Companies Act Section 145

Companies Act Section 145 Obligation of Auditor to Sign Audit Reports and Disclose Observations in General Meeting

Section 145 of the Companies Act imposes clear obligations on auditors regarding the formal signing of audit reports and other related documents. It further ensures that auditors’ remarks, observations, and qualifications especially those that highlight any adverse impact on the company’s functioning are transparently communicated to the company’s shareholders. This provision underscores the importance of accountability, transparency, and openness in the audit process, ensuring that shareholders have access to critical financial and governance-related information.

Auditor’s Duty to Sign the Audit Report and Other Documents

The first obligation laid down in this section is that the auditor appointed for a company must sign the auditor’s report. This requirement is fundamental because the audit report serves as the formal and legally recognized opinion of the auditor on the company’s financial statements.

The auditor’s signature signifies that the report has been prepared following professional standards and regulatory requirements, including the provisions set out under Section 141(2), which relates to the eligibility, qualifications, and disqualifications of auditors.

In addition to the audit report, the auditor is also responsible for signing or certifying any other document of the company that, under law or applicable regulations, requires auditor certification or attestation. This could include:

Financial Statements (when attached with audit reports)

Reports or certificates required under regulatory filings

Statements regarding compliance with accounting standards

Statements related to internal financial controls, if applicable

Certifications regarding compliance with laws or any specific disclosures mandated by regulatory authorities

Auditor’s Observations and Qualifications - To Be Presented at General Meeting

The second obligation imposed under Section 145 is designed to ensure transparency and shareholder awareness. If the auditor, in the course of conducting the audit, makes any qualifications, observations, or comments related to the financial transactions or any other matters that the auditor believes may have an adverse effect on the company’s operations, such remarks cannot be buried in the audit file.

Instead, these remarks must be read out loud during the general meeting of the company. This ensures that shareholders who are the ultimate owners of the company are directly informed of any negative findings that might affect their interests.

The auditor’s remarks might include, for example:

Concerns about inadequate internal controls.

Disclosure of fraudulent transactions or misstatements detected during the audit.

Concerns about non-compliance with accounting standards or laws.

Any doubts raised regarding the company’s ability to continue as a going concern.

Observations indicating inefficient management of financial resources.

Notes on related party transactions that might not be conducted at arm’s length.

By requiring these remarks to be read at the general meeting, the law ensures that shareholders cannot be kept in the dark about material issues impacting the company’s financial health, governance, or legal compliance.

Inspection Rights for Members

Section 145 further strengthens the rights of shareholders by ensuring that the audit report, along with the auditor’s qualifications, observations, or comments, is made available for inspection by any member of the company.

This inspection right ensures transparency and allows shareholders to independently review the auditor’s findings at their own convenience, not just during the general meeting. Such access is essential for enabling informed decision-making, especially if shareholders are required to approve key resolutions relating to financial statements, director appointments, or dividends.

This right of inspection applies to all members, whether they hold a single share or a controlling stake, reinforcing the principle of equal access to information for all shareholders.

Connection with Section 141(2) - Eligibility and Qualifications of Auditors

Section 145 explicitly requires the signing of audit reports and certification of other documents in line with Section 141(2). This cross-reference ensures that only duly qualified and eligible auditors those who meet professional standards and legal requirements are entrusted with this responsibility.

Key points covered under Section 141(2) include:

Auditor must possess the prescribed qualifications (such as being a Chartered Accountant).

Auditor must not be subject to any disqualification (such as being convicted of fraud, being indebted to the company, or holding conflicting positions).

This linkage ensures that the person signing the audit report has the necessary competence, independence, and professional standing to discharge such a critical responsibility.