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CA Final · Advanced Auditing, Assurance and Professional Ethics

Overview of Audit of Public Sector Undertakings for CA Final

Audit of Public Sector Undertakings covers how government-owned entities are audited. For a government company, the CAG appoints the statutory auditor and directs how the audit is done. Within 60 days of receiving the audit report, the CAG may also conduct a supplementary audit and comment upon or supplement the report. Always name the entity type first.

What this chapter covers

This chapter explains how entities owned or controlled by the Government are audited. A public sector undertaking can be a government company, a statutory corporation or a departmental undertaking. The audit route depends on which of these it is. That is the first thing you must pin down in any case scenario.

The chapter rests on the role of the Comptroller and Auditor General of India (CAG), whose office comes from the Constitution. For government companies, the Companies Act sets a special route. The CAG, and not the Government or the shareholders, appoints the statutory auditor, who must be a chartered accountant. The CAG can give directions on how the audit is done. Within 60 days of receiving the audit report, the CAG can also conduct a supplementary audit and comment upon or supplement the auditor's report. These are separate powers that can both be used, not alternatives. For statutory corporations, the governing Act of each corporation decides who audits and how the report is presented.

It links to the rest of the paper through company audit, the auditor's reporting duties, and audit of the quality of management decisions. The ideas of propriety and performance audit also help you in the case-study approach, where you must judge efficiency and not only accuracy. Keep the chapter short and structured in your mind: entity type, auditor, powers, type of audit, report.

This chapter is compact and largely theory, so it rewards clear memory and clean answer structure. Questions usually test who appoints the auditor, what the CAG can direct, and the difference between types of audit. Case scenarios ask you to apply these to a named entity. If you learn the chapter as a small set of contrasts, you can answer in provision-facts-conclusion form quickly and score on a topic many students skip.

Overview of Audit of Public Sector Undertakings: topics in the order to study them

  1. 1Public Sector Undertakings: Meaning and TypesYou need the vocabulary first, because every later rule depends on whether the entity is a government company, a statutory corporation or a departmental undertaking.
  2. 2Constitutional Role of the CAG and Audit MandateThe CAG's authority is the base for all public sector audit, so learn it before the specific routes.
  3. 3Audit of Government Companies under Companies ActThis is the most examinable route and builds directly on the CAG's role, covering appointment, directions and supplementary audit.
  4. 4Propriety Audit and Performance AuditThese go beyond financial audit, so study them once the basic audit route is clear.
  5. 5Audit of Statutory Corporations and ReportingFinish with corporations and reporting, as you can now compare them with government companies and see how reports are submitted.

How to prepare Overview of Audit of Public Sector Undertakings

Treat this as a comparison chapter. Build a one-page map and test yourself on it with short case scenarios.

  1. Read the meaning and types of PSUs and write one line on how each type is created and owned.
  2. Note the CAG's constitutional role and the broad purpose of the audit mandate in your own words.
  3. Learn the government company route: who appoints the auditor, what directions the CAG may give, and what supplementary audit means.
  4. Write a short contrast of financial audit, propriety audit and performance audit, with one example of each.
  5. Learn how statutory corporations are audited and how reports reach the legislature, checking the governing Act in your study material.
  6. Solve case-scenario MCQs by first naming the entity type, then the auditor and the audit type.
  7. Practise two written answers in provision-facts-conclusion form and compare them with your notes.

Common mistakes in Overview of Audit of Public Sector Undertakings

  • Treating all PSUs as audited the same way.

    Fix: Start every answer by identifying whether it is a government company, statutory corporation or departmental undertaking.

  • Saying the shareholders or the board appoint the auditor of a government company.

    Fix: Remember that for government companies the CAG appoints the auditor.

  • Confusing supplementary audit with the statutory auditor's own audit.

    Fix: Write that the statutory auditor audits first. Then, within 60 days of receiving the audit report, the CAG may conduct a supplementary audit and comment upon or supplement the report.

  • Mixing up propriety audit and performance audit.

    Fix: Link propriety to prudence and public interest, and performance to economy, efficiency and effectiveness.

  • Giving section numbers or details from memory without certainty.

    Fix: State the rule in plain words and give a section number only when you are sure of it.

  • Writing generic theory in case scenarios.

    Fix: Use the facts given in the case, name the entity, apply the rule and end with a clear conclusion.

Last-day revision: Overview of Audit of Public Sector Undertakings

  • PSU types: government company, statutory corporation, departmental undertaking.
  • A government company is one in which at least 51% of the paid-up share capital is held by the Central Government and/or one or more State Governments (Section 2(45)). A company that is a subsidiary of a government company is deemed to be a government company (Section 2(45)).
  • The CAG's office is constitutional and independent of the executive.
  • For a government company, the CAG, not the Government or the shareholders, appoints the statutory auditor, who must be a chartered accountant. The appointment is made within 180 days of the start of the financial year (Section 139(5)).
  • The CAG can give directions to the appointed auditor on how to conduct the audit (Section 143(5)).
  • Within 60 days of receiving the audit report, the CAG may conduct a supplementary audit and may comment upon or supplement the report (Section 143(6)). These are not alternatives to each other.
  • Financial audit checks accuracy and compliance of accounts.
  • Propriety audit asks whether spending was sound, prudent and in public interest.
  • Performance audit checks economy, efficiency and effectiveness.
  • Statutory corporations are audited as their own Act provides.
  • Always name the entity type before stating the audit route.
  • Write answers as provision, facts, conclusion.

Overview of Audit of Public Sector Undertakings practice questions

Overview of Audit of Public Sector Undertakings in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Overview of Audit of Public Sector Undertakings: frequently asked questions

Is this chapter difficult for CA Final Audit?

No, it is short and mostly theory. It becomes easy once you learn it as a set of contrasts between entity types and audit types. Revise it often because details fade quickly.

Who audits a government company?

A statutory auditor appointed by the CAG audits it. The CAG can also direct how the audit is done. Within 60 days of receiving the audit report, the CAG can conduct a supplementary audit and comment upon or supplement the report.

What is the difference between propriety audit and performance audit?

Propriety audit looks at whether expenditure was prudent and in public interest. Performance audit looks at economy, efficiency and effectiveness of the entity's activities.

How should I answer a case scenario from this chapter?

First name the entity type. Then state the relevant audit route or power, apply it to the facts, and give a one-line conclusion.