuory Audit
- Internal Audit
- Secretarial Audit
- Cost Audit
Statutory Audit:- Section 139 to 147 under chapter X of the act contain the provision regarding audit & auditors. Section 139 contains that at the first AGM, every company shall appoint an individual or firm as its auditor who will hold office from the conclusion of that meeting till the conclusion of th sixth AGM. Section 141 contains that a person shall be eligible for appointment as an auditor of a company only if he is a Chartered Accountant and in case of firm whereof majority of partners practicing in India are qualified for appointment as aforesaid may be appointed by its firm name to the auditor of the company. Section 143 which contains provision regarding powers & duties of auditors contains that statutory auditor shall make a report to the members of the company on the accounts and financial statements examined by him. The main provisions regarding statutory audit are:-
- Auditors will have access to books of accounts and vouchers etc at all times and he can seek information from offices of the company as he may deem necessary.
- In his report, he must state besides other things, whether the financial statements represents a true & fair view of the state of the company’s at the end of financial year.
- In case of any qualification in the report, the reason for the same must be stated in report.
- Auditor is required to comply with Accounting Standards.
- In case auditor suspects any fraud, he must immediately report the same to Central Govt.
Internal Audit:-
Section 138 of the bill contains provisions regarding Internal Audit. The provisions presecribed in bill are very brief in nature which will be substainted by the rules to be prescribed . the provisions contained in the bill are as follows:-
Certain classes or classes of the company as may be prescribed shall appoint an internal auditor who will conduct an audit of the functions and activities of the company and make a report thereon to the Board of Directors.
Any Chartered Accountant (except statutory auditor of the company) or cost accountants or other professional as may be decided by the board, can be appointed to conduct the internal audit.
Cost Audit:-
Section 148 of the bill contains provisions regarding cost audit and contains that a cost audit wherever conducted is in addition to statutory audit conduced under section 143.
Certain classes of companies engaged in production of such goods or providing of such services as may be prescribed and which have a net worth of turnover of such amount as may be prescribed may be directed to get their cost audit records audited.
Cost audit has to be conduced by Cost Accountant in practice who is required to comply with Cost Accounting Standards(CAS)
It shall be duty of the company to give all assistance and facilities to cost auditor which required in course of action.
As per section 143(14), the qualifications, disqualifications, rights, duties & obligations applicable to statutory auditors will also apply to cost auditor.
Secretarial Audit is most effective way to mechanism to ensure the compliance of the multifarious requirements by the corporate enterprises under a host of legislations. It is a part of Legal compliance reporting system. The scope, content, criteria of the audit and of the compliance certificate are framed by the central government and rules are framed in this regard. The secretarial audit is always in the better interest of every corporate management as, an independent professional will certify that the company has carried out the compliances of the Act. This will also serve the larger interest of the shareholders, creditors and employees. The benefit of such audits, its process and other related aspects have successfully been brought out In this article including a checklist of activities, various areas to verify etc.
Benefits of Secretarial Audit:
- The Secretarial Audit can be an effective due diligence exercise for the prospective acquirer of a company or controlling interest or a joint venture partner.
- It assures the owners that management and affairs of the company are being conducted in accordance with requirements of laws, and that the owners’ stake is not being exposed to undue risk.
- Ensures the Management of a company that those who are charged with the duty and responsibility of compliance with the requirements of law are performing their duties competently, effectively and efficiently, so that the people in-charge of the day-to-day management of the company are not likely to be exposed to penal or other liability (and consequential risk and embarrassment) on account of non-compliance with law.
- The secretarial audit can assist bodies like SEBI, Stock Exchanges, Financial Institutions, Banks, etc. to gauge or measure the levels of compliance and non-compliance by the companies with whom they are concerned.
- To provide comfort to investors that the company has been conducting its affairs in accordance with laws and, therefore, their investment is safe and being taken due care of. SA will help unearth and check these practices and also enable law-enforcing agencies take timely corrective action by bringing to book the guilty.
Secretarial Audit (Clause 204)
- Every listed company and a company belonging to other class of companies as may be prescribed shall annex with its Board’s report a Secretarial Audit Report, given by a Company Secretary in Practice, in such form as may be prescribed.
- It shall be the duty of the company to give all assistance and facilities to the Company Secretary in Practice, for auditing the secretarial and related records of the company.
- The Board of Directors, in their report shall explain in full any qualification or observation or other remarks made by the Company Secretary in Practice in his report.
- If a company or any officer of the company or the Company Secretary in Practice, contravenes the provisions of this section, the company, every officer of the company or the Company Secretary in Practice, who is in default, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
Nature of requirement
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Statutory Audit
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Internal Audit
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Secretarial Audit
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Cost Audit
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Applicability
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All Companies
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Such class or classes of companies, as may be prescribed
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Every listed company and company belonging to other class of companies as may be prescribed
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such classes of companies engaged in production of such goods or providing of such services as may be prescribed and which have a net worth of turnover of such amount as may be prescribed
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Who can conduct the audit
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Chartered Accountant or firm of Chartered Accountant
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Any Chartered Accountant (except statutory auditor of the company) or cost accountants or other professional as may be decided by the board, can be appointed to conduct the internal audit
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A company secretary in practice
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A cost accountant in practice
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Scope of Audit
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Audit of financial records and statement of the company
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Audit of functions and activities of the company
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Audit of secretarial and other records of the company
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Audit of the cost records of the company
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Standards to be complied
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Audited standards recommended by ICAI
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Not Applicable
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Cost Auditing standards issued by ICWAI
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Frequency of audit
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Yearly
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To be prescribed
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yearly
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Yearly
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Manner of conducting audit and form of audit report
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Items to be included in report have been specified under section 143
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To be prescribed
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To be prescribed
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Report to be made to
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Members
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Board of Directors
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Members(to be annexed to Board’s Report)
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Board of Drectors
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Penal Provisions
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Company:-
Fine 25,000/- to 5,00,000/-
Officer in default:-
Fine Rs.10,000/- to Rs.1,00,000/- OR imprisonment upto 1 year or both
Statutory Auditor
Fine Rs.25,000/- to Rs.5,00,000/-
Wilful Contravention:-
Imprisonment upto 1 year and fine Rs.1,00,000/- to Rs.25,00,000/-
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Not prescribed
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Company, Office in Default and Company Secretary = Fine Rs.1,00,000/- to Rs.5,00,000/-
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Company:-
Fine 25,000/- to 5,00,000/-
Officer in default:-
Fine Rs.10,000/- to Rs.1,00,000/- OR imprisonment upto 1 year or both
Cost Auditor
Fine Rs.25,000/- to Rs.5,00,000/-
Wilful Contravention:-
Imprisonment upto 1 year and fine Rs.1,00,000/- to Rs.25,00,000/
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Duty to report fraud:- If any Auditor, Cost Accountant or Company Secretary in practice does not comply with the provisions regarding reporting to Central Govt in case of suspected fraud, he shall be punishable with fine which shall not be less than Rs.1,00,000/- but which may extend to Rs.25,00,000/-(Section 143(15))
Complied & prepared by:-
M/s Gupta Shivali & Associates
Company Secretaries
Ludhiana-Punjab
Email id-Cs.shivaligupta707@gmail.com, madhurgupta186@gmail.com
(M) 99155-12967, 94170-00737
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