AUDIT
The definition of audit: It is the on-site verification of a process or quality system to confirm compliance with regulations, such as inspection or examination. A specific function, procedure, or phase in the production process may be the focus of an audit rather than the entire organization. Assessing risk or performance, checking on completed corrective actions, or auditing records are just a few of the administrative tasks that certain audits are used for.
External audit: The process of an audit, by a qualified independent third party, independently evaluating the company’s financial accounts, is known as external audit. This type of audit’s primary goal is for the external auditors to provide their assessment of whether the company’s financial statements appear fairly, in all material ways, and in compliance with the relevant accounting rules and regulations. (Refer Section 139 to 147 of the Companies Act, 2013, provided in the article).In general parlance it is used interchangeably with Statutory Audit
Internal audit: Internal auditing is the practice of conducting an unbiased assessment of the organization’s risk management and control in order to enhance business processes and add value to the business. It also assists in ensuring that the business conforms to internal policies, relevant laws, and regulations. Internal auditors that work for the company typically conduct this kind of audit. However, if they lack the means, the organization may hire outside firms to do the internal audit. (Refer Section 138 of the Companies Act, 2013).
Statutory audit: In order to comply with laws and regulations, a statutory audit is the process of having independent, external auditors examine a company’s financial records. The corporation is required to have external auditors review its financial accounts in this sort of audit. The regulations that the company is subject to typically place the need for statutory audit. For example, a listed company is typically required by rules and regulations to present their financial statements to the stock exchange and have them audited by external auditors on a regular basis. (Refer Section 139 to 147 of the Companies Act, 2013, provided in the article).
Secretarial audit: The process of examining a company’s practices and procedures to ensure that they adhere to applicable laws and regulations and internal policies established by the firm as well, is known as a secretarial audit. In this kind of audit, the auditor typically reviews and examines numerous laws and regulations as well as internal policies, comparing them with the actual practices to ensure that the staff of the firm complies with all applicable laws, rules, and other corporate policies. (Refer Section 204 of the Companies Act, 2013, provided in the article)
Cost audit: Cost audit is the thorough examination of the costing system, and accounts to confirm their accuracy and guarantee conformity to the goal of cost accounting. Cost audit is the process of examining cost records and accounts, ensuring compliance with the established cost accounting methods, and determining the ongoing usefulness of such procedures. (Refer Section 148 of the Companies Act, 2013, provided in the article).
Forensic audit: Investigation of financial data by forensic accountants who are experts in both accounting and investigation is known as forensic audit. It is typically carried out by looking through the company’s or person’s financial records in order to track down and gather evidence that can be utilized in court. The typical scope of a forensic audit includes fraud, theft, and other financial claims.
Provisions relating to statutory audit under the Companies Act, 2013:
Chapter 10 of the Companies Act, 2013
Section 139 to 147 of the Companies Act, 2013
Companies (Audit and Auditors) Rules, 2014
Section 139: Appointment of Auditors
Every company at first annual general meeting appoint an individual or firm as auditor, who shall hold office till conclusion of 6th annual general meeting and thereafter till conclusion of every 6th annual general meeting.
Before appointment is made, the written consent of auditor and a certificate from him/it that appointment has been made in accordance of the Companies Act, 2013 is to be obtained by the company.
Company shall inform the auditor of his/its appointment and also file a notice such appointment with Registrar within 15 days of the meeting in which the auditor is appointed.
Section 140: Removal, Resignation of Auditor and giving of Special Notice
Auditor appointed may be removed from his office before the expiry of his term only by a Special Resolution, after obtaining the prior approval of Central Government in this behalf.
Before taking any action, the auditor concerned shall be given a reasonable opportunity of being heard.
Auditor who has resigned from the company shall file within a period of 30 days from the date of resignation, a statement with the Company and the Registrar stating reasons and other facts with regard to his resignation.
Special Notice is required in case of appointing as auditor a person other than retiring auditor or expressly providing that a retiring auditor shall not be reappointed.
Section 141: Eligibility, Qualifications and Disqualification of Auditors
A person shall be appointed as auditor only if s/he is a Chartered Accountant and in case of firm majority of partners practicing in India are Chartered Accountant and only those partners will be allowed to act and sign on behalf of firm who are Chartered Accountant.
Following persons shall not be eligible for appointment as an Auditor of a company:
- A Body Corporate
- An officer or employee of company
- Person or firm who has business relation with company
- Person whose relative is a director or is in employment of company as director or key managerial personnel
- A person who is in full time employment elsewhere
- A person or partner of firm who is holding appointment as auditor of more than 20 companies
Section 142: Remuneration of Auditors
Remuneration of Auditor shall be fixed in company’s general meeting
Section 143: Power and Duties of Auditors
Every Auditor shall have a right of access at all the times to the books of account and vouchers of the company.
Section 144: Auditor not to render certain services
Auditor shall not provide following services whether directly or indirectly to the company
- Accounting and book keeping services
- Internal audit
- Design and implementation of any financial information system
- Actuarial services
- Investment advisory services
- Investment banking services
- Rendering of outsourced financial services
- Management services and
- Any other kind of services as prescribed
Section 145: Auditor to sign audit report
The person appointed as auditor shall sign the auditor’s report and any qualification, observation or comments shall be read before company in general meeting and shall be open to inspection by any member of the company.
Section 146: Auditor to attend Annual General Meeting
All notices relating to any general meeting shall be forwarded to the Auditor and the Auditor shall unless exempt from attending by company, may attend any general meeting and shall have right to be heard at such meeting on any part of business which concerns him as the Auditor.
Section 147: Punishment for contravention
By the Company
If section 139 to 146 is contravened, the company shall be punishable with fine which shall not be less than 25,000 rupees but which may extend to 5 lakhs rupees and every officer in default shall be punishable with fine which shall not be less than 10,000 rupees but which shall extend to 1 lakh rupees.
By the Auditor
If the Auditor contravenes any provision of section 139, section 144, section 145, the auditor shall be punishable with fine which shall not be less than 25,000 rupees but which may extend 5 lakhs or 4 times the remuneration of the auditor, whichever is less.
If the Auditor contravened the provisions knowingly or wilfully with intention to deceive the company or its shareholder or its creditors or tax authorities, he shall be punishable with imprisonment for a term which may extend to 1 year and with fine which shall not be less than 50,000 rupees but which may extend to 25 lakhs rupees or 8 times of the auditor’s remuneration, whichever is less.
Provision relating to Cost Audit under the Companies Act, 2013:
Section 148 of the Companies Act, 2013
Companies (Cost Records and Audit) Rules, 2014
Section 148: The Central Government may by order, in respect of class of companies engaged in the production of such goods or providing such services, direct that particulars relating to the utilization of material or labor or to other items of cost shall also be included in the books of account kept by that class of company.
Cost Audit shall be conducted by the cost auditor who shall be appointed by the Board. In case of Companies required to constitute Audit committee then the Audit committee shall recommend the appointment and remuneration of Cost Auditors and Board & shareholders shall approve the same. In any other case the Board shall appoint an individual or firm as cost auditor and the remuneration of such cost auditor shall be ratified by shareholders subsequently. Company shall intimate the same in Form CRA-2 to the Central Government within 30 days of the Board Meeting or within 180 Days from the commencement of the Financial Year whichever is earlier.
A statutory auditor appointed under section 139 shall not be appointed as a Cost Auditor.
Provision relating to Secretarial Audit under the Companies Act, 2013:
Section 204 of the Companies Act, 2013
Companies (Appointment and Remuneration of managerial personnel) Rule, 2014
Companies (Meetings of Board and its powers) Rules, 2014
Section 204: Following companies are required to obtain ‘Secretarial Audit Report’ form independent practicing company secretary;
(1) Every listed company
(2) Every public company having a paid-up share capital of 50 Crores rupees or more; or
(3) Every public company having a turnover of 250 Crores rupees or more.
Only a member of the Institute of Company Secretaries of India holding certificate of practice (company secretary in practice) can conduct Secretarial Audit and furnish the Secretarial Audit Report to the Company.
As per Rule 8 of the Companies (Meetings of Board and its powers) Rules, 2014, Secretarial Auditor is required to be appointed by means of resolution passed at a duly convened Board meeting and resolution for appointment shall be filed with Registrar of Companies within 30 days in form MGT-14. Secretarial Auditor should get the letter of engagement from the company. Secretarial Auditor should formally accept the letter of engagement. Further, as a prudent corporate practice, it is advisable that change in the Secretarial Auditor during the year is reported to the members of the company in the Board’s Report.
