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A Hand Book on Companies Auditor's Report Order 2003 by Rajkumar S Adukia

Section 227 & 228 under the Companies Act, 1956

 

Section 227-   Powers and duties of auditors

(1) Every auditor of a company shall have a right of access at all times to the books and accounts and vouchers of the company, whether kept at the head office of the company or elsewhere, and shall be entitled to require from the officers of the company such information and explanations as the auditor may think necessary for the performance of his duties as auditor.

(1A) without prejudice to the provisions of sub-section (1), the auditor shall inquire -

(a)   whether loans and advances made by the company on the basis of security have been properly secured and whether the terms on which they have been made are not prejudicial to the interest of the company or its members;

(b)   whether transactions of the company which are represented merely by book entries are not prejudicial to the interests of the company;

(c)   where the company is not an investment company within the meaning of section 372 or a banking company, whether so much of the assets of the company as consist of shares, debentures and other securities have been sold at a price less than that at which they were purchased by the company;

(d)   whether loans and advances made by the company have been shown as deposits

(e)   whether personal expenses have been charged to revenue account;

(f)     Where it is stated in the books and papers of the company that any shares have been allotted for cash, whether cash has actually been received in respect of such allotment, and if no cash has actually been so received, whether the position as stated in the account books and the balance-sheet is correct, regular and not misleading.

(g)   Whether the cess payable under section 441A has been paid and if not, the details of amount of cess not so paid.

(2) The auditor shall make a report to the members of the company on the accounts examined by him, and on every balance-sheet and profit and loss account and on every other document declared by this Act to be pan of or annexed to the balance-sheet or profit and loss account which are laid before the company in general meeting during his tenure of office, and the report shall state whether, in his opinion and to the best of his information and according to the explanations given to him, the said accounts give the information required by this Act in the manner so required and give a true and fair view

(i)   in the case of the balance-sheet, of the state of the company's affairs as at the end of its financial years; and

(ii) in the case of the profit and loss account, of the profit or loss for its financial year.

(3) The auditor's report shall also state

(a)   whether he has obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purposes of his audit

(b)   whether, in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books, and proper returns adequate for the purposes of his audit have been received from branches not visited by him;

(bb) whether the report on the accounts of any branch office audited under section 228 by a person other than the company's auditor has been awarded to him as enquired by clause (c) of sub-section (3) of that section and how he has dealt with the same in preparing the auditor's report;

(c)   whether the company's balance-sheet and profit and loss account dealt with by the report are in agreement with the books of account and returns;

(d)   Whether, in his opinion, the profit and loss account and balance-sheet comply with the accounting standards referred to in sub-section (3C) of section 211.

(e)   in thick type or in italics the observations or comments of the auditors which have any adverse effect on the functioning of the company;

(f)     Whether any director is disqualified from being appointed as director under clause (g) of sub-section (1) of section 274.

(g)   Whether the cess payable under Section 441A has been paid and if not, the details of amount of cess not so paid

(4) Where any of the matters referred to in clauses (i) and (ii) of sub-section (2) or in clauses (a), (b),(bb) (c) and (d) of sub-section (3) is answered in the negative or with a qualification, the auditor's report shall state the reason for the answer.

(4A) The Central Government may, by general or special order, direct that, in the case of such class or description of companies as may be specified in the order, the auditor's report shall also include a statement on such matters as may be specified therein:

Provided that before making any such order the Central Government may consult the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949 (38 of 1949), in regard to the class or description of companies and other ancillary matters proposed to be specified therein unless the Government decides that such consultation is not necessary or expedient in the circumstances of the case.

(5) The accounts of a company shall not be deemed as not having been, and the auditors report shall not state that those accounts have not been properly drawn up on the ground merely that the company had not disclosed certain matters if-

(a) those matters are such as the company is not required to disclose by virtue of any provisions contained in this or any other Act, and

(b) Those provisions are specified in the balance-sheet and profit and loss account of the company.

Section 228 Audit of accounts of branch office of company

 

(1) Where a company has a branch office, the accounts of that office shall, be audited by the company's auditor appointed under section 224 or by a person qualified for appointment as auditor of the company under section 226, or where the branch office is situate in a country outside India, either by the company's auditor or a person qualified as aforesaid or by an accountant duly qualified to act as an auditor of the accounts of the branch office in accordance with the laws of that country.

 

(2) Where the accounts of any branch office are audited by a person other than the company's auditor the company's auditor-

 

(a)   shall be entitled to visit the branch office, if he deems it necessary to do so for the performance of has duties as auditor, and

(b)   shall have a right of access at all times to the books and accounts and vouchers of the company maintained at the branch office:

Provided that in the case of a banking company having a branch office outside India, it shall be sufficient if the auditor is allowed access to such copies of, and extracts from the books and accounts of the branch as have been transmitted to the principal office of the company in India.

 

(3) (a)  Where a company in general meeting decides to have the accounts of a branch office audited otherwise than by the company's auditor, the company in that meeting shall for the audit of those accounts appoint a person qualified for appointment as auditor of the company under section 226, or where the branch office is situate in a country outside India, a person who is either qualified as aforesaid or an accountant duly qualified to act as an auditor of the accounts of the branch office in accordance with the laws of that country, or authorise the Board of directors to appoint such a person in consultation with the company's auditor

 

      (b) The person so appointed (hereafter in this section referred to as the branch auditor) shall have the same powers and duties in respect of audit of the accounts of the branch office as the company's auditor has in respect of the same;

 

      (c) the branch auditor shall prepare a report on the accounts of the branch office examined by him and forward the same to the company's auditor who shall in preparing the auditor's report, deal with the same in such manner as he considers necessary;

      (d) the branch auditor shall receive such remuneration and shall hold his appointment subject to such terms and conditions as may be fixed either by the company in general meeting or by the Board of directors if so authorised by the company in general meeting.

 

(4) Notwithstanding anything contained in the foregoing provisions of this section, the Central Government may make rules providing for the exemption of any branch office from the provisions of this section to the extent specified in the rules and in making such rules the Central Government shall have regard to all or any of the following matters, namely: -

 

(a)   the arrangement made by the company for the audit of accounts of the branch office by a person otherwise qualified for appointment as branch auditor even though such person may be an officer or employee of the company;

(b)   the nature and quantum of activity carried on at the branch office during a period of three years immediately preceding the date on which the branch office is exempted from the provisions of this section;

(c)   the availability at a reasonable cost of a branch auditor for the audit of accounts of the branch office;

(d)   Any other matter which in the opinion of the Central Government justifies the grant of exemption to the branch office from the provisions of this section.

Other Pages from This e-book

Introduction to CARO | Statutory provisions on financial statements | Objectives of Audit and Audit report  | Audit Process   |Applicability of laws, accounting | standards, guidance notes, auditing AND ASSURANCE standards under CARO   | Auditing Standard on Auditors Report on Financial Statements   | Issues under CARO | Extracts from published reports   |  Checklist under CARO | International scenario   | CARO V/S MAOCARO | Section 227 & 228 under the Companies Act, 1956   | The Companies (Auditor's Report) Order, 2003 ('CARO')   | Companies (Auditor's Report) (Amendment) Order, 2004   | Specimen Engagement Letter   |  Specimen of letter asking for information  | Model CARO REPORT     | About the Publisher | About the Author