Description
project on audit
M.Com (SEM-III)
COMPANY AUDIT
Company Audit
MASTERS OF COMMERCE
IN
ACCOUNTANCY & FINANCE
(SEMESTER-III)
SUBMITTED BY
RAC!INI PANDEY
SEAT NO:
"AI !IND CO##E$E
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M.Com (SEM-III)
COMPANY AUDIT
‘A’ ROAD, CHURCHGATE, MUMBAI - 400 020
DEC#ARATION
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M.Com (SEM-III)
COMPANY AUDIT
SEAT NO(
COMPANY AUDIT
MASTERS O- COMMERCE
IN
ACOUNTANC" , -INANCE
SEMESTER 9 III
IN !ARTIA: -U:-I::MENT O-
MUMBAI UNI)ERSITY
-OR THE DEGREE
O- MASTERS O- COMMERCE IN
ACCOUNTANC" , -INANCE.
SUBMITTED B",
RAC!INI PANDEY
;
M.Com (SEM-III)
COMPANY AUDIT
SEAT NO(
"AI !IND CO##E$E
‘A’ ROAD, CHURCHGATE, MUMBAI-400 020.
"AI !IND CO##E$E
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COMPANY AUDIT
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No.
TOPIC !6.
No.
1) INTRODUCTION. >
2) RE?UIREMENTS O- COM!AN" AUDIT. >
!RE!ARATION BA:ANCE-SHEET , !RO-IT
AND :OSS STATEMENTS.
1;
4) DIRECTOR’S RE!ORT. 1>
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M.Com (SEM-III)
COMPANY AUDIT
/) AUDITOR’S O- COM!ANIES. 1@
A) GENERA: CONSIDERATION IN COM!AN"
AUDIT.
2;
B) ECAM!:E 9 C*%1$.+ I'%i* !:C. 2A
>) INRODUCTION , DISION O- COM!AN". 2B
@) DA:UES O- COM!AN". 2B
10) SEOT , !EST ANA"SIS O- COM!AN". 2>
11) AUDITOR’S RE!ORT. ;0
12) ANNECTURE O- AUDITOR’S RE!ORT. ;2
1 RE!ORT TO MEMBERS B" AUDITORS. ;4
14) RES!ONSIBI:ITIES O- DIRECTOR’S AND
AUDITOR’S.
;4
1/) RE!ORT O- INDE!ENDENT REGISTERED
!UB:IC ACCOUNTING -IRM.
;A
1A) CONC:USION. ;>
1B) RE-ERENCES. ;@
A
M.Com (SEM-III)
COMPANY AUDIT
AC4NO5#E$EMENT
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M.Com (SEM-III)
COMPANY AUDIT
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M.Com (SEM-III)
COMPANY AUDIT
INTRODUCTION
A company is said to be an artificial person created by law having a separate legal entity distinct
from its shareholders. It cannot be directly managed by its owners, i.e., shareholders, because
they are very large in number having small holding and also scattered over a wide area. As such,
the management and control of the affairs of the company is done by other persons generally
known as directors. Hence, it becomes essential for a company to appoint an independent and
qualified person, i.e., an auditor, to verily and certify the truth and fairness of the financial
statements.
SPECIAL REQUIREMENTS OF COMPANY AUDIT
I. Verification of the constittion an! "o#ers.
A company can function within the limits prescribed by the documents on the basis of which it
has been registered. It raises its capital from the public on certain conditions, specified in the
Prospectus. Before commencing business, to purchase a property or to have subscription to its
capital underwritten on this account, it is essential that the auditor, prior to starting the audit of a
company, shall eamine!
a. "he #emorandum of Association.
b. "he Articles of Association.
c. $ontracts entered into with vendors and other persons relating to purchase of property,
payment of commission, etc.
A company cannot enter into a contract before it has been registered. %hat is more, a public
company cannot commence business until the certificate of commencement of business has been
granted to it by the &egistrar of $ompanies. It is, therefore, the duty of the auditor to take into
account, while eamining the transaction entered into by the company, the dates when these were
entered into for confirming the validity.
%ith a view to carrying out the audit effectively, it is necessary that the auditor should know the
authority structure of the company. 'nder Section $%& of the Act, the Board of (irectors of a
company are entitled to eercise all such powers, and to do all such acts and things, as the
company is authori)ed to do. However, the Board shall not eercise any power or do any act or
thing which is directed or required by any legislation *including the $ompanies Act+ or by the
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M.Com (SEM-III)
COMPANY AUDIT
memorandum or articles of the company, to be eercised or done by the company, in general
meeting.
Section $%$ specifies si types of decisions that can be taken by the Board of (irectors only in
Board,s meetings. "hese relate to!
a. #aking calls on partly paid shares,
b. Issue of debentures,
c. Borrowing monies otherwise than on debentures,
d. Investing the funds of the company and
e. #aking loans.
"he transaction barring the first three can be delegated to any of the following!
a. A committee of directors,
b. #anaging director,
c. #anager,
d. Any other principal officer of the company or
e. Principal -fficer of the branch office, in relation to the branch.
Apart from the above, a number of other functions are also carried out by the Board. A few of
such functions are stated herein by way of eamples!
a. Adopting of accounts before the same submitted to the auditor for their report ' Section
$&(.
b. Appointment of the first auditors and filling of casual vacancy . Section $$).
c. Investment in shares of companies within the limits specified in Section *+$A.
d. /ntering into contracts with persons who are directors of the company or related to or
associated with the directors as are specified in Section $%+ of the Act.
0ome of the matters which only the shareholders can sanction at a general meeting!
a. Appointment and fiation of remuneration of auditors in the annual general meeting .
Section $$).
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M.Com (SEM-III)
COMPANY AUDIT
,. (eclaration of dividends . Re-.ation /(0 Ta,.e A.
c. Appointment of relatives of directors etc. to an office or place of profit in the company
under Section *&) of the Act.
!. 0ale, lease or a disposal of the whole of the company,s undertaking or a substantial part
of it and donations above a certain limits 1Section $%*1&22.
II. Matters #hich re3ire sanction of the Centra. 4o5ern6ent.
3oans to directors by a company other than banking or a finance company *Section $%(+. 4or
verifying the foregoing transactions and others authori)ed by the directors or shareholders, the
auditor should refer to the minutes of the meeting at which these have been considered.
4urther, for 5udging the validity or otherwise of section accorded, the
relevant provision of law must be referred to. A few such instances are given below!
a. Appointment of (irectors *Section $(7+.
b. (isqualifications of (irectors *Section $+)+.
c. $onduct of Board #eeting *Sections $/('$%8+.
d. 6eneral Powers of Board *Section $%&+.
e. Powers which the Board must eercise only at a meeting *Section $%$+.
f. &estriction on powers of the Board regarding disposal of the undertaking or part of it etc.
*Section $%*+.
g. Prohibitions and restrictions regarding political contributions *Section $%*A+.
h. Power of Board and other persons to make contributions to the 7ational (efense 4und,
etc. *Section $%*9+.
i. &estriction on advancing loans to (irectors, etc. *Section $%(+.
5. &estriction on a (irector or his relative, a firm in which a director or relative is a partner8
or any other partner of the firm or a private company of which such a director is a
member or director to enter into a contract of sale or purchase of goods ecept
with the sanction of the Board of (irectors *Section $%++.
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M.Com (SEM-III)
COMPANY AUDIT
k. &estriction on an interested director in participating in or voting at Board,s proceedings
*Section *88+.
l. (isclosure of interest by directors *Section $%%+.
m. &egister of contracts, $ompanies or firms in which directors are inspected *Section *8&+.
n. &emuneration of directors *Section *8%+.
o. &estraint on a director,s holding offices or places of profit *Section *&)+.
p. &estraint on payment of compensation for loss of office to a director *Sections *&/ to
*$&+.
q. &estriction on loans, etc., to companies under the same management *Section *+8+.
r. &egulation of inter.corporate loans and investments *Section *+$A+.
Books of Account are to be kept by a $ompany. /very company must maintain proper books of
accounts of its affairs. "he following transactions must be entered in the books of accounts of the
company which must be kept at its registered office!.
a. All sums of money received and epended by the company and the matters in respect of
which the respect of which the receipt and ependiture took place8
b. All sales and purchases of goods by the company8 and
c. "he assets and liabilities of the company.
d. In the case of a company engaged in production, processing, manufacturing or mining
activities, such particulars relating to utili)ation of material or other items of cost as may
be prescribed relating to certain class of companies as the $entral 6overnment may
require.
"he books of accounts must comply with the following conditions!.
a. "he books must give a true and fair view of the state of affairs of the company or the
branch office, if any, and eplain its transaction.
b. "he books must be kept on accrual basis and according to double entry system of
accounting.
/very company must keep its books of account at its registered office. However, some of the
books of account may be kept at such other place in India as the Board of (irectors may decide,
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M.Com (SEM-III)
COMPANY AUDIT
provided a notice in writing giving full address of that other place along with requisite filing fee
is filed with the &egistrar of $ompanies within seven of such decision.
If the company has a branch office, the books of account relating to transactions at the branch
office may be kept at that branch office, but proper summari)ed reports and statements must be
sent to the registered office or such other place where the books are kept, at intervals of not more
than three months. "he books of account of the branch must give a true and fair view of the
affairs of the branch and clearly eplain its transactions.
"hey must not conceal any transaction and also not disclose any transaction which is fictitious.
"he books of accounts and other documents and records are open to inspection by any director
during business hours. 0imilarly, they are open to inspection by the &egistrar of $ompanies or an
officer authori)ed by the $entral 6overnment.
"hese books and papers together with the vouchers pertaining to entries made must be
maintained for at least 9 years. It has been clarified by the (epartment of $ompany Affairs in
their Circ.ar No. $:/* !ate! $:*:&%/* that the books of account should be prepared and
maintained in indelible ink *and not in pencil+.
"he following persons are responsible for maintaining the books of accounts of a company!.
a. "he managing director or manager8
b. If the company has neither a managing director nor manager, then every director of the
company8
c. /very officer and other employee who has been authori)ed and to whom responsibility to
maintain the books has been allotted by the Board of (irectors.
If any of the persons referred to above fails to take all reasonable steps to maintain proper books
of accounts or has by his own willful act been the cause of any default by the company in this
respect, he is punishable with imprisonment up to si months or with fine which may etend to
&s. :,;;; or with both. However, no person can be sentenced to imprisonment unless it is proved
that the contravention was committed by him willfully.
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M.Com (SEM-III)
COMPANY AUDIT
Pre"aration of 9a.ance Sheet an! Profit an! Loss Accont.
"he company has to prepare its balance sheet and profit < loss account from the books of
account maintained by it. /very Balance 0heet of a company must give a true and fair view of
the state of affairs of the company as at the end of the financial year and must be in the
prescribed format.
If the responsible for maintaining proper books of account fails to take all reasonable steps to
secure compliance by the company with the requirement of law relating to the form and contents
of the balance sheet, he is liable for each offence to imprisonment for a term etending up to si
months or to fine up to &s.:, ;;;=. or to both.
For6 of 9a.ance Sheet.
Part : to 0chedule >I of the $ompanies Act, :?@A gives the format in which the balance sheet is
to be prepared. "he schedule specifies B types of formats, the hori)ontal format and the vertical
format. A company can prepare its balance sheet in either of the B formats. In the hori)ontal
format, the liabilities including the share capital are placed on the left side and assets of all types
on the right. "he main heads in this form are arranged as under!
*a+ 0hare $apital *a+ 4ied assets
*b+ &eserves and surplus *b+ Investments
*c+ 3oans *c+ $urrent assets, loans and advances
*d+
$urrent liabilities and *d+ #iscellaneous ependiture to the provisions etent not
written off or ad5usted
*e+ Profit < 3oss Account
"otal!
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M.Com (SEM-III)
COMPANY AUDIT
Ta,.e&; The 6ain hea!s arran-e6ent in the For6.
In the vertical format, the various heads of liabilities and assets are arranged vertically and
current liabilities are shown as deduction, from current assets. %hatever information which is
required to be given in the hori)ontal format must also be given in the vertical format.
0ummari)ed prescribed vertical form of balance sheet is given below!
I. Sorces of Fn!s.
*:+ 0hareholdersC funds
*B+ 3oan funds
......................
"otal!
......................
Ta,.e$; S66ari<e! "rescri,e! 5ertica. for6 of ,a.ance sheet.
II. A"".ication of Fn!s.
*:+ 4ied assets
*B+ Investments
*D+ $urrent assets, loans and advances
3ess! $urrent liabilities < provisions
*E+
*a+ #iscellaneous ependiture to the etent not written off or
ad5usted
*b+ Profit < 3oss Account
......................
"otal!
......................
Ta,.e*; S66ari<e! A"".ication For6 Strctre.
"he $entral 6overnment may, on the application or with the consent of the Board of (irectors of
the company, by order, modify in relation to that company, any of the requirements as to matters
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M.Com (SEM-III)
COMPANY AUDIT
to be stated in the companyCs balance sheet or profit and loss account for adapting them to the
circumstances of the company.
Contents of Profit an! Loss Accont.
"hough no format has been prescribed for the profit and loss account, Part II to 0chedule >I of
the $ompanies Act, :?@A gives a list of items which must be disclosed in every profit < loss
account. /very profit and loss account of a company must give a true and fair view of the
companyCs profit or loss for the financial year for which it is drawn up.
A!o"tion of 9a.ance Sheet an! Profit = Loss Accont.
"he Board of directors must present to the shareholders of the company, the balance sheet and a
profit and loss account for the financial year at every annual general meeting.
In the case of companies which are not commercial organi)ations such as 0ection B@ companies,
instead if the profit < loss account, an income < ependiture account may be prepared. "he
profit and loss account to be placed in the 4I&0" annual general meeting should relate to a
period beginning with the incorporation of the company and ending with a day, the interval
between which and the date of the meeting does not eceed nine months.
In case of subsequent annual general meetings, the profit and loss account should relate to a
period beginning with a day immediately after the period for which the preceding profit < loss
account was made and ending with a day, the interval between which and the date of the meeting
should not eceed si months. "he financial year may be more or less than a calendar year, but it
must not eceed
months or with the special permission of the &egistrar, :9 months.
If any director fails to take all reasonable steps to comply with the aforesaid requirements he is,
in respect of each offence liable to be punished with imprisonment up to si months or with fine
up to &s.:,;;;=. or with both.
Athentication of 9a.ance Sheet an! Profit = Loss Accont.
"he balance sheet and profit < loss account of a company must be signed on behalf of the Board
of directors by two directors out of whom one must be the managing director, where there is one
and the manager, or secretary, if any. "he balance sheet and profit and loss account must be
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M.Com (SEM-III)
COMPANY AUDIT
approved by the Board of directors before they are submitted to the auditors for the purpose of
audit. "he report of the auditors must be attached to the balance sheet and profit < loss account.
"he company and every officer of the company who is in default with the above provisions shall
be punishable with the fine which may etend to &s.@;;=., if!
a. any copy of balance sheet and profit and loss account is issued, circulated or published,
without being signed as required 8 or
b. any copy of balance sheet is issued, circulated or published, without there being anneed
or attached thereto, a copy each of the following !.
:. "he profit and loss account8
B. Any accounts, reports or statements pertaining to subsidiary companies which are
required to be attached to the balance sheet,
D. "he auditorsC report8 and
E. "he &eport of the Board of (irectors.
Circ.ation of 9a.ance Sheet an! A!itors> Re"ort.
A copy of every balance sheet, profit and loss account, auditorsC report and every other document
required to be anneed or attached to the balance sheet must be sent not less than twenty.one
days before the general meeting to every member, to every trustee for debenture holders, and to
all other persons who are entitled to have a notice of general meetings.
In the case of a company not having a share capital, the above documents need not be sent to a
member, or debenture holder who is not entitled to have notice of general meetings.
In case of listed companies, the company may keep the aforesaid documents available for
inspection at its registered office during working hours for a period of twenty.one days before
the meeting and send to every member and trustee for debenture holders only a summari)ed
statement containing the salient features of these documents in the prescribed format.
Fi.in- of Anna. Acconts #ith the Re-istrar.
/very company must file with the &egistrar within D; days from the day on which the annual
accounts, auditor,s report and the director,s report were presented at the annual general meeting,
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M.Com (SEM-III)
COMPANY AUDIT
three certified copies of these documents signed by the managing director, manager or secretary
of the company or if there be none of these by a director of the company.
"hese accounts may be inspected and copies thereof may be obtained by any member of the
public at the &egistrar of $ompanies on payment of the requisite fee. However, no person other
than a member of the company is entitled to inspect, or obtain copies, of the profit and loss
account in the case of the following types of companies !.
a. A private company which is not a subsidiary of public company8
b. A private company whose entire paid.up capital is held only by one or more bodies
corporate incorporated outside India8 or
c. A private company which is deemed to be a public company by virtue of Section )*A, if
the $entral 6overnment directs that it is not in the public interest that any person other
than a member of the company should be entitled to inspect or obtain copies of the profit
and loss account of the company.
In case the annual general meeting of a company for any year has not been held, D copies of the
balance sheet and profit and loss account, duly signed, within thirty days from the latest day on
or before which that meeting should have been held in accordance with the provisions of the Act
must be filed with the &egistrar of $ompanies. If for any reason, the annual general meeting
before which a balance sheet is laid does not adopt it, or is ad5ourned without adopting the
balance sheet or if the annual general meeting of a company for any year has not been held, a
statement of the fact and reasons thereof must also be anneed to the balance sheet and to the
copies thereof to be filed with the &egistrar.
If default is made in complying with the above provisions, then the company and every officer of
the company who is in default shall be punishable with fine which may etend to &s.@; for every
day during the period the default continues.
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M.Com (SEM-III)
COMPANY AUDIT
Directors> Re"ort.
"he report of the Board of (irectors must be attached to every balance sheet presented at the
annual general meeting. "he report must contain information regarding the following matters!.
a. "he state of affairs of the company
b. "he amount, if any, which it proposes to carry to any reserves in such balance sheet
c. "he amount of dividend recommended
d. (etails of any material changes and commitments, if any, affecting the financial position
of the company which have occurred between the end of the financial year of the
company to which the balance sheet relates and the date of the report
e. $onservation of energy, technology absorption, foreign echange earnings and outgo.
f. 7ames, designations and other particulars of all employees drawing more than &s.
@;;;;=. p.m. in the company
g. (etails necessary for a proper understanding of the state of the companyCs affairs and
which are not, in the BoardCs opinion, harmful to the business of the company or of any of
its subsidiaries, in respect of changes which have occurred during the financial year !.
i. In the nature of companyCs business8
ii. In the companyCs subsidiaries or in the nature of the business carried on by them8
and
iii. 6enerally in the classes of business in which the company has an interest.
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M.Com (SEM-III)
COMPANY AUDIT
AUDITORS OF COMPANY.
A!itors of 4o5ern6ent Co6"anies .
"he auditor of a 6overnment company is appointed or re.appointed by the $entral 6overnment
on the advice of the Co6"tro..er an! A!itor'4enera. of In!ia provided that the audit would
be within the number of acceptable audits available to each auditor.
"he Co6"tro..er = A!itor 4enera. of In!ia has the power!.
a. "o direct the manner in which the companyCs accounts are to be audited by the auditor so
appointed and to give such auditor instructions in regard to any matter relating to the
performance of his functions as such.
b. "o conduct supplementary or test audit of the companyCs accounts by such person or
persons or persons as he may authori)e in this behalf8 and for the purpose of such audit,
to require additional information to be furnished to any person or persons so authori)ed,
on such matters, by such person or persons, and in such form, as the Co6"tro..er an!
A!itor'4enera. may, by general or special order, direct.
"he auditor must submit a copy of his audit report to the Co6"tro..er an! A!itor'4enera. of
In!ia who shall have the right to comment upon or supplement, the audit report in such manner
as he may think fit. Any such comments upon, or supplement to, the audit report must be placed
before the annual general meeting of the company at the same time and in the same manner as
the auditorsC report.
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M.Com (SEM-III)
COMPANY AUDIT
A!itors of Other Co6"anies.
It is the duty of the auditor conduct the audit of the books of accounts of the company and to
make his report to the members of the company on the accounts eamined by him, and on every
balance sheet, every profit and loss account and on every other document declared by the Act to
be part of or anneed to the balance.sheet or profit and loss account and laid before the company
in general meeting during his tenure of office. "he auditor,s report, besides other things
necessary in any particular case, must epressly state.
a. %hether, in his opinion and to the best of his information and according to eplanation
given to him, the accounts give the information required by the Act and in the manner as
required8
b. %hether the balance.sheet gives a true and fair view of the companyCs affairs as at the
end of the financial year and the profit and loss account gives a true and fair view of the
profit or loss for the financial year8
c. %hether he has obtained all the information and eplanations required by him for the
purposes of his audit8
d. %hether in his opinion, the profit < loss account and balance sheet referred to in his
report comply with the accounting standards recommended by the Institute of $hartered
Accountants of India8
e. %hether, in his opinion, proper books of account as required by law have been kept by
the company, and proper returns for the purposes of his audit have been received from the
branches not visited by him8
f. %hether the companyCs balance sheet and profit and loss account dealt with by the report
are in agreement with the books of account and returns.
In case any of the above matters is answered in the negative or with a qualification, the auditorCs
report must state the reason for the same. %here the auditor is unable to epress any opinion in
answer to a particular question, his report shall indicate such fact together with the reasons why
it is not possible for him to give an answer to such question.
"he $entral 6overnment is empowered to issue orders requiring the auditor to include in his
report a statement on such matters as may be specified. In eercise of this power the $entral
6overnment has issued an order called ?The Manfactrin- an! other Co6"anies 1A!itor>s
Re"ort2 Or!er@0 &%+(. It is the duty of the auditor to comply with this order when making his
report to the shareholders.
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M.Com (SEM-III)
COMPANY AUDIT
-nly the person appointed as auditor of the company or where a firm of auditors is so appointed,
only a partner of that the firm practicing in India, can sign the auditorCs report or sign or
authenticate any other document of the company required by law to be signed or authenticated
by the auditor.
Inter Cor"orate Loans an! In5est6ents.
A company cannot!.
a. #ake any loan to any other body corporate,
b. 6ive guarantee or security in connection with any loan made by any person to another
body corporate and
c. Acquire, by subscription, purchase or in any other manner, securities in any other body
corporate eceeding A; F of its paid up share capital and free reserves or :;; F of its
free reserves, whichever is more, unless approved by a special resolution passed at a
general meeting of members.
"he Board of the company may give a guarantee without being previously authori)ed by a
special resolution of members if all the following conditions are satisfied!.
a. A Board resolution is passed to this effect,
b. "here eist eceptional circumstances which prevent the company from obtaining
previous authori)ation by special resolution and
c. "he Board resolution is confirmed within :B months in a general meeting or its net
Annual general meeting, whichever is earlier.
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M.Com (SEM-III)
COMPANY AUDIT
7otice of such resolution must clearly indicate the specific limits, the particulars of the body
corporate in which the investment = loan = guarantee = security is proposed, the purpose of the
investment = loan = guarantee = security, sources of funding, etc.
7o investment = loan = guarantee = security may be made or given unless the Board resolution
sanctioning it is with the consent of all directors present at the meeting and prior approval of the
public financial institution * if any term loan is outstanding + is obtained.
Approval of the public financial institution is not required if the investment = loan = guarantee =
security is with the A; F limit as mentioned above and there has been no default in repaying the
term loan and = or interest thereon.
7o loan can be made at a rate of interest lower than the bank rate prescribed by the &eserve
Bank of India.
A company which has defaulted in repaying public fied deposits cannot make or give any
investment = loan = guarantee = security unless the fied deposit is fully repaid along with interest
due as per the terms and conditions of the fied deposit.
A register of such inter.corporate loans and investments must be maintained giving the relevant
details.
"he above provisions do not apply to!.
i. Any loan = guarantee = security made or given by !.
a. A banking company or an insurance company or a housing finance company in
the ordinary course of its business or a company established with the ob5ect of
financing industrial enterprises or providing infrastructural facilities.
b. A company whose principal business is the acquisition of shares, stocks,
debentures or other securities.
c. A private company unless it is a subsidiary of a public company.
ii. Investment made under &ights issue of securities.
iii. 3oan made by holding company to its wholly subsidiary company.
iv. 6uarantee or security given by a holding company for loan to its wholly owned
subsidiary.
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M.Com (SEM-III)
COMPANY AUDIT
v. Acquisition of securities by a holding company in its wholly owned subsidiary.
Audit report is the presentation of collected and considered facts. It is prepared in such a way
that hose people who do not have information about the mater of the report can be informed
clearly in brief. According to 0ection BG *B+ of $ompanies Act, it is auditor,s duty to verify the
accounts of the company carefully and give a report about whether the accounts present true and
fair condition of the $ompany or not H
Auditor is the representative of shareholders8 therefore it is his moral duty to take care of
shareholders, interest. 6enerally, shareholders do not know the real condition of the company.
"hey are not capable for it. 0o, auditor should verify whether the money of shareholders is
properly managedH "hat money is not used illegally or for personal purpose, the management is
done according this. He should minutely verify the accounts of that company. 4inally, he has to
present in his report before shareholders whether the profit.los account and balance sheet of the
company gives true and fair economic condition of the company. 3et he auditor not had any new
information in the presented accounts but the real importance lies in giving the report after
verifying the truthfulness and clarity.
In the case of 3ondon and 6eneral Bank, 5ustice had stated the auditor was liable for not giving
proper report o the shareholders. Auditor,s report proves very useful to those who have lent
money to the company, banks who have sanctioned loans for short or long term and finance
company.
4enera. Consi!eration in Co6"anA A!it.
"hese have to be determined on a consideration of!
a. -b5ectives of audit8
b. >arious provisions in the $ompanies Act, :?@A, especially those concerning accounts and
audit8 and
c. "he scope of the report that the auditor of a company is required to make in pursuance of
the provisions contained in section BBG of the Act.
"he ob5ectives of an audit are!
a. >erification of statements of account so as to epress an opinion8
b. (etection of errors and frauds8 and
c. Prevention of occurrence of errors and frauds.
24
M.Com (SEM-III)
COMPANY AUDIT
(etection and prevention of frauds and errors were originally regarded as the main ob5ectives of
an audit. %hile conducting the audit, the auditor is epected to bear in mind the possibility of
eistence of a fraud or other irregularity in accounts. 7onetheless, he is not epected to conduct
the audit with the ob5ective of discovering all frauds or irregularities, for if that is to be done, the
audit would take an unduly long time and the cost of it would be quite out of proportion to its
benefit.
7evertheless, it is epected that the auditor would be vigilant and watchful and whenever he
comes across a circumstance which arouses his suspicion, he should find out whether a fraud, or
irregularity, in fact does eist and, if so, whether it is sufficiently material to necessitate
qualifications of the audit report.
It is generally accepted that the auditor is not an insurer and does not guarantee that the books of
account truly reflect the company,s affairs.
"he auditor, thus, is principally responsible for carrying out his duties by eercising due care and
skill in consonance with the professional standards. If, despite the fact, any fraud or irregularity
in accounts remains undetected, he cannot be held liable for the failure to detect it. #oreover,
since the management is primarily responsible for safeguarding the assets and property of the
company, the auditor, while framing his audit program, is entitled to rely upon the internal
controls in this regard instituted by the management based on a proper evaluation.
It would be observed that $ompanies Act, :?@A also does not contemplate that an auditor is
responsible for the detection of errors and frauds, ecept when they are so material as to vitiate
the opinion epressed by him that statements of account ehibit a true and fair state of affairs.
"he auditor is required to verify the final statements of account8 also to check or verify all the
matters affecting them so as to ensure fully that they ehibit a true and fair state of affairs of the
business of the company. 4or the purpose, he may either carry out a detailed eamination of the
books or relying on the internal control measures in operation, after testing their strength, merely
test the accuracy of transaction recorded therein.
It is permissible for an auditor to verify the accuracy of transactions recorded in the books of
account by the application of test checks, if he is satisfied that the system of internal control, in
operation, is adequate and satisfactory.
Constittiona. Doc6ents.
"he auditor, before commencing a company audit, shall undertake BVerification of the
constittion an! "o#ers@. "his he can verify from various documents, decisions taken in board
meeting, decisions in shareholder,s meeting etc.
2/
M.Com (SEM-III)
COMPANY AUDIT
Any company,s functions and powers are limited to the documents on the basis of which it has
been registered. Prospectus is the most important document that the company requires to raise
capital from public. "he auditor also needs to check various transactions taken place before
commencement of business e.g., any property purchased etc. thus, prior to setting any audit, the
auditor shall eamine following constitutional documents!
a. #emorandum of association,
b. Articles of association,
c. $ontracts entered into with vendors and other persons relating to purchase of property,
payment of commission etc.
d. $ertificate of commencement by business <
e. $ertificate of registration etc.
A company, before registration, cannot enter into contract also without obtaining $ertificate of
$ommencement of business from the registrar of $ompanies. "herefore, the auditor is required
to take into account his duty to eamine the transactions entered into by the company8 the dates
when these were entered into for confirming the validity. "he auditor should be aware of the
authority structure of the company so as to carry out audit effectively. 0ection B?: empowers the
Board of (irectors to eercise all such powers and undertake all such Acts8 the company is
authori)ed to do. But, the auditor should see to it that the Board has not done any ultra.virus Acts
i.e. not eercised any power nor done any act which is not permitted by #emorandum or Articles
of the company.
Metho!; %hile transfer of shares is brought about by delivery of a proper instrument of transfer
*vi), transfer deed+ duly stamped and eecuted, transmission of shares is done by forwarding the
necessary documents *such as a notari)ed copy of death certificate+ to the company.
NOTE; The next page will provide a brief view regarding the final audit. The company’s
example is practically analyzed and reported briefly.
2A
M.Com (SEM-III)
COMPANY AUDIT
“ CADBURY-INDIA”
Intro!ction;
"he $adbury,s Inc has taken the opportunity to offer us a broader view of chocolate category.
"he $adbury India,s no.: $hocolate is able to share with their market insights based upon
unparalleled breath of chocolate eperience. $adbury is a multinational company and the
$adbury dairy milk is a brand of chocolate which is made by $adbury. $adbury made different
types of chocolates and other products which is sold in several countries around the world. It first
sold its products in 'nited 0tates in :?;@.
$adbury has grown from strength to strength with new technologies being introduced to make
the $adbury confectionary business, one of the most efficient in the world. "he merge in :?A?
with 0chweppes and the subsequent development of the business have led to $adbury
0chweppes taking the lead in both, the confectionary and soft drink market intact 'I and
becoming a ma5or force in the international market. $adbury 0chweppes today manufactures
product in A; countries and a trade in staggering :B;. "he $adbury story is a fascinating story of
a family business that grew in one of the biggest, most loved chocolate brand in the world. A
story that you will remember as the story of BThe taste of .ife@.
2B
M.Com (SEM-III)
COMPANY AUDIT
Vision of Ca!,rA;
A. Be the world,s 9I44EST an! 9EST confectionery company.
B. Pr"ose; $reating brands people love.
$. "heir vision in to action!
i. 4o5ernin- o,Cecti5e; "o deliver superior shareowner returns.
ii. Priorities; 6rowth, efficiency capability
Growth: "heir growth priority is represented by the mantra J Fe#er0 Faster0 9i--er0 9etter.
"hey focus on a number of advantaged global and regional brands, invest in getting their new
product developments into more markets faster, use 5oined up commercial and marketing
programs to have a bigger impact and underpin the whole plan by eecuting their initiatives
better.
Efficiency: "heir efficiency priority recogni)es that it is not enough to grow8 they must also be
more profitable. "hey maintain a relentless focus on cost and efficiency by reducing central
functions and costs8 consolidating their businesses and reconfiguring their manufacturing and
distribution. "heir vision in to action will help increase their margins to mid.teens by B;:: with
the aim of delivering mid.term margins by B;::.
Capability: "heir capability priority ensures they continue to invest in the right organi)ation and
skills to win. "hey have simplified and strengthened their organi)ation to a pure.play
confectionery business. "hey manage their commercial strategies on a global basis through their
three categories of chocolate, gum and candy and strong functional leadership.
Va.es of Ca!,rA;
"hey are performance driven, values led. "hroughout changing times, their constant values have
inspired us to be pioneers in business and in corporate responsibility. "hey help ensure they are
proud of their company and are critical to their core purpose of creating brands people love.
"heir values are!
? erformance: "hey are passionate about winning. "hey compete in a tough but fair way.
"hey are ambitious, hardworking and make the most of their abilities. "hey are prepared
to take risks and act with speed.
2>
M.Com (SEM-III)
COMPANY AUDIT
? !uality: "hey put quality and safety at the heart of all of their activities J their products,
their people, their partnerships and their performance.
? "espect: "hey genuinely care for their business and their colleagues. "hey listen,
understand and respond. "hey are open, friendly and they coming. "hey embrace new
ideas and diverse customs and cultures.
? #ntegrity: "hey always strive to do the right thing. Honesty, openness and being
straightforward characteri)e the way they do business. "hey have clear principles and do
what they say they will do.
? "esponsibility: "hey take accountability for their social, economic and environmental
impact. In this way they aim to make their business, their partners and their communities
better for the future.
SDOT an! PEST Ana.Asis of Ca!,rA In!ia PLC.
SDOT Ana.Asis;
$trength:
a. >ery strong brand equity in India.
b. (ue to its @E years presence in India J has deep penetration J B:;; distributors8 E@;,;;;
retailers, A; mid urban *BBF+ customers.
c. "hree sectors8 $hocs *G;F share+, $onfec *EF+, food drinks *:EF . leader in brown
segment+.
d. 3ow cost of production due to economic of scale. "hat means higher profits. Better
market penetration.
e. 0econd best manufacturing location throughout $adbury 0chweppes.
%ea&ness:
a. Poor technology in India compared to current international technologies *6odiva, #o)art,
4a)er, (int, 7aushans, etc...+
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M.Com (SEM-III)
COMPANY AUDIT
b. 3td. Iey products, only one central brand *$(#+. Pralines range totally wising in India.
c. K#ake in IndiaL tag once the economy opens up wore and imports rush in.
'pportunities:
a. "remendous scope for per capita consumption *:A; gms. of 9 J :; kg+
b. Increasing per capita national income resulting in higher disposable income.
c. 6rowing middle class and growing urban population.
d. Increasing gifts cultures.
e. 0ubstitute to K#ithaisL with higher calories=cholesterol.
f. Increasing departmental stores concept J impulse M at cash counters.
g. 6lobali)ation! optimal use of global $adbury 0chweppes.
Threats:
a. #a5or! (ue to low cost and highest brand equity, it is success in India.
b. #inor! 6lobali)ation will bring in better brands for upper end of the market *3iest,
#onarch, 6odiva, etcN+.
Conclusion:
%ill lose market share with globali)ation but will remain brand leader.
PEST Ana.Asis;
P; 0ince the budget range is decontrolled, no political effects are envisaged.
E;
a. Increasing per capita income resulting in higher disposable income.
b. 6rowing middle class=urban population J increase in demand.
c. 3ow cost of production J better penetration.
S;
a. Per capita consumption epected to increase J fashion.
;0
M.Com (SEM-III)
COMPANY AUDIT
b. Increasing gifts culture J increase in demand.
c. 3ower cholesterol than K#ithaisL *sweet meat+ subsbstitute demand.
T; %ill have to reinforce technology to international levels once India is a KfreeL economy.
Ftre "ros"ecti5e;
6ood growth in $hocolate *up GF+, led by continued strong performances in 'I, India and
0outh Africa. Improved growth in 6um *up EF+ and $andy *up ::F+ reflecting strong
performances in emerging markets and growth in 7orth America and /urope.
/cellent growth in Britain < Ireland *up :;F+ and emerging markets *0outh America up :9F,
Asia and #iddle /ast and Africa up :EF+. Improved momentum increases our confidence in
good revenue growth in B;:; and B;:: #arketing investment as a percentage of sales was
:;.EF on a constant currency basis reflecting the benefits of media deflation.
A!itorEs re"ort of Ca!,rA In!ia PLC.
In the auditor,s report of year end.B;;? all the possible details are covered up and noted down
briefly. 4urther details can be learnt from the following enlisted detail report.
:. %e have audited the Balance 0heet of $adbury India 3imited and also the Profit and 3oss
Account and the $ash 4low statement for the year ended on that date, anneed there after the
financial statements are the responsibility of the $ompany,s management. -ur responsibility is
to epress an opinion on these financial statements based on our audit.
B. %e conducted our audit in accordance with auditing standards generally accepted in India.
"hose 0tandards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes eamining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. %e believe that
our audit provides a reasonable basis for our opinion.
D. As required by the $ompanies *Auditors &eport+ -rder, B;;D, issued by the $entral
6overnment of India in terms of sub.section *EA+ of section BBG of the $ompanies Act, :?@A, we
enclose in the Anneure a statement on the matters specified in paragraphs E and @ of the said
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M.Com (SEM-III)
COMPANY AUDIT
order.
E. 4urther to our comments in the Anneure referred to above, we report that!
a. %e have obtained all the information and eplanations which to the best of our
knowledge and belief were necessary for the purposes of our audit.
b. In our opinion, proper books of account as required by law have been kept by the
$ompany, so far as appears from our eamination of those books.
c. "he Balance 0heet, Profit and 3oss Account and $ash 4low 0tatement dealt with by
this report are in agreement with the books of account.
d. In our opinion, the Balance 0heet, Profit and 3oss Account and $ash 4low 0tatement
dealt with by this report comply with the accounting standards referred to in sub .
section *D$+ of 0ection B:: of the $ompanies Act, :?@A.
e. -n the basis of written representations received from the (irectors and taken on record
by the Board of (irectors, we report that none of the directors are disqualified as on
(ecember D:, B;;? from being appointed as a director in terms of clause *g+ of sub.
section *:+ of 0ection BGE of the $ompanies Act, :?@A.
f. In our opinion and to the best of our information and according to the eplanations
given to us, the accounts give the information required by the $ompanies Act, :?@A, in
the manner so required and give a true and fair view in conformity with the accounting
principles generally accepted in India!
i. In the case of the Balance 0heet, of the state of affairs of the $ompany as at
(ecember D:, B;;?8
ii. In the case of the Profit and 3oss Account, of the profit of the $ompany for
the year ended on that date8 and
iii. In the case of the $ash 4low 0tatement, of the cash flows for the year ended
on that date.
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M.Com (SEM-III)
COMPANY AUDIT
AnneFre to the A!itors Re"ort;
*&eferred to in paragraph D of the report of even date+
:. "he nature of the $ompany,s business = activities for the year are such that the requirements
of items *iii+, *vi+, *+, *ii+, *iii+, *iv+, *v+, *vi+, *viii+, *i+ and *+ of paragraph E of the
-rder are not applicable to the $ompany.
B. In respect of its fied assets!
a. "he $ompany has maintained proper records showing full particulars, including
quantitative details and situation of fied assets.
b. 0ome of the fied assets were physically verified during the year by the
management in accordance with a program of verification which, in our
opinion, provides for physical verification of all the fied assets at reasonable
intervals. According to the information and eplanations given to them, no
material discrepancies were noticed on such verification.
D. In respect of its inventories!
;;
M.Com (SEM-III)
COMPANY AUDIT
a. As eplained to them, inventories were physically verified during the year by the
management at reasonable intervals.
b. In team,s opinion and according to the information and eplanations given to us,
the procedures of physical verification of inventories followed by the
management were reasonable and adequate in relation to the si)e of the $ompany
and the nature of its business.
c. In team,s opinion and according to the information and eplanations given to
them, the $ompany has maintained proper records of its inventories and no
material discrepancies were noticed on physical verification.
E. In their opinion and according to the information and eplanations given to them, there is an
adequate internal control system commensurate with the si)e of the $ompany and the nature of
its business for the purchase of inventory and fied assets and for the sale of goods and services.
"eam had not observed any continuing failure to correct ma5or weaknesses in the internal control
system.
@. In respect of contracts and arrangements entered in the register maintained in pursuance of
0ection D;: of the $ompanies Act, :?@A, to the best of our knowledge and belief and according
to the best of the information and eplanations given to them the particulars of contracts or
arrangements that needed to be entered into the register have been so entered.
A. In team,s opinion, the $ompany has an adequate internal audit system commensurate with the
si)e of the $ompany and the nature of its business.
G. "eam had broadly reviewed the books of account and records maintained by the $ompany in
respect of malted foods, pursuant to the order made by the $entral 6overnment for the
maintenance of cost records under 0ection B;?*:+*d+ of the $ompanies Act, :?@A and are of the
opinion that, prima facie, the prescribed accounts and records have been made and maintained.
"he auditing team, however, not made a detailed eamination of the records with a view to
determining whether they are accurate or complete. "o the best of the knowledge and according
to the information and eplanations given to them, the $entral 6overnment has not prescribed
the maintenance of cost records for any other product of the $ompany.
9. $tatutory and other dues: According to the information and eplanations given to them, the
$ompany has generally been regular in depositing undisputed statutory dues, including Provident
4und, Investor /ducation and Protection 4und, /mployees 0tate Insurance, Income.ta, 0ervice
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M.Com (SEM-III)
COMPANY AUDIT
"a, 0ales.ta, %ealth "a, $ustom (uty, /cise (uty and any other material statutory dues with
the appropriate authorities during the year.
?. According to the information and eplanations given to them, the team,s are of the opinion
that the $ompany has not defaulted in the repayment of dues to financial institutions = banks.
:;. According to the cash flow statement and other records eamined by them and the
information and eplanations given to them, on an overall basis, funds raised on short.term basis
have, prima facie, not been used during the year for long.term investment.
::. to the best of our knowledge and belief and according to the information and eplanations
given to company, no material fraud on or by the $ompany was noticed or reported during the
year.
In!e"en!ent A!itorsE re"ort to the 6e6,ers of Ca!,rA In!ia PLC.
"he team had audited the 6roup and Parent $ompany financial statements *the Ofinancial
statementsO+ of $adbury plc for the year ended D: (ecember B;;9 which comprise the 6roup
Income 0tatement, the 6roup 0tatement of &ecogni)ed Income and /pense, the 6roup and
Parent $ompany Balance 0heets, the 6roup and Parent $ompany $ash 4low 0tatement, 6roup
0egmental reporting *a+ to *d+ and the related notes : to E;.
"hese financial statements have been prepared under the accounting policies set out therein. %e
have also audited the information in the (irectorsC &emuneration &eport that is described as
having been audited.
"his report is made solely to the $ompany,s members, as a body, in accordance with section BD@
of the $ompanies Act :?9@. -ur audit work has been undertaken so that we might state to the
$ompany,s members those matters we are required to state to them in an auditors, report and for
no other purpose. "o the fullest etent permitted by law, we do not accept or assume
responsibility to anyone other than the $ompany and the $ompany,s members as a body, for our
audit work, for this report, or for the opinions we have formed.
Res"ecti5e res"onsi,i.ities of Directors an! A!itors.
;/
M.Com (SEM-III)
COMPANY AUDIT
"he (irectorsC responsibilities for preparing the Annual &eport, the (irectorsC &emuneration
&eport and the financial statements in accordance with applicable law and International 4inancial
&eporting 0tandards *I4&0s+ as adopted by the /uropean 'nion are set out in the 0tatement of
(irectorsC &esponsibilities.
"he responsibility is to audit the financial statements and the part of the (irectorsC &emuneration
&eport to be audited in accordance with relevant legal and regulatory requirements and
International 0tandards on Auditing *'I and Ireland+.
"he report gives an opinion to whether the financial statements give a true and fair view and
whether the financial statements and the part of the (irectorsC &emuneration &eport to be audited
have been properly prepared in accordance with the $ompanies Act :?9@ and, as regards the
6roup financial statements, Article E of the IA0 &egulation. "he team also report to you whether
in our opinion the information given in the (irectorsC &eport is consistent with the financial
statements. "he information given in the (irectorsC &eport includes that specific information
presented elsewhere in the document that is cross referred from the Business &eview section of
the (irectorsC &eport.
In addition it reports if, in team,s opinion, the $ompany has not kept proper accounting records,
if they have not received all the information and eplanations we require for our audit, or if
information specified by law regarding (irectorsC remuneration and other transactions is not
disclosed.
It reviews whether the $orporate 6overnance 0tatement reflects the $ompanyCs compliance with
the nine provisions of the B;;A $ombined $ode specified for the review by the 3isting &ules of
the 4inancial 0ervices Authority, and it reports if it does not. "hey are not required to consider
whether the boardCs statements on internal control cover all risks and controls, or form an opinion
on the effectiveness of the 6roupCs corporate governance procedures or its risk and control
procedures.
It reads the other information contained in the Annual &eport as described in the contents section
and consider whether it is consistent with the audited financial statements. It considers the
implications for the report if we become aware of any apparent misstatements or material
inconsistencies with the financial statements. "he responsibilities do not etend to any further
information outside the Annual &eport.
9asis of A!it O"inion.
;A
M.Com (SEM-III)
COMPANY AUDIT
"he team conducted audit in accordance with International 0tandards on Auditing *'I and
Ireland+ issued by the A!itin- Practices 9oar!. An audit includes eamination, on a test basis,
of evidence relevant to the amounts and disclosures in the financial statements and the part of the
(irectorsC &emuneration &eport to be audited. It also includes an assessment of the significant
estimates and 5udgments made by the (irectors in the preparation of the financial statements, and
of whether the accounting policies are appropriate to the 6roupCs and $ompanyCs circumstances,
consistently applied and adequately disclosed.
"hey planned and performed our audit so as to obtain all the information and eplanations which
are considered necessary in order to provide with sufficient evidence to give reasonable
assurance that the financial statements and the part of the (irectorsC &emuneration &eport to be
audited are free from material misstatement, whether caused by fraud or other irregularity or
error. In forming our opinion it also evaluated the overall adequacy of the presentation of
information in the financial statements and the part of the (irectorsC &emuneration &eport to be
audited.
#n team’s opinion:
the 6roup financial statements give a true and fair view, in accordance with I4&0s as adopted by
the /uropean 'nion, of the state of the 6roup,s affairs as at D: (ecember B;;9 and of its profit
for the year then ended8 the parent company financial statements give a true and fair view, in
accordance with I4&0s as adopted by the /uropean 'nion as applied in accordance with the
provisions of the $ompanies Act :?9@, of the state of the parent companyCs affairs as at D:
(ecember B;;98the financial statements and the part of the (irectorsC &emuneration &eport to be
audited have been properly prepared in accordance with the $ompanies Act :?9@ and, as regards
the 6roup financial statements, Article E of the IA0 &egulation8 and the information given in the
(irectorsC &eport is consistent with the financial statements.
Re"ort of In!e"en!ent Re-istere! P,.ic Accontin- Fir6.
"o the Board of (irectors and 0hareholders of $adbury P3$. "he team had audited the
accompanying consolidated balance sheets of $adbury plc and subsidiaries *the K$ompanyL+ as
of D: (ecember B;;9, B;;G and B;;A, and the related consolidated income statements,
consolidated statements of recogni)ed income and epense, consolidated statements of changes
in equity and consolidated cash flow statements for each of the years then ended. "hese financial
statements are the responsibility of the $ompany,s management. "he responsibility is to epress
an opinion on these financial statements based on our audits.
;B
M.Com (SEM-III)
COMPANY AUDIT
It conducted audits in accordance with standards of the Public $ompany Accounting -versight
Board *'nited 0tates+. "hose standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes eamining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. It believes that our audits provide a reasonable basis for our opinion.
In team,s opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of $adbury P3$ and subsidiaries as of D: (ecember B;;9, B;;G and B;;A,
and the results of their operations and their cash flows for each of the years then ended, in
conformity with International 4inancial &eporting 0tandards *KI4&0L+ as adopted for use in the
/uropean 'nion and I4&0 as issued by the International Accounting 0tandards Board *KIA0BL+.
As discussed in 7ote : to the consolidated financial statements, the accompanying financial
statements and the related notes have been retrospectively restated for the adoption of the revised
IA0 : Presentation of 4inancial 0tatements in B;;?, the change in the composition of the
$ompany,s reportable segments implemented in B;;? and the misclassification between cash
and cash equivalents and short.term investments.
It had also audited, in accordance with the standards of the Public $ompany Accounting
-versight Board *'nited 0tates+, the $ompany,s internal control over financial reporting as of
D: (ecember B;;9, based on the criteria established in Internal $ontrolPIntegrated
4ramework issued by the $ommittee of 0ponsoring -rgani)ations of the "readway $ommission
and our report dated BA #arch B;;? epressed an unqualified opinion on the $ompany,s internal
control over financial reporting.
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M.Com (SEM-III)
COMPANY AUDIT
Conc.sion;
/very $ompany registered under $ompanies Act :?@A8 need to do its audit every year, which is
known as statutory audit. (uring the company audit, the auditor discusses his observations with
those charged with governance, such as the audit committee of the company, before finali)ing
the report. "he auditor should be firm in his opinion, and eercise his independence at this level.
"his part of the audit is critical, and calls for resilience on the part of the auditor.
An audit report, being a public document, should be drafted skillfully. "he code of conduct
prohibits an auditor from divulging any information received by him in the course of his
professional assignment, unless legally required so to do.
"herefore, the auditor shouldnCt hesitate to take the help of a legal epert on whether to include
certain comments in his report. And at last he submit the reports with adverse, modified or with
qualified opinion.
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M.Com (SEM-III)
COMPANY AUDIT
REFERENCES;
i. www.icai.org
ii. www.caclubindia.com
iii. www.mca.gov.in
iv. www.knowledgebible.com
v. www.icaiknowledgegateway.org
vi. www.investopedia.com
vii. www.managementparadise.com
viii. www.google.co.in
i. www.cadbury.in
40
doc_860124752.doc
project on audit
M.Com (SEM-III)
COMPANY AUDIT
Company Audit
MASTERS OF COMMERCE
IN
ACCOUNTANCY & FINANCE
(SEMESTER-III)
SUBMITTED BY
RAC!INI PANDEY
SEAT NO:
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M.Com (SEM-III)
COMPANY AUDIT
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COMPANY AUDIT
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MASTERS O- COMMERCE
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ACOUNTANC" , -INANCE
SEMESTER 9 III
IN !ARTIA: -U:-I::MENT O-
MUMBAI UNI)ERSITY
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M.Com (SEM-III)
COMPANY AUDIT
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COMPANY AUDIT
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TOPIC !6.
No.
1) INTRODUCTION. >
2) RE?UIREMENTS O- COM!AN" AUDIT. >
!RE!ARATION BA:ANCE-SHEET , !RO-ITAND :OSS STATEMENTS.
1;
4) DIRECTOR’S RE!ORT. 1>
/
M.Com (SEM-III)
COMPANY AUDIT
/) AUDITOR’S O- COM!ANIES. 1@
A) GENERA: CONSIDERATION IN COM!AN"
AUDIT.
2;
B) ECAM!:E 9 C*%1$.+ I'%i* !:C. 2A
>) INRODUCTION , DISION O- COM!AN". 2B
@) DA:UES O- COM!AN". 2B
10) SEOT , !EST ANA"SIS O- COM!AN". 2>
11) AUDITOR’S RE!ORT. ;0
12) ANNECTURE O- AUDITOR’S RE!ORT. ;2
1
RE!ORT TO MEMBERS B" AUDITORS. ;414) RES!ONSIBI:ITIES O- DIRECTOR’S AND
AUDITOR’S.
;4
1/) RE!ORT O- INDE!ENDENT REGISTERED
!UB:IC ACCOUNTING -IRM.
;A
1A) CONC:USION. ;>
1B) RE-ERENCES. ;@
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M.Com (SEM-III)
COMPANY AUDIT
AC4NO5#E$EMENT
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M.Com (SEM-III)
COMPANY AUDIT
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M.Com (SEM-III)
COMPANY AUDIT
INTRODUCTION
A company is said to be an artificial person created by law having a separate legal entity distinct
from its shareholders. It cannot be directly managed by its owners, i.e., shareholders, because
they are very large in number having small holding and also scattered over a wide area. As such,
the management and control of the affairs of the company is done by other persons generally
known as directors. Hence, it becomes essential for a company to appoint an independent and
qualified person, i.e., an auditor, to verily and certify the truth and fairness of the financial
statements.
SPECIAL REQUIREMENTS OF COMPANY AUDIT
I. Verification of the constittion an! "o#ers.
A company can function within the limits prescribed by the documents on the basis of which it
has been registered. It raises its capital from the public on certain conditions, specified in the
Prospectus. Before commencing business, to purchase a property or to have subscription to its
capital underwritten on this account, it is essential that the auditor, prior to starting the audit of a
company, shall eamine!
a. "he #emorandum of Association.
b. "he Articles of Association.
c. $ontracts entered into with vendors and other persons relating to purchase of property,
payment of commission, etc.
A company cannot enter into a contract before it has been registered. %hat is more, a public
company cannot commence business until the certificate of commencement of business has been
granted to it by the &egistrar of $ompanies. It is, therefore, the duty of the auditor to take into
account, while eamining the transaction entered into by the company, the dates when these were
entered into for confirming the validity.
%ith a view to carrying out the audit effectively, it is necessary that the auditor should know the
authority structure of the company. 'nder Section $%& of the Act, the Board of (irectors of a
company are entitled to eercise all such powers, and to do all such acts and things, as the
company is authori)ed to do. However, the Board shall not eercise any power or do any act or
thing which is directed or required by any legislation *including the $ompanies Act+ or by the
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M.Com (SEM-III)
COMPANY AUDIT
memorandum or articles of the company, to be eercised or done by the company, in general
meeting.
Section $%$ specifies si types of decisions that can be taken by the Board of (irectors only in
Board,s meetings. "hese relate to!
a. #aking calls on partly paid shares,
b. Issue of debentures,
c. Borrowing monies otherwise than on debentures,
d. Investing the funds of the company and
e. #aking loans.
"he transaction barring the first three can be delegated to any of the following!
a. A committee of directors,
b. #anaging director,
c. #anager,
d. Any other principal officer of the company or
e. Principal -fficer of the branch office, in relation to the branch.
Apart from the above, a number of other functions are also carried out by the Board. A few of
such functions are stated herein by way of eamples!
a. Adopting of accounts before the same submitted to the auditor for their report ' Section
$&(.
b. Appointment of the first auditors and filling of casual vacancy . Section $$).
c. Investment in shares of companies within the limits specified in Section *+$A.
d. /ntering into contracts with persons who are directors of the company or related to or
associated with the directors as are specified in Section $%+ of the Act.
0ome of the matters which only the shareholders can sanction at a general meeting!
a. Appointment and fiation of remuneration of auditors in the annual general meeting .
Section $$).
10
M.Com (SEM-III)
COMPANY AUDIT
,. (eclaration of dividends . Re-.ation /(0 Ta,.e A.
c. Appointment of relatives of directors etc. to an office or place of profit in the company
under Section *&) of the Act.
!. 0ale, lease or a disposal of the whole of the company,s undertaking or a substantial part
of it and donations above a certain limits 1Section $%*1&22.
II. Matters #hich re3ire sanction of the Centra. 4o5ern6ent.
3oans to directors by a company other than banking or a finance company *Section $%(+. 4or
verifying the foregoing transactions and others authori)ed by the directors or shareholders, the
auditor should refer to the minutes of the meeting at which these have been considered.
4urther, for 5udging the validity or otherwise of section accorded, the
relevant provision of law must be referred to. A few such instances are given below!
a. Appointment of (irectors *Section $(7+.
b. (isqualifications of (irectors *Section $+)+.
c. $onduct of Board #eeting *Sections $/('$%8+.
d. 6eneral Powers of Board *Section $%&+.
e. Powers which the Board must eercise only at a meeting *Section $%$+.
f. &estriction on powers of the Board regarding disposal of the undertaking or part of it etc.
*Section $%*+.
g. Prohibitions and restrictions regarding political contributions *Section $%*A+.
h. Power of Board and other persons to make contributions to the 7ational (efense 4und,
etc. *Section $%*9+.
i. &estriction on advancing loans to (irectors, etc. *Section $%(+.
5. &estriction on a (irector or his relative, a firm in which a director or relative is a partner8
or any other partner of the firm or a private company of which such a director is a
member or director to enter into a contract of sale or purchase of goods ecept
with the sanction of the Board of (irectors *Section $%++.
11
M.Com (SEM-III)
COMPANY AUDIT
k. &estriction on an interested director in participating in or voting at Board,s proceedings
*Section *88+.
l. (isclosure of interest by directors *Section $%%+.
m. &egister of contracts, $ompanies or firms in which directors are inspected *Section *8&+.
n. &emuneration of directors *Section *8%+.
o. &estraint on a director,s holding offices or places of profit *Section *&)+.
p. &estraint on payment of compensation for loss of office to a director *Sections *&/ to
*$&+.
q. &estriction on loans, etc., to companies under the same management *Section *+8+.
r. &egulation of inter.corporate loans and investments *Section *+$A+.
Books of Account are to be kept by a $ompany. /very company must maintain proper books of
accounts of its affairs. "he following transactions must be entered in the books of accounts of the
company which must be kept at its registered office!.
a. All sums of money received and epended by the company and the matters in respect of
which the respect of which the receipt and ependiture took place8
b. All sales and purchases of goods by the company8 and
c. "he assets and liabilities of the company.
d. In the case of a company engaged in production, processing, manufacturing or mining
activities, such particulars relating to utili)ation of material or other items of cost as may
be prescribed relating to certain class of companies as the $entral 6overnment may
require.
"he books of accounts must comply with the following conditions!.
a. "he books must give a true and fair view of the state of affairs of the company or the
branch office, if any, and eplain its transaction.
b. "he books must be kept on accrual basis and according to double entry system of
accounting.
/very company must keep its books of account at its registered office. However, some of the
books of account may be kept at such other place in India as the Board of (irectors may decide,
12
M.Com (SEM-III)
COMPANY AUDIT
provided a notice in writing giving full address of that other place along with requisite filing fee
is filed with the &egistrar of $ompanies within seven of such decision.
If the company has a branch office, the books of account relating to transactions at the branch
office may be kept at that branch office, but proper summari)ed reports and statements must be
sent to the registered office or such other place where the books are kept, at intervals of not more
than three months. "he books of account of the branch must give a true and fair view of the
affairs of the branch and clearly eplain its transactions.
"hey must not conceal any transaction and also not disclose any transaction which is fictitious.
"he books of accounts and other documents and records are open to inspection by any director
during business hours. 0imilarly, they are open to inspection by the &egistrar of $ompanies or an
officer authori)ed by the $entral 6overnment.
"hese books and papers together with the vouchers pertaining to entries made must be
maintained for at least 9 years. It has been clarified by the (epartment of $ompany Affairs in
their Circ.ar No. $:/* !ate! $:*:&%/* that the books of account should be prepared and
maintained in indelible ink *and not in pencil+.
"he following persons are responsible for maintaining the books of accounts of a company!.
a. "he managing director or manager8
b. If the company has neither a managing director nor manager, then every director of the
company8
c. /very officer and other employee who has been authori)ed and to whom responsibility to
maintain the books has been allotted by the Board of (irectors.
If any of the persons referred to above fails to take all reasonable steps to maintain proper books
of accounts or has by his own willful act been the cause of any default by the company in this
respect, he is punishable with imprisonment up to si months or with fine which may etend to
&s. :,;;; or with both. However, no person can be sentenced to imprisonment unless it is proved
that the contravention was committed by him willfully.
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M.Com (SEM-III)
COMPANY AUDIT
Pre"aration of 9a.ance Sheet an! Profit an! Loss Accont.
"he company has to prepare its balance sheet and profit < loss account from the books of
account maintained by it. /very Balance 0heet of a company must give a true and fair view of
the state of affairs of the company as at the end of the financial year and must be in the
prescribed format.
If the responsible for maintaining proper books of account fails to take all reasonable steps to
secure compliance by the company with the requirement of law relating to the form and contents
of the balance sheet, he is liable for each offence to imprisonment for a term etending up to si
months or to fine up to &s.:, ;;;=. or to both.
For6 of 9a.ance Sheet.
Part : to 0chedule >I of the $ompanies Act, :?@A gives the format in which the balance sheet is
to be prepared. "he schedule specifies B types of formats, the hori)ontal format and the vertical
format. A company can prepare its balance sheet in either of the B formats. In the hori)ontal
format, the liabilities including the share capital are placed on the left side and assets of all types
on the right. "he main heads in this form are arranged as under!
*a+ 0hare $apital *a+ 4ied assets
*b+ &eserves and surplus *b+ Investments
*c+ 3oans *c+ $urrent assets, loans and advances
*d+
$urrent liabilities and *d+ #iscellaneous ependiture to the provisions etent not
written off or ad5usted
*e+ Profit < 3oss Account
"otal!
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M.Com (SEM-III)
COMPANY AUDIT
Ta,.e&; The 6ain hea!s arran-e6ent in the For6.
In the vertical format, the various heads of liabilities and assets are arranged vertically and
current liabilities are shown as deduction, from current assets. %hatever information which is
required to be given in the hori)ontal format must also be given in the vertical format.
0ummari)ed prescribed vertical form of balance sheet is given below!
I. Sorces of Fn!s.
*:+ 0hareholdersC funds
*B+ 3oan funds
......................
"otal!
......................
Ta,.e$; S66ari<e! "rescri,e! 5ertica. for6 of ,a.ance sheet.
II. A"".ication of Fn!s.
*:+ 4ied assets
*B+ Investments
*D+ $urrent assets, loans and advances
3ess! $urrent liabilities < provisions
*E+
*a+ #iscellaneous ependiture to the etent not written off or
ad5usted
*b+ Profit < 3oss Account
......................
"otal!
......................
Ta,.e*; S66ari<e! A"".ication For6 Strctre.
"he $entral 6overnment may, on the application or with the consent of the Board of (irectors of
the company, by order, modify in relation to that company, any of the requirements as to matters
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M.Com (SEM-III)
COMPANY AUDIT
to be stated in the companyCs balance sheet or profit and loss account for adapting them to the
circumstances of the company.
Contents of Profit an! Loss Accont.
"hough no format has been prescribed for the profit and loss account, Part II to 0chedule >I of
the $ompanies Act, :?@A gives a list of items which must be disclosed in every profit < loss
account. /very profit and loss account of a company must give a true and fair view of the
companyCs profit or loss for the financial year for which it is drawn up.
A!o"tion of 9a.ance Sheet an! Profit = Loss Accont.
"he Board of directors must present to the shareholders of the company, the balance sheet and a
profit and loss account for the financial year at every annual general meeting.
In the case of companies which are not commercial organi)ations such as 0ection B@ companies,
instead if the profit < loss account, an income < ependiture account may be prepared. "he
profit and loss account to be placed in the 4I&0" annual general meeting should relate to a
period beginning with the incorporation of the company and ending with a day, the interval
between which and the date of the meeting does not eceed nine months.
In case of subsequent annual general meetings, the profit and loss account should relate to a
period beginning with a day immediately after the period for which the preceding profit < loss
account was made and ending with a day, the interval between which and the date of the meeting
should not eceed si months. "he financial year may be more or less than a calendar year, but it
must not eceed
months or with the special permission of the &egistrar, :9 months.If any director fails to take all reasonable steps to comply with the aforesaid requirements he is,
in respect of each offence liable to be punished with imprisonment up to si months or with fine
up to &s.:,;;;=. or with both.
Athentication of 9a.ance Sheet an! Profit = Loss Accont.
"he balance sheet and profit < loss account of a company must be signed on behalf of the Board
of directors by two directors out of whom one must be the managing director, where there is one
and the manager, or secretary, if any. "he balance sheet and profit and loss account must be
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M.Com (SEM-III)
COMPANY AUDIT
approved by the Board of directors before they are submitted to the auditors for the purpose of
audit. "he report of the auditors must be attached to the balance sheet and profit < loss account.
"he company and every officer of the company who is in default with the above provisions shall
be punishable with the fine which may etend to &s.@;;=., if!
a. any copy of balance sheet and profit and loss account is issued, circulated or published,
without being signed as required 8 or
b. any copy of balance sheet is issued, circulated or published, without there being anneed
or attached thereto, a copy each of the following !.
:. "he profit and loss account8
B. Any accounts, reports or statements pertaining to subsidiary companies which are
required to be attached to the balance sheet,
D. "he auditorsC report8 and
E. "he &eport of the Board of (irectors.
Circ.ation of 9a.ance Sheet an! A!itors> Re"ort.
A copy of every balance sheet, profit and loss account, auditorsC report and every other document
required to be anneed or attached to the balance sheet must be sent not less than twenty.one
days before the general meeting to every member, to every trustee for debenture holders, and to
all other persons who are entitled to have a notice of general meetings.
In the case of a company not having a share capital, the above documents need not be sent to a
member, or debenture holder who is not entitled to have notice of general meetings.
In case of listed companies, the company may keep the aforesaid documents available for
inspection at its registered office during working hours for a period of twenty.one days before
the meeting and send to every member and trustee for debenture holders only a summari)ed
statement containing the salient features of these documents in the prescribed format.
Fi.in- of Anna. Acconts #ith the Re-istrar.
/very company must file with the &egistrar within D; days from the day on which the annual
accounts, auditor,s report and the director,s report were presented at the annual general meeting,
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M.Com (SEM-III)
COMPANY AUDIT
three certified copies of these documents signed by the managing director, manager or secretary
of the company or if there be none of these by a director of the company.
"hese accounts may be inspected and copies thereof may be obtained by any member of the
public at the &egistrar of $ompanies on payment of the requisite fee. However, no person other
than a member of the company is entitled to inspect, or obtain copies, of the profit and loss
account in the case of the following types of companies !.
a. A private company which is not a subsidiary of public company8
b. A private company whose entire paid.up capital is held only by one or more bodies
corporate incorporated outside India8 or
c. A private company which is deemed to be a public company by virtue of Section )*A, if
the $entral 6overnment directs that it is not in the public interest that any person other
than a member of the company should be entitled to inspect or obtain copies of the profit
and loss account of the company.
In case the annual general meeting of a company for any year has not been held, D copies of the
balance sheet and profit and loss account, duly signed, within thirty days from the latest day on
or before which that meeting should have been held in accordance with the provisions of the Act
must be filed with the &egistrar of $ompanies. If for any reason, the annual general meeting
before which a balance sheet is laid does not adopt it, or is ad5ourned without adopting the
balance sheet or if the annual general meeting of a company for any year has not been held, a
statement of the fact and reasons thereof must also be anneed to the balance sheet and to the
copies thereof to be filed with the &egistrar.
If default is made in complying with the above provisions, then the company and every officer of
the company who is in default shall be punishable with fine which may etend to &s.@; for every
day during the period the default continues.
1>
M.Com (SEM-III)
COMPANY AUDIT
Directors> Re"ort.
"he report of the Board of (irectors must be attached to every balance sheet presented at the
annual general meeting. "he report must contain information regarding the following matters!.
a. "he state of affairs of the company
b. "he amount, if any, which it proposes to carry to any reserves in such balance sheet
c. "he amount of dividend recommended
d. (etails of any material changes and commitments, if any, affecting the financial position
of the company which have occurred between the end of the financial year of the
company to which the balance sheet relates and the date of the report
e. $onservation of energy, technology absorption, foreign echange earnings and outgo.
f. 7ames, designations and other particulars of all employees drawing more than &s.
@;;;;=. p.m. in the company
g. (etails necessary for a proper understanding of the state of the companyCs affairs and
which are not, in the BoardCs opinion, harmful to the business of the company or of any of
its subsidiaries, in respect of changes which have occurred during the financial year !.
i. In the nature of companyCs business8
ii. In the companyCs subsidiaries or in the nature of the business carried on by them8
and
iii. 6enerally in the classes of business in which the company has an interest.
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M.Com (SEM-III)
COMPANY AUDIT
AUDITORS OF COMPANY.
A!itors of 4o5ern6ent Co6"anies .
"he auditor of a 6overnment company is appointed or re.appointed by the $entral 6overnment
on the advice of the Co6"tro..er an! A!itor'4enera. of In!ia provided that the audit would
be within the number of acceptable audits available to each auditor.
"he Co6"tro..er = A!itor 4enera. of In!ia has the power!.
a. "o direct the manner in which the companyCs accounts are to be audited by the auditor so
appointed and to give such auditor instructions in regard to any matter relating to the
performance of his functions as such.
b. "o conduct supplementary or test audit of the companyCs accounts by such person or
persons or persons as he may authori)e in this behalf8 and for the purpose of such audit,
to require additional information to be furnished to any person or persons so authori)ed,
on such matters, by such person or persons, and in such form, as the Co6"tro..er an!
A!itor'4enera. may, by general or special order, direct.
"he auditor must submit a copy of his audit report to the Co6"tro..er an! A!itor'4enera. of
In!ia who shall have the right to comment upon or supplement, the audit report in such manner
as he may think fit. Any such comments upon, or supplement to, the audit report must be placed
before the annual general meeting of the company at the same time and in the same manner as
the auditorsC report.
20
M.Com (SEM-III)
COMPANY AUDIT
A!itors of Other Co6"anies.
It is the duty of the auditor conduct the audit of the books of accounts of the company and to
make his report to the members of the company on the accounts eamined by him, and on every
balance sheet, every profit and loss account and on every other document declared by the Act to
be part of or anneed to the balance.sheet or profit and loss account and laid before the company
in general meeting during his tenure of office. "he auditor,s report, besides other things
necessary in any particular case, must epressly state.
a. %hether, in his opinion and to the best of his information and according to eplanation
given to him, the accounts give the information required by the Act and in the manner as
required8
b. %hether the balance.sheet gives a true and fair view of the companyCs affairs as at the
end of the financial year and the profit and loss account gives a true and fair view of the
profit or loss for the financial year8
c. %hether he has obtained all the information and eplanations required by him for the
purposes of his audit8
d. %hether in his opinion, the profit < loss account and balance sheet referred to in his
report comply with the accounting standards recommended by the Institute of $hartered
Accountants of India8
e. %hether, in his opinion, proper books of account as required by law have been kept by
the company, and proper returns for the purposes of his audit have been received from the
branches not visited by him8
f. %hether the companyCs balance sheet and profit and loss account dealt with by the report
are in agreement with the books of account and returns.
In case any of the above matters is answered in the negative or with a qualification, the auditorCs
report must state the reason for the same. %here the auditor is unable to epress any opinion in
answer to a particular question, his report shall indicate such fact together with the reasons why
it is not possible for him to give an answer to such question.
"he $entral 6overnment is empowered to issue orders requiring the auditor to include in his
report a statement on such matters as may be specified. In eercise of this power the $entral
6overnment has issued an order called ?The Manfactrin- an! other Co6"anies 1A!itor>s
Re"ort2 Or!er@0 &%+(. It is the duty of the auditor to comply with this order when making his
report to the shareholders.
21
M.Com (SEM-III)
COMPANY AUDIT
-nly the person appointed as auditor of the company or where a firm of auditors is so appointed,
only a partner of that the firm practicing in India, can sign the auditorCs report or sign or
authenticate any other document of the company required by law to be signed or authenticated
by the auditor.
Inter Cor"orate Loans an! In5est6ents.
A company cannot!.
a. #ake any loan to any other body corporate,
b. 6ive guarantee or security in connection with any loan made by any person to another
body corporate and
c. Acquire, by subscription, purchase or in any other manner, securities in any other body
corporate eceeding A; F of its paid up share capital and free reserves or :;; F of its
free reserves, whichever is more, unless approved by a special resolution passed at a
general meeting of members.
"he Board of the company may give a guarantee without being previously authori)ed by a
special resolution of members if all the following conditions are satisfied!.
a. A Board resolution is passed to this effect,
b. "here eist eceptional circumstances which prevent the company from obtaining
previous authori)ation by special resolution and
c. "he Board resolution is confirmed within :B months in a general meeting or its net
Annual general meeting, whichever is earlier.
22
M.Com (SEM-III)
COMPANY AUDIT
7otice of such resolution must clearly indicate the specific limits, the particulars of the body
corporate in which the investment = loan = guarantee = security is proposed, the purpose of the
investment = loan = guarantee = security, sources of funding, etc.
7o investment = loan = guarantee = security may be made or given unless the Board resolution
sanctioning it is with the consent of all directors present at the meeting and prior approval of the
public financial institution * if any term loan is outstanding + is obtained.
Approval of the public financial institution is not required if the investment = loan = guarantee =
security is with the A; F limit as mentioned above and there has been no default in repaying the
term loan and = or interest thereon.
7o loan can be made at a rate of interest lower than the bank rate prescribed by the &eserve
Bank of India.
A company which has defaulted in repaying public fied deposits cannot make or give any
investment = loan = guarantee = security unless the fied deposit is fully repaid along with interest
due as per the terms and conditions of the fied deposit.
A register of such inter.corporate loans and investments must be maintained giving the relevant
details.
"he above provisions do not apply to!.
i. Any loan = guarantee = security made or given by !.
a. A banking company or an insurance company or a housing finance company in
the ordinary course of its business or a company established with the ob5ect of
financing industrial enterprises or providing infrastructural facilities.
b. A company whose principal business is the acquisition of shares, stocks,
debentures or other securities.
c. A private company unless it is a subsidiary of a public company.
ii. Investment made under &ights issue of securities.
iii. 3oan made by holding company to its wholly subsidiary company.
iv. 6uarantee or security given by a holding company for loan to its wholly owned
subsidiary.
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M.Com (SEM-III)
COMPANY AUDIT
v. Acquisition of securities by a holding company in its wholly owned subsidiary.
Audit report is the presentation of collected and considered facts. It is prepared in such a way
that hose people who do not have information about the mater of the report can be informed
clearly in brief. According to 0ection BG *B+ of $ompanies Act, it is auditor,s duty to verify the
accounts of the company carefully and give a report about whether the accounts present true and
fair condition of the $ompany or not H
Auditor is the representative of shareholders8 therefore it is his moral duty to take care of
shareholders, interest. 6enerally, shareholders do not know the real condition of the company.
"hey are not capable for it. 0o, auditor should verify whether the money of shareholders is
properly managedH "hat money is not used illegally or for personal purpose, the management is
done according this. He should minutely verify the accounts of that company. 4inally, he has to
present in his report before shareholders whether the profit.los account and balance sheet of the
company gives true and fair economic condition of the company. 3et he auditor not had any new
information in the presented accounts but the real importance lies in giving the report after
verifying the truthfulness and clarity.
In the case of 3ondon and 6eneral Bank, 5ustice had stated the auditor was liable for not giving
proper report o the shareholders. Auditor,s report proves very useful to those who have lent
money to the company, banks who have sanctioned loans for short or long term and finance
company.
4enera. Consi!eration in Co6"anA A!it.
"hese have to be determined on a consideration of!
a. -b5ectives of audit8
b. >arious provisions in the $ompanies Act, :?@A, especially those concerning accounts and
audit8 and
c. "he scope of the report that the auditor of a company is required to make in pursuance of
the provisions contained in section BBG of the Act.
"he ob5ectives of an audit are!
a. >erification of statements of account so as to epress an opinion8
b. (etection of errors and frauds8 and
c. Prevention of occurrence of errors and frauds.
24
M.Com (SEM-III)
COMPANY AUDIT
(etection and prevention of frauds and errors were originally regarded as the main ob5ectives of
an audit. %hile conducting the audit, the auditor is epected to bear in mind the possibility of
eistence of a fraud or other irregularity in accounts. 7onetheless, he is not epected to conduct
the audit with the ob5ective of discovering all frauds or irregularities, for if that is to be done, the
audit would take an unduly long time and the cost of it would be quite out of proportion to its
benefit.
7evertheless, it is epected that the auditor would be vigilant and watchful and whenever he
comes across a circumstance which arouses his suspicion, he should find out whether a fraud, or
irregularity, in fact does eist and, if so, whether it is sufficiently material to necessitate
qualifications of the audit report.
It is generally accepted that the auditor is not an insurer and does not guarantee that the books of
account truly reflect the company,s affairs.
"he auditor, thus, is principally responsible for carrying out his duties by eercising due care and
skill in consonance with the professional standards. If, despite the fact, any fraud or irregularity
in accounts remains undetected, he cannot be held liable for the failure to detect it. #oreover,
since the management is primarily responsible for safeguarding the assets and property of the
company, the auditor, while framing his audit program, is entitled to rely upon the internal
controls in this regard instituted by the management based on a proper evaluation.
It would be observed that $ompanies Act, :?@A also does not contemplate that an auditor is
responsible for the detection of errors and frauds, ecept when they are so material as to vitiate
the opinion epressed by him that statements of account ehibit a true and fair state of affairs.
"he auditor is required to verify the final statements of account8 also to check or verify all the
matters affecting them so as to ensure fully that they ehibit a true and fair state of affairs of the
business of the company. 4or the purpose, he may either carry out a detailed eamination of the
books or relying on the internal control measures in operation, after testing their strength, merely
test the accuracy of transaction recorded therein.
It is permissible for an auditor to verify the accuracy of transactions recorded in the books of
account by the application of test checks, if he is satisfied that the system of internal control, in
operation, is adequate and satisfactory.
Constittiona. Doc6ents.
"he auditor, before commencing a company audit, shall undertake BVerification of the
constittion an! "o#ers@. "his he can verify from various documents, decisions taken in board
meeting, decisions in shareholder,s meeting etc.
2/
M.Com (SEM-III)
COMPANY AUDIT
Any company,s functions and powers are limited to the documents on the basis of which it has
been registered. Prospectus is the most important document that the company requires to raise
capital from public. "he auditor also needs to check various transactions taken place before
commencement of business e.g., any property purchased etc. thus, prior to setting any audit, the
auditor shall eamine following constitutional documents!
a. #emorandum of association,
b. Articles of association,
c. $ontracts entered into with vendors and other persons relating to purchase of property,
payment of commission etc.
d. $ertificate of commencement by business <
e. $ertificate of registration etc.
A company, before registration, cannot enter into contract also without obtaining $ertificate of
$ommencement of business from the registrar of $ompanies. "herefore, the auditor is required
to take into account his duty to eamine the transactions entered into by the company8 the dates
when these were entered into for confirming the validity. "he auditor should be aware of the
authority structure of the company so as to carry out audit effectively. 0ection B?: empowers the
Board of (irectors to eercise all such powers and undertake all such Acts8 the company is
authori)ed to do. But, the auditor should see to it that the Board has not done any ultra.virus Acts
i.e. not eercised any power nor done any act which is not permitted by #emorandum or Articles
of the company.
Metho!; %hile transfer of shares is brought about by delivery of a proper instrument of transfer
*vi), transfer deed+ duly stamped and eecuted, transmission of shares is done by forwarding the
necessary documents *such as a notari)ed copy of death certificate+ to the company.
NOTE; The next page will provide a brief view regarding the final audit. The company’s
example is practically analyzed and reported briefly.
2A
M.Com (SEM-III)
COMPANY AUDIT
“ CADBURY-INDIA”
Intro!ction;
"he $adbury,s Inc has taken the opportunity to offer us a broader view of chocolate category.
"he $adbury India,s no.: $hocolate is able to share with their market insights based upon
unparalleled breath of chocolate eperience. $adbury is a multinational company and the
$adbury dairy milk is a brand of chocolate which is made by $adbury. $adbury made different
types of chocolates and other products which is sold in several countries around the world. It first
sold its products in 'nited 0tates in :?;@.
$adbury has grown from strength to strength with new technologies being introduced to make
the $adbury confectionary business, one of the most efficient in the world. "he merge in :?A?
with 0chweppes and the subsequent development of the business have led to $adbury
0chweppes taking the lead in both, the confectionary and soft drink market intact 'I and
becoming a ma5or force in the international market. $adbury 0chweppes today manufactures
product in A; countries and a trade in staggering :B;. "he $adbury story is a fascinating story of
a family business that grew in one of the biggest, most loved chocolate brand in the world. A
story that you will remember as the story of BThe taste of .ife@.
2B
M.Com (SEM-III)
COMPANY AUDIT
Vision of Ca!,rA;
A. Be the world,s 9I44EST an! 9EST confectionery company.
B. Pr"ose; $reating brands people love.
$. "heir vision in to action!
i. 4o5ernin- o,Cecti5e; "o deliver superior shareowner returns.
ii. Priorities; 6rowth, efficiency capability
Growth: "heir growth priority is represented by the mantra J Fe#er0 Faster0 9i--er0 9etter.
"hey focus on a number of advantaged global and regional brands, invest in getting their new
product developments into more markets faster, use 5oined up commercial and marketing
programs to have a bigger impact and underpin the whole plan by eecuting their initiatives
better.
Efficiency: "heir efficiency priority recogni)es that it is not enough to grow8 they must also be
more profitable. "hey maintain a relentless focus on cost and efficiency by reducing central
functions and costs8 consolidating their businesses and reconfiguring their manufacturing and
distribution. "heir vision in to action will help increase their margins to mid.teens by B;:: with
the aim of delivering mid.term margins by B;::.
Capability: "heir capability priority ensures they continue to invest in the right organi)ation and
skills to win. "hey have simplified and strengthened their organi)ation to a pure.play
confectionery business. "hey manage their commercial strategies on a global basis through their
three categories of chocolate, gum and candy and strong functional leadership.
Va.es of Ca!,rA;
"hey are performance driven, values led. "hroughout changing times, their constant values have
inspired us to be pioneers in business and in corporate responsibility. "hey help ensure they are
proud of their company and are critical to their core purpose of creating brands people love.
"heir values are!
? erformance: "hey are passionate about winning. "hey compete in a tough but fair way.
"hey are ambitious, hardworking and make the most of their abilities. "hey are prepared
to take risks and act with speed.
2>
M.Com (SEM-III)
COMPANY AUDIT
? !uality: "hey put quality and safety at the heart of all of their activities J their products,
their people, their partnerships and their performance.
? "espect: "hey genuinely care for their business and their colleagues. "hey listen,
understand and respond. "hey are open, friendly and they coming. "hey embrace new
ideas and diverse customs and cultures.
? #ntegrity: "hey always strive to do the right thing. Honesty, openness and being
straightforward characteri)e the way they do business. "hey have clear principles and do
what they say they will do.
? "esponsibility: "hey take accountability for their social, economic and environmental
impact. In this way they aim to make their business, their partners and their communities
better for the future.
SDOT an! PEST Ana.Asis of Ca!,rA In!ia PLC.
SDOT Ana.Asis;
$trength:
a. >ery strong brand equity in India.
b. (ue to its @E years presence in India J has deep penetration J B:;; distributors8 E@;,;;;
retailers, A; mid urban *BBF+ customers.
c. "hree sectors8 $hocs *G;F share+, $onfec *EF+, food drinks *:EF . leader in brown
segment+.
d. 3ow cost of production due to economic of scale. "hat means higher profits. Better
market penetration.
e. 0econd best manufacturing location throughout $adbury 0chweppes.
%ea&ness:
a. Poor technology in India compared to current international technologies *6odiva, #o)art,
4a)er, (int, 7aushans, etc...+
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M.Com (SEM-III)
COMPANY AUDIT
b. 3td. Iey products, only one central brand *$(#+. Pralines range totally wising in India.
c. K#ake in IndiaL tag once the economy opens up wore and imports rush in.
'pportunities:
a. "remendous scope for per capita consumption *:A; gms. of 9 J :; kg+
b. Increasing per capita national income resulting in higher disposable income.
c. 6rowing middle class and growing urban population.
d. Increasing gifts cultures.
e. 0ubstitute to K#ithaisL with higher calories=cholesterol.
f. Increasing departmental stores concept J impulse M at cash counters.
g. 6lobali)ation! optimal use of global $adbury 0chweppes.
Threats:
a. #a5or! (ue to low cost and highest brand equity, it is success in India.
b. #inor! 6lobali)ation will bring in better brands for upper end of the market *3iest,
#onarch, 6odiva, etcN+.
Conclusion:
%ill lose market share with globali)ation but will remain brand leader.
PEST Ana.Asis;
P; 0ince the budget range is decontrolled, no political effects are envisaged.
E;
a. Increasing per capita income resulting in higher disposable income.
b. 6rowing middle class=urban population J increase in demand.
c. 3ow cost of production J better penetration.
S;
a. Per capita consumption epected to increase J fashion.
;0
M.Com (SEM-III)
COMPANY AUDIT
b. Increasing gifts culture J increase in demand.
c. 3ower cholesterol than K#ithaisL *sweet meat+ subsbstitute demand.
T; %ill have to reinforce technology to international levels once India is a KfreeL economy.
Ftre "ros"ecti5e;
6ood growth in $hocolate *up GF+, led by continued strong performances in 'I, India and
0outh Africa. Improved growth in 6um *up EF+ and $andy *up ::F+ reflecting strong
performances in emerging markets and growth in 7orth America and /urope.
/cellent growth in Britain < Ireland *up :;F+ and emerging markets *0outh America up :9F,
Asia and #iddle /ast and Africa up :EF+. Improved momentum increases our confidence in
good revenue growth in B;:; and B;:: #arketing investment as a percentage of sales was
:;.EF on a constant currency basis reflecting the benefits of media deflation.
A!itorEs re"ort of Ca!,rA In!ia PLC.
In the auditor,s report of year end.B;;? all the possible details are covered up and noted down
briefly. 4urther details can be learnt from the following enlisted detail report.
:. %e have audited the Balance 0heet of $adbury India 3imited and also the Profit and 3oss
Account and the $ash 4low statement for the year ended on that date, anneed there after the
financial statements are the responsibility of the $ompany,s management. -ur responsibility is
to epress an opinion on these financial statements based on our audit.
B. %e conducted our audit in accordance with auditing standards generally accepted in India.
"hose 0tandards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes eamining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. %e believe that
our audit provides a reasonable basis for our opinion.
D. As required by the $ompanies *Auditors &eport+ -rder, B;;D, issued by the $entral
6overnment of India in terms of sub.section *EA+ of section BBG of the $ompanies Act, :?@A, we
enclose in the Anneure a statement on the matters specified in paragraphs E and @ of the said
;1
M.Com (SEM-III)
COMPANY AUDIT
order.
E. 4urther to our comments in the Anneure referred to above, we report that!
a. %e have obtained all the information and eplanations which to the best of our
knowledge and belief were necessary for the purposes of our audit.
b. In our opinion, proper books of account as required by law have been kept by the
$ompany, so far as appears from our eamination of those books.
c. "he Balance 0heet, Profit and 3oss Account and $ash 4low 0tatement dealt with by
this report are in agreement with the books of account.
d. In our opinion, the Balance 0heet, Profit and 3oss Account and $ash 4low 0tatement
dealt with by this report comply with the accounting standards referred to in sub .
section *D$+ of 0ection B:: of the $ompanies Act, :?@A.
e. -n the basis of written representations received from the (irectors and taken on record
by the Board of (irectors, we report that none of the directors are disqualified as on
(ecember D:, B;;? from being appointed as a director in terms of clause *g+ of sub.
section *:+ of 0ection BGE of the $ompanies Act, :?@A.
f. In our opinion and to the best of our information and according to the eplanations
given to us, the accounts give the information required by the $ompanies Act, :?@A, in
the manner so required and give a true and fair view in conformity with the accounting
principles generally accepted in India!
i. In the case of the Balance 0heet, of the state of affairs of the $ompany as at
(ecember D:, B;;?8
ii. In the case of the Profit and 3oss Account, of the profit of the $ompany for
the year ended on that date8 and
iii. In the case of the $ash 4low 0tatement, of the cash flows for the year ended
on that date.
;2
M.Com (SEM-III)
COMPANY AUDIT
AnneFre to the A!itors Re"ort;
*&eferred to in paragraph D of the report of even date+
:. "he nature of the $ompany,s business = activities for the year are such that the requirements
of items *iii+, *vi+, *+, *ii+, *iii+, *iv+, *v+, *vi+, *viii+, *i+ and *+ of paragraph E of the
-rder are not applicable to the $ompany.
B. In respect of its fied assets!
a. "he $ompany has maintained proper records showing full particulars, including
quantitative details and situation of fied assets.
b. 0ome of the fied assets were physically verified during the year by the
management in accordance with a program of verification which, in our
opinion, provides for physical verification of all the fied assets at reasonable
intervals. According to the information and eplanations given to them, no
material discrepancies were noticed on such verification.
D. In respect of its inventories!
;;
M.Com (SEM-III)
COMPANY AUDIT
a. As eplained to them, inventories were physically verified during the year by the
management at reasonable intervals.
b. In team,s opinion and according to the information and eplanations given to us,
the procedures of physical verification of inventories followed by the
management were reasonable and adequate in relation to the si)e of the $ompany
and the nature of its business.
c. In team,s opinion and according to the information and eplanations given to
them, the $ompany has maintained proper records of its inventories and no
material discrepancies were noticed on physical verification.
E. In their opinion and according to the information and eplanations given to them, there is an
adequate internal control system commensurate with the si)e of the $ompany and the nature of
its business for the purchase of inventory and fied assets and for the sale of goods and services.
"eam had not observed any continuing failure to correct ma5or weaknesses in the internal control
system.
@. In respect of contracts and arrangements entered in the register maintained in pursuance of
0ection D;: of the $ompanies Act, :?@A, to the best of our knowledge and belief and according
to the best of the information and eplanations given to them the particulars of contracts or
arrangements that needed to be entered into the register have been so entered.
A. In team,s opinion, the $ompany has an adequate internal audit system commensurate with the
si)e of the $ompany and the nature of its business.
G. "eam had broadly reviewed the books of account and records maintained by the $ompany in
respect of malted foods, pursuant to the order made by the $entral 6overnment for the
maintenance of cost records under 0ection B;?*:+*d+ of the $ompanies Act, :?@A and are of the
opinion that, prima facie, the prescribed accounts and records have been made and maintained.
"he auditing team, however, not made a detailed eamination of the records with a view to
determining whether they are accurate or complete. "o the best of the knowledge and according
to the information and eplanations given to them, the $entral 6overnment has not prescribed
the maintenance of cost records for any other product of the $ompany.
9. $tatutory and other dues: According to the information and eplanations given to them, the
$ompany has generally been regular in depositing undisputed statutory dues, including Provident
4und, Investor /ducation and Protection 4und, /mployees 0tate Insurance, Income.ta, 0ervice
;4
M.Com (SEM-III)
COMPANY AUDIT
"a, 0ales.ta, %ealth "a, $ustom (uty, /cise (uty and any other material statutory dues with
the appropriate authorities during the year.
?. According to the information and eplanations given to them, the team,s are of the opinion
that the $ompany has not defaulted in the repayment of dues to financial institutions = banks.
:;. According to the cash flow statement and other records eamined by them and the
information and eplanations given to them, on an overall basis, funds raised on short.term basis
have, prima facie, not been used during the year for long.term investment.
::. to the best of our knowledge and belief and according to the information and eplanations
given to company, no material fraud on or by the $ompany was noticed or reported during the
year.
In!e"en!ent A!itorsE re"ort to the 6e6,ers of Ca!,rA In!ia PLC.
"he team had audited the 6roup and Parent $ompany financial statements *the Ofinancial
statementsO+ of $adbury plc for the year ended D: (ecember B;;9 which comprise the 6roup
Income 0tatement, the 6roup 0tatement of &ecogni)ed Income and /pense, the 6roup and
Parent $ompany Balance 0heets, the 6roup and Parent $ompany $ash 4low 0tatement, 6roup
0egmental reporting *a+ to *d+ and the related notes : to E;.
"hese financial statements have been prepared under the accounting policies set out therein. %e
have also audited the information in the (irectorsC &emuneration &eport that is described as
having been audited.
"his report is made solely to the $ompany,s members, as a body, in accordance with section BD@
of the $ompanies Act :?9@. -ur audit work has been undertaken so that we might state to the
$ompany,s members those matters we are required to state to them in an auditors, report and for
no other purpose. "o the fullest etent permitted by law, we do not accept or assume
responsibility to anyone other than the $ompany and the $ompany,s members as a body, for our
audit work, for this report, or for the opinions we have formed.
Res"ecti5e res"onsi,i.ities of Directors an! A!itors.
;/
M.Com (SEM-III)
COMPANY AUDIT
"he (irectorsC responsibilities for preparing the Annual &eport, the (irectorsC &emuneration
&eport and the financial statements in accordance with applicable law and International 4inancial
&eporting 0tandards *I4&0s+ as adopted by the /uropean 'nion are set out in the 0tatement of
(irectorsC &esponsibilities.
"he responsibility is to audit the financial statements and the part of the (irectorsC &emuneration
&eport to be audited in accordance with relevant legal and regulatory requirements and
International 0tandards on Auditing *'I and Ireland+.
"he report gives an opinion to whether the financial statements give a true and fair view and
whether the financial statements and the part of the (irectorsC &emuneration &eport to be audited
have been properly prepared in accordance with the $ompanies Act :?9@ and, as regards the
6roup financial statements, Article E of the IA0 &egulation. "he team also report to you whether
in our opinion the information given in the (irectorsC &eport is consistent with the financial
statements. "he information given in the (irectorsC &eport includes that specific information
presented elsewhere in the document that is cross referred from the Business &eview section of
the (irectorsC &eport.
In addition it reports if, in team,s opinion, the $ompany has not kept proper accounting records,
if they have not received all the information and eplanations we require for our audit, or if
information specified by law regarding (irectorsC remuneration and other transactions is not
disclosed.
It reviews whether the $orporate 6overnance 0tatement reflects the $ompanyCs compliance with
the nine provisions of the B;;A $ombined $ode specified for the review by the 3isting &ules of
the 4inancial 0ervices Authority, and it reports if it does not. "hey are not required to consider
whether the boardCs statements on internal control cover all risks and controls, or form an opinion
on the effectiveness of the 6roupCs corporate governance procedures or its risk and control
procedures.
It reads the other information contained in the Annual &eport as described in the contents section
and consider whether it is consistent with the audited financial statements. It considers the
implications for the report if we become aware of any apparent misstatements or material
inconsistencies with the financial statements. "he responsibilities do not etend to any further
information outside the Annual &eport.
9asis of A!it O"inion.
;A
M.Com (SEM-III)
COMPANY AUDIT
"he team conducted audit in accordance with International 0tandards on Auditing *'I and
Ireland+ issued by the A!itin- Practices 9oar!. An audit includes eamination, on a test basis,
of evidence relevant to the amounts and disclosures in the financial statements and the part of the
(irectorsC &emuneration &eport to be audited. It also includes an assessment of the significant
estimates and 5udgments made by the (irectors in the preparation of the financial statements, and
of whether the accounting policies are appropriate to the 6roupCs and $ompanyCs circumstances,
consistently applied and adequately disclosed.
"hey planned and performed our audit so as to obtain all the information and eplanations which
are considered necessary in order to provide with sufficient evidence to give reasonable
assurance that the financial statements and the part of the (irectorsC &emuneration &eport to be
audited are free from material misstatement, whether caused by fraud or other irregularity or
error. In forming our opinion it also evaluated the overall adequacy of the presentation of
information in the financial statements and the part of the (irectorsC &emuneration &eport to be
audited.
#n team’s opinion:
the 6roup financial statements give a true and fair view, in accordance with I4&0s as adopted by
the /uropean 'nion, of the state of the 6roup,s affairs as at D: (ecember B;;9 and of its profit
for the year then ended8 the parent company financial statements give a true and fair view, in
accordance with I4&0s as adopted by the /uropean 'nion as applied in accordance with the
provisions of the $ompanies Act :?9@, of the state of the parent companyCs affairs as at D:
(ecember B;;98the financial statements and the part of the (irectorsC &emuneration &eport to be
audited have been properly prepared in accordance with the $ompanies Act :?9@ and, as regards
the 6roup financial statements, Article E of the IA0 &egulation8 and the information given in the
(irectorsC &eport is consistent with the financial statements.
Re"ort of In!e"en!ent Re-istere! P,.ic Accontin- Fir6.
"o the Board of (irectors and 0hareholders of $adbury P3$. "he team had audited the
accompanying consolidated balance sheets of $adbury plc and subsidiaries *the K$ompanyL+ as
of D: (ecember B;;9, B;;G and B;;A, and the related consolidated income statements,
consolidated statements of recogni)ed income and epense, consolidated statements of changes
in equity and consolidated cash flow statements for each of the years then ended. "hese financial
statements are the responsibility of the $ompany,s management. "he responsibility is to epress
an opinion on these financial statements based on our audits.
;B
M.Com (SEM-III)
COMPANY AUDIT
It conducted audits in accordance with standards of the Public $ompany Accounting -versight
Board *'nited 0tates+. "hose standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes eamining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. It believes that our audits provide a reasonable basis for our opinion.
In team,s opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of $adbury P3$ and subsidiaries as of D: (ecember B;;9, B;;G and B;;A,
and the results of their operations and their cash flows for each of the years then ended, in
conformity with International 4inancial &eporting 0tandards *KI4&0L+ as adopted for use in the
/uropean 'nion and I4&0 as issued by the International Accounting 0tandards Board *KIA0BL+.
As discussed in 7ote : to the consolidated financial statements, the accompanying financial
statements and the related notes have been retrospectively restated for the adoption of the revised
IA0 : Presentation of 4inancial 0tatements in B;;?, the change in the composition of the
$ompany,s reportable segments implemented in B;;? and the misclassification between cash
and cash equivalents and short.term investments.
It had also audited, in accordance with the standards of the Public $ompany Accounting
-versight Board *'nited 0tates+, the $ompany,s internal control over financial reporting as of
D: (ecember B;;9, based on the criteria established in Internal $ontrolPIntegrated
4ramework issued by the $ommittee of 0ponsoring -rgani)ations of the "readway $ommission
and our report dated BA #arch B;;? epressed an unqualified opinion on the $ompany,s internal
control over financial reporting.
;>
M.Com (SEM-III)
COMPANY AUDIT
Conc.sion;
/very $ompany registered under $ompanies Act :?@A8 need to do its audit every year, which is
known as statutory audit. (uring the company audit, the auditor discusses his observations with
those charged with governance, such as the audit committee of the company, before finali)ing
the report. "he auditor should be firm in his opinion, and eercise his independence at this level.
"his part of the audit is critical, and calls for resilience on the part of the auditor.
An audit report, being a public document, should be drafted skillfully. "he code of conduct
prohibits an auditor from divulging any information received by him in the course of his
professional assignment, unless legally required so to do.
"herefore, the auditor shouldnCt hesitate to take the help of a legal epert on whether to include
certain comments in his report. And at last he submit the reports with adverse, modified or with
qualified opinion.
;@
M.Com (SEM-III)
COMPANY AUDIT
REFERENCES;
i. www.icai.org
ii. www.caclubindia.com
iii. www.mca.gov.in
iv. www.knowledgebible.com
v. www.icaiknowledgegateway.org
vi. www.investopedia.com
vii. www.managementparadise.com
viii. www.google.co.in
i. www.cadbury.in
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doc_860124752.doc