Companies Act Section 143

Companies Act Section 143 Powers and Duties of Auditors and Auditing Standards

1. Right to Access Books and Records 

Every auditor appointed under the Companies Act has a statutory right to access, at all times, the books of account, vouchers, and records of the company. This right of access is not limited to the registered office but extends to any other place where records are maintained.

The auditor can also demand any information or explanations from the company’s officers, as he/she may find necessary, to properly discharge the duties of audit. This ensures that the auditor can obtain full clarity on all transactions, accounts, and financial matters.

In addition to general powers, the auditor is required to specifically inquire into the following areas:

Specific Matters to Inquire Into:

a) Whether loans and advances made against security are properly secured and whether the terms are prejudicial to the company’s or shareholders’ interests.

b) Whether transactions represented merely by book entries (without actual substance) are prejudicial to the company’s interests.

c) In cases where the company is not an investment or banking company, whether assets in the form of shares, debentures, and other securities were sold below purchase price, and if so, why.

d) Whether loans and advances are incorrectly classified as deposits in the books.

e) Whether personal expenses have been wrongly charged to the revenue account.

f) Whether, in case of shares allotted for cash, the cash has actually been received   if not, whether the records and financial statements correctly reflect this.

Additional Rights for Auditors of Holding Companies

Where the company is a holding company, the auditor’s powers extend to the records of subsidiaries and associate companies for the purpose of consolidating financial statements.

2. Auditor’s Report to Members 

The auditor is required to submit a formal report to the company’s members (shareholders). This report must:

Cover all financial statements laid before the general meeting.

Be prepared in accordance with:

The Companies Act.

Applicable accounting standards.

Applicable auditing standards.

Any other prescribed rules or orders (such as directions from regulatory authorities).

The report should express whether the financial statements provide a true and fair view of the company’s financial position, including its profit or loss and cash flows for the relevant financial year.

3. Specific Content Requirements for Auditor’s Report 

The auditor’s report must specifically state:

a) Whether all necessary information and explanations were received   if not, the missing information and its impact on the financial statements should be reported.

b) Whether proper books of account have been maintained, including whether appropriate branch returns were received.

c) Whether the report on any branch office audited by someone else was received and how the main auditor relied on it.

d) Whether the financial statements agree with the books and records.

e) Whether the financial statements comply with accounting standards.

f) Any observations or comments that indicate adverse effects on the company’s functioning.

g) Whether any director is disqualified under Section 164(2) from holding office.

h) Any qualification, reservation, or adverse remark relating to maintenance of accounts or connected matters.

i) Whether the company has adequate internal financial controls and whether they are operating effectively.

j) Any other matters prescribed by law or rules.

4. Explanation for Qualifications 

If the auditor provides any qualification, reservation, or adverse remark, the reasons for such remarks must be clearly stated in the audit report.

5. Special Provisions for Government Companies 

In the case of:

Government companies, or

Companies owned or controlled (partly or fully) by the Central Government or any State Government,

The Comptroller and Auditor General of India (CAG) appoints the auditor. The CAG also issues specific audit directions to the auditor.

The auditor must submit a copy of the audit report to the CAG. This report must also describe any directions received from the CAG, the action taken thereon, and its impact on the financial statements.

6. Supplementary Audit by CAG

The CAG has the right to conduct a supplementary audit within 60 days of receiving the audit report. During this audit, the CAG can:

a) Appoint persons to conduct the audit. b) Demand additional information from the company, in the format and manner specified.

The CAG can also comment on or supplement the original audit report.

The company is required to circulate the CAG’s comments along with the main audit report to shareholders and place them before the AGM.

7. Power to Conduct Test Audit

For Government companies, the CAG may also conduct a test audit if deemed necessary. This is governed by Section 19A of the CAG (Duties, Powers, and Conditions of Service) Act, 1971.

8. Audit of Branch Offices

For companies with branch offices, the branch accounts must be audited either by the company’s main auditor or by another qualified auditor appointed under Section 139.

If the branch is located outside India, the branch accounts can be audited by:

The company’s auditor.

A local accountant qualified under the laws of that country.

The branch auditor must send a report to the main auditor, who will incorporate it into the company’s main audit report.

9. Compliance with Auditing Standards 

Auditors must comply with prescribed auditing standards.

10. Auditing Standards by Central Government 

The Central Government prescribes auditing standards after considering recommendations from:

The Institute of Chartered Accountants of India (ICAI).

National Financial Reporting Authority (NFRA).

Until notified, existing ICAI standards are deemed applicable.

11. Additional Matters in Audit Reports 

The Central Government can direct that, for certain companies, the audit report must include additional statements as specified by general or special order.

12. Auditor’s Duty to Report Fraud 

If, during the audit, the auditor suspects or detects fraud involving a prescribed amount, the auditor must:

Report the fraud to the Central Government in the prescribed time and manner.

For smaller frauds below the threshold, the auditor must report to the Audit Committee or the Board instead.

The Board’s report must disclose these smaller frauds to shareholders.

13. Protection for Auditors Acting in Good Faith 

No action can be taken against an auditor who reports a suspected fraud in good faith. This protects auditors from retaliation for fulfilling their duty.

14. Applicability to Cost and Secretarial Auditors 

The provisions of this section also apply to:

a) Cost Accountants performing cost audits under Section 148. b) Company Secretaries in Practice performing secretarial audits under Section 204.

15. Penalty for Non-Compliance 

If an auditor, cost accountant, or company secretary fails to comply with fraud reporting obligations (subsection 12), penalties apply:

For listed companies: Fine of up to ?5 lakh.

For other companies: Fine of up to ?1 lakh.