Powers and Duties of Auditors

In one line

The auditor has a statutory right to see everything and to be told anything, a statutory duty to report to the members on whether the accounts are true and fair, a specific list of things his report must state, a duty to report fraud over the prescribed amount to the Central Government, and a schedule of punishments if he fails.

In exam wording: under section 143(1) every auditor of a company 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 as auditor.

Why the law has this at all

An auditor who could be told "that ledger is not available" would be useless, so the Act gives him powers he does not have to negotiate for. An auditor free to report in his own words on whatever he chose would be equally useless, so the Act tells him what his report must contain. The section is therefore built in two halves, access and content, and everything else in it follows from one or the other.

Behind both halves is the fact that the auditor is the members' agent inside a building controlled by the directors. He is paid by the company, appointed on the recommendation of the audit committee, and dependent on the officers for every document. His powers exist because his position is weak; his prescribed content exists because his incentives are mixed.

The third element, added by the 2013 Act and strengthened in 2015, is that he owes a duty outward as well as inward. Section 143(12) makes him a reporter of fraud to the Central Government. That is a change of character: the classical auditor reported only to those who appointed him.

Section 143(1): the powers

Right of access at all times to the books of account and vouchers, wherever they are kept, at the registered office or at any other place. There is no notice period and no permission to seek.

Entitlement to information and explanation from the officers of the company, of such kind as he may consider necessary for the performance of his duties. The words are important: it is the auditor, not the officer, who decides what is necessary.

The inquiry list. The sub-section then names six matters he shall, among other matters, inquire into.

(a) Whether loans and advances made on the basis of security have been properly secured, and whether their terms are prejudicial to the interests of the company or its members.