Rights, Duties and Liabilities of Auditors

In one line

An auditor may see everything, must inquire into six specified questions, must report fraud to the Government, may not do the company's accounting or internal audit, and pays personally if he gets it wrong.

In exam wording: section 143(1) gives the auditor a right of access at all times to the books and vouchers and to require information and explanation from the officers, with six inquiries he must inquire into; section 143(12) requires him to report fraud; section 144 forbids him nine services; section 146 entitles him to attend and be heard at general meetings; and section 147 imposes fine, imprisonment, refund of remuneration and damages.

Why the law has this at all

An audit is an opinion given by one person on somebody else's account of themselves. Three things have to be true for it to be worth anything.

He must be able to see everything. Hence the right of access at all times to books and vouchers wherever kept, the right to require information and explanation from officers, and the holding company auditor's right of access to the records of subsidiaries and associates.

He must be independent. Hence section 144, which stops an auditor auditing his own work by forbidding him to keep the accounts, run the internal audit, design the financial information system, or provide management services.

And he must be answerable. Hence section 147, which makes him liable in fine, and in a knowing case in prison, and requires him to refund his remuneration and pay damages, not only to the company but to statutory authorities, members and creditors.

Section 143(12) is the newest idea and the most important. Traditionally an auditor who found fraud told the Board, which was sometimes the very body committing it. The Act now makes him report to the Central Government above a threshold, and to the audit committee or the Board below it, with disclosure in the Board's report.

Some words this chapter uses

Vouchers are the underlying documents for entries in the books. A qualification is a reservation in the audit report. A branch auditor audits a branch office. A supplementary audit is a second audit by the Comptroller and Auditor-General. A test audit is a sample audit under section 19A of the Comptroller and Auditor-General's (Duties, Powers and Conditions of Service) Act 1971. Auditing standards are those notified under section 143(10).

Rights: section 143(1)

Every auditor shall have a right of access at all times to the books of account and vouchers of the company, whether kept at the registered office or at any other place, and shall be entitled to require from the officers of the company such information and explanation as he may consider necessary for the performance of his duties.