Rights and Duties of Company Auditor

Updated on April 25, 2016

Right and duties of company auditor are of statutory nature. The companies Act of 1956 has clearly explained the rights and duties of company auditor. Company cannot restrict them by means of its articles or in any other way. This decision is given in Newton Vs Burmingham Small Arms Co. Ltd.,

Duties of Company Auditor

Duty under Section 227: It is otherwise known as the duty to give report. After completion of audit work, auditor should give a report expressing his opinion. The report may be length or summarized. It may be in the form of letter or statement. Whatever the form may be, it must be addressed to share holders. And it report may be with condition or without condition. Unconditional report is called clean report and conditional report is called qualified report.

Audit report should include the following:

  • Whether company is maintaining proper books and records or not.
  • Whether financial explanations from company staff are received or not .
  • Whether financial statements are prepared are prepared in accordance with requirements of companies act or not.
  • Whether balance sheet is giving true and fair view or not.
  • Whether profit and loss account is giving true and fair view or not.
  • If there are branches, whether statements from branch auditors under Sec. 228 are properly received or not.

Duties of Company Auditor; The Companies Act, 1956.

  • Section 227: Duty to give report.

  • Section 165: Duty to certify statutory report.

  • Section 240: Duty to assist government inspector.

  • Section 58 (A) and 58 (B): Duty with regard to public deposits.

  • Section 62 and 63: Duty to certify prospectus.

  • Section 227 (1A): Duty to conduct an inquiry with regard to matters mention in the section.

Duty under Section 165: It is otherwise known as the duty to certify statutory report. Every public company has to prepare statutory report with regard to statutory general meeting. A copy of statutory report is to be filed with registrar and its copies should be sent to members also. Statutory report includes the following matters;

  • Number of shares issued for cash
  • Number of shares issued for consideration other than cash.
  • Preliminary expenses.
  • Contracts to be ratified by share holders.
  • Summary of receipts and payments made by the company from date of incorporation to the date seven days before the preparation of this report.
  • Since all these items are related to accounting records, auditor has to certify statutory report.

Duty under Section 240: It is otherwise known as the duty to assist the government inspector. Company auditor has to give his co-operation to govt. inspectors. Otherwise company auditors will be charged with imprisonment up to six months with or without fine.

Duty under Section 58 (A) and Section 58 (B): It is otherwise known as the duty with regard to public deposits. Whenever company wants to accept deposits from public with regard to its capital requirements, the company has to fulfill the formalities specified under 58(A) and 58(B). So here auditor has to conform whether formalities specified under these sections are fulfilled or not.

Duty under Section 62 and section 63: It is otherwise known as the duty to certify prospectus. In case of prospectus issued by an existing company, there will be previous three or four years financial statements. When such prospectus is certified by company auditor people can rely on the values shown.

Duty under Section 227 (1A): In accordance with this section company auditor has to conduct inquiry with regard to the following matters;

  • Whether loans granted by the company are properly secured or not.
  • Whether terms and conditions of such loans are prejudicial to company or not.
  • Whether personnel expenditure is charged to revenue account or not.
  • Whether mere book entries are prejudicial to interest of company or not.

Professional Duties of an Auditor

Company auditor has to perform the professional duties also which are specified by Chartered Accountants Act. Some examples to professional duties include that; An auditor should not advertise his service, Auditor has to consult the retiring auditor has part of professional respect to fellow member, etc.

Rights of Company Auditor; The Companies Act, 1956.

  • Rights to access the books and records.
  • Right to get explanations from company staff.
  • Right to receive notice of general meetings.
  • Right to visit branches.
  • Right to seek legal and technical advises.
  • Right to claim remuneration.
  • Right to refuse to commence the audit.
  • Right to question the board.
  • Right to qualify his report.
  • Right of indemnity.

Rights of Company Auditor

  1. Company auditor has rights to access the books and records of the company. He can refer to any book.
  2. Company auditor has right to get explanations from company staff. If such explanations are not received he qualifies his report.
  3. Company auditor has right to receive notice of general meetings. He can attend the general meetings.
  4. Company auditor has right to visit branches. But there should be no separate auditors to those branches and it should be a home branch.
  5. Company auditor has right to seek legal and technical advises. But, in his report, he should express his own opinion but not that of experts concern.
  6. Company auditor has right to claim remuneration. His remuneration will be fixed by appointing authority and it will be paid by company.
  7. Company auditor has right to refuse to commence the audit. Till making the records up to date, he cannot start his work.
  8. Company auditor has right to question the board. Board also should give explanation to him.
  9. Company auditor has right to qualify his report. If he comes across any dis-satisfactory point, he can mention the same in his report.
  10. Company auditor has right of indemnity. He can reimburse expenses incurred by him in connection with conduction of audit work.

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    • profile image

      tahir 

      12 days ago

      Thanx a lot giving me useful information

    • profile image

      noobie 

      3 months ago

      under the section 240 why do the company auditor need to cooperate with the govt inspector?

    • profile image

      Gagan 

      5 months ago

      Thank you for information

    • profile image

      Basil rai 

      6 months ago

      very helpful thankyou

    • profile image

      vijay 

      11 months ago

      thanks for ur information

    • profile image

      Hiyaam khan... 

      14 months ago

      thank you so much ...

    • profile image

      Duku Moris Emma 

      17 months ago

      You deserved awards man making this duties of an auditor so understanding and it is so simple but cleared to get the meaning ..........................

      Nile institute of management studies -Arua (Nimsa) students like the sites because of the clarity.

    • profile image

      Neha tabasum 

      2 years ago

      Thanks

    • profile image

      Ranjan Singh 

      2 years ago

      Very helpful page it helps me a lot..

    • profile image

      edukondalu 

      2 years ago

      Thanks,it is perfect and simple

    • profile image

      edukondalu 

      2 years ago

      Thanks,it is perfect and simple

    • Vishal Ingle profile image

      Vishal Ingle 

      3 years ago from Akola, Maharashtra

      thanx to give a lot of information about an auditing vishal pooja love forever

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