Rights and Duties of Company Auditor

Updated on June 18, 2020
The company auditor has to perform the professional duties also which are specified by Chartered Accountants Act.
The company auditor has to perform the professional duties also which are specified by Chartered Accountants Act. | Source

Right and duties of company auditor are of statutory nature. The Companies Act of 1956 has clearly explained the rights and duties of a company auditor. The 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, the auditor should give a report expressing his opinion. The report may be long or summarized. It may be in the form of a letter or statement. Whatever the form may be, it must be addressed to shareholders. And its report may be with condition or without condition. An unconditional report is called a clean report and a conditional report is called a qualified report.

The audit report should include the following:

  • Whether the company is maintaining proper books and records or not.
  • Whether financial explanations from company staff are received or not.
  • Whether financial statements are prepared in accordance with the requirements of companies act or not.
  • Whether the balance sheet is giving a true and fair view or not.
  • Whether profit and loss account is giving a 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 the statutory report. Every public company has to prepare a statutory report with regard to the statutory general meeting. A copy of the statutory report is to be filed with the registrar and its copies should be sent to members also. The statutory report includes the following matters;

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

Duty under Section 240: It is otherwise known as the duty to assist the government inspector. The company auditor has to give his co-operation to govt. inspectors. Otherwise, company auditors will be charged with imprisonment for 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 a company wants to accept deposits from the public with regard to its capital requirements, the company has to fulfill the formalities specified under 58(A) and 58(B). So here the 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 the case of a prospectus issued by an existing company, there will be previous three or four years of financial statements. When such prospectus is certified by the company auditor people can rely on the values shown.

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

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

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

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      Usha 

      2 months ago

      Thanks for giving a clear & simple explanation

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      Sello 

      5 months ago

      Thanks for useful information

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      Khandve kajal 

      8 months ago

      Thank you for these information about duties and rights of a company auditor

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      Arthur kituyi 

      8 months ago

      Add Your Comment

      The article is well written, factual and simple to understand

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      Riya 

      8 months ago

      Thanks for giving a clear and simple explanation....

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      Biswajit 

      10 months ago

      Superb

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      Rohan 

      14 months ago

      thanks

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      Kavipriya 

      14 months ago

      Thankyou for your information

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      salisu gwamnati Nigeria 

      15 months ago

      am very appreciate you for this thanks

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      Khushbu shaikh 

      16 months ago

      Thank u for giving this usefull informetion to us☺

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      Abdulzumin 

      20 months ago

      Appreciate that

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      munikrishna 

      20 months ago

      very useful

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      Parto 

      21 months ago

      Thanks for the knowledge

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      tahir 

      21 months ago

      Thanx a lot giving me useful information

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      noobie 

      24 months ago

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

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      Gagan 

      2 years ago

      Thank you for information

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      Basil rai 

      2 years ago

      very helpful thankyou

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      vijay 

      2 years ago

      thanks for ur information

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      Hiyaam khan... 

      2 years ago

      thank you so much ...

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      Duku Moris Emma 

      3 years ago

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

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      Neha tabasum 

      3 years ago

      Thanks

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      Ranjan Singh 

      4 years ago

      Very helpful page it helps me a lot..

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      edukondalu 

      4 years ago

      Thanks,it is perfect and simple

    • profile image

      edukondalu 

      4 years ago

      Thanks,it is perfect and simple

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      Vishal Ingle 

      5 years ago from Akola, Maharashtra

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

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