Audit Under Companies Act,1956 Vol.- IV

Transcription

1 Audit Under Companies Act,1956 Vol.- IV Level-IPCC Chapter-7 Paper: Auditing and Assurance Faculty:-CA. Aseem Trivedi,FCA

2 Agenda Provisions relating to Branch Audits Provisions relating to Special Audit Concept of Joint Auditors

3 Section 228 Audit of accounts of branch office of company

4 Who can conduct audit of branch O Where a company has a branch office, the accounts of that office shall, be audited by the company's auditor appointed under section 224 or by a person qualified for appointment as auditor of the company under section 226,

5 Appointment Where a company in general meeting decides to have the accounts of a branch office audited otherwise than by the company's auditor, the company in that meeting shall for the audit of those accounts appoint a person qualified for appointment or authorise the Board of directors to appoint such a person in consultation with the company's auditor;

6 Remuneration O If appointed by General meeting will be fixed by general meeting O If appointed by BOD will be fixed by BOD

7 Whom to report O Branch auditor shall forward his report to Principal Auditor who shall incorporate the same in his report

8 Rights and Duties of Branch Auditor O Branch Auditor shall have same powers and duties as mentioned under section 227. O Hence CARO, reporting requirements are also applicable to branch audits.

9 Is there any exemption available in respect of Branch Audit O To prevent any hardship, the Central Government has been empowered to make Rules so as to exempt branch offices from audit to extent as is specified in the Rules [section 228(4)]. In exercise of the powers conferred by section 228(4) the Central Government has framed certain rules, entitled. The Companies (Branch Audit Exemption) Rules, 1961.

10 Exemption based on quantum of activity O If a company, carrying on any manufacturing, processing or trading activity, has a branch office whose average of the quantum of activity does not exceed Rs. 2 lakhs or 2% of the average of the total turnover of the company including all its branches and other offices and the earnings from services rendered and from any source during the same period, whichever is higher, the branch office shall be exempted from the provisions of section 228.

11 Lets have another example O Total turnover of the entity 200,00,000 O Quantum of the activities of a branch O O O O Rs.25,00,000 Now 2% of 200,00,000 = 40,00,000 Higher of 40,00,000 and 200,000 is 40,00,000 The branch activities are less then 40,00,000, Hence branch is exempted.

12 Quantum of Activity Means O i.e. (i) the aggregate value of the goods and articles produced, manufactured or processed, or (ii) the aggregate value of the goods or articles sold and of service rendered, or (iii) the amount of the expenditure, whether of a revenue or capital nature, incurred by a branch office of a company during a financial year, (i.e., the financial year of the company in respect of which exemption from branch audit is to be determined)

13 Lets have a problem O Accounts manager of X Ltd. is of opinion that their Ahemedabad branch is exempt from requirement of branch audit because its quantum of activity is Rs. 1,99,000. Do you agree?

14 Other exemptions O Central Government may give exemption on case to case basis if it thinks fit on the grounds of quatum of activities, availability of auditor at places, practical difficulties dtc.

15 Special Audit u/s 233A

16 What is Special Audit? O An audit other than annual audit of accounts of the company called in special circumstances is known as Special Audit. Section 233 A empowers the Central Government, in certain cases, to call for a special audit of a company.

17 Why Special Audit? Such an audit may be required where the Central Government has reasons to believe: (i) that the affairs of the company are not being managed on sound business principles or according to prudent commercial practices; or (ii) that the company is being managed in a manner likely to cause serious injury or damage to the interests of the trade, industry or business to which it pertains; or (iii) that the financial position of the company is such as might endanger its solvency.

18 Who shall conduct such audit O The audit may be conducted either by the company s auditor or another chartered accountant who may or may not be engaged in a practice, appointed by the Central Government [Sections 233(1) and (2)].

19 What shall be the powers and duties of such auditor The auditor so appointed has the same powers and duties in the matter of special audit as the statutory auditor of a company has under section 227, except for the fact that he must report to the Central Government in place of the members of the company.

20 Scope of Special Auditor O The special auditor s report must include, as far as may be practicable, all the matters required to be included in a normal auditor s report under section 227 and where the Central Government so directs, also a statement on any matters which may be referred to him by that Government

21 Actions by Central Government On receipt of the report, the Central Government may take such action as circumstances might warrant, according to the provisions of the Act or any other law for the time being in force. In case the Central Government does not take any action within four months from the receipt of the report, it must send the report to the company either to circulate the copy or the extracts among the members or to get it read before the company at its next general meeting [Sub-section (6)].

22 Remuneration and its recovery The expenses of or incidental to a special audit, including the remuneration of the special auditor as fixed by the Central Government (and its decision in this regard is final), must be paid by the company. If the company defaults in making the payment, the amount can be recovered from the company as arrears of land revenue [Sub-section (6)].

23 Joint Auditors

24 Who are Joint Auditors O When two or more firms of auditor appointed to carry out audit jointly and to report jointly, they are known as joint auditors.

25 Responsibilities Responsibilities of Joint Auditors is explained in SA 299 issued by ICAI. According to it Joint Auditors are primarily responsible for their part of work carried out but in some cases they are jointly and severally responsible for audit.

26 Joint and Several Respsonsibilies All the joint auditors are jointly and severally responsible (a) in respect of the audit work which is not divided among the joint auditors and is carried out by all of them; (b) in respect of decisions taken by all the joint auditors concerning the nature, timing or extent of the audit procedures to be performed by any of the joint auditors. (c) in respect of matters which are brought to the notice of the joint auditors by any one of them and on which there is an agreement among the joint auditors; (d) for examining that the financial statements of the entity comply with the disclosure requirements of the relevant statute; and (e) for ensuring that the audit report complies with the requirements of the relevant statute.

27 TRUST O Each joint auditor is entitled to rely on work performed by other joint auditor. He should not perform any test on the tests already performed by the joint auditor unless a contrary evidence comes to his attention.

28 Reporting O Report shall be prepared jointly O If disagreement is there between auditors may give separate report on disagreed points.