Advanced Auditing, Assurance and Professional Ethics · Overview of Audit of Public Sector Undertakings

Audit of Statutory Corporations and Reporting

Updated 5 October 2026 · Fact-checked

Statutory corporations are bodies created by an Act of Parliament or a State Legislature. Who audits them depends on their own Act: the CAG as sole auditor, or chartered accountants appointed in consultation with the CAG, with CAG supplementary audit. Reports go to the legislature, where COPU examines them.

Understand Audit of Statutory Corporations and Reporting

A statutory corporation is a body set up by a special Act of Parliament or of a State Legislature. That Act defines its powers, its management, its accounts and, most importantly for you, its audit. There is no single audit rule for all of them. The first thing you do in any question is ask what the constituting Act says.

In practice the Acts follow two broad patterns. In the first, the Comptroller and Auditor General (CAG) audits the accounts directly and is the sole auditor. In the second, the Government appoints chartered accountants as auditors in consultation with the CAG. The CAG then keeps a supervisory role, which can include giving directions, a supplementary or test audit, and comments on the auditor's report, to the extent the Act or the CAG's Act allows. Some corporations may also be audited by the CAG because the Government or the President or Governor asks for it.

The CAG's work for the legislature does not stop at the audit certificate. The Audit Board is an expert body attached to the CAG's office. It advises on how commercial and public sector audits, including performance-oriented audit, should be done, and helps keep the quality of that audit consistent. Treat it as advisory, not as a separate auditor.

Reporting follows the accountability chain. The audit report and accounts of a central statutory corporation are laid before Parliament, as the Act provides. For a state corporation they go before the State Legislature. The CAG also issues audit reports on public sector undertakings that are placed before the legislature.

Parliament does not read every report. Its committees do. The Committee on Public Undertakings (COPU) examines the reports and accounts of public undertakings and the CAG's reports on them. It checks whether their affairs are run on sound business principles and prudent commercial practices. The Public Accounts Committee (PAC) has a different focus: government accounts and the CAG's reports on them. Do not mix the two up.

Key rules to remember

Audit route rule: Constituting Act of the corporation decides the auditor; Two broad patterns: (1) CAG as sole auditor; (2) chartered accountants appointed by Government in consultation with the CAG, with CAG supplementary or test audit as provided.
Reporting rule: Central corporation → Parliament; State corporation → State Legislature; The audit report and accounts are laid before the legislature as the Act provides.
COPU test: Affairs run on sound business principles and prudent commercial practices?; COPU does not go into day-to-day administration, major Government policy, or matters handled by a special statutory machinery.
PAC vs COPU: PAC → government accounts and CAG reports on them; COPU → public undertakings and CAG reports on them; A standard comparison point in descriptive answers. Background only: COPU's size and membership are set by Lok Sabha rules, so do not rely on member numbers in an answer.

How to solve Audit of Statutory Corporations and Reporting questions

Use this order for any question on audit or reporting of statutory corporations. It keeps your answer in provision-facts-conclusion form.

1Identify the body: confirm it is a statutory corporation created by an Act of Parliament or a State Legislature, not a Government company under the Companies Act.
2State the governing rule: say that the audit arrangement is decided by the corporation's own Act.
3Apply it to the facts: sole CAG audit, or chartered accountants appointed in consultation with the CAG. Note any CAG supplementary or test audit role.
4Bring in the Audit Board if the question is about quality, guidance or commercial audit methods. Describe it as an advisory body.
5Trace the reporting: who receives the audit report (Parliament or State Legislature) and who then examines it (COPU, or PAC if government accounts are involved).
6Conclude in one line that answers the exact question asked, such as who audits, who receives the report, or what COPU can examine.

Quickest way: Three-line recall: Act, Auditor, Assembly

When to use it: Use it for short MCQs and for planning a written answer in the first minute.

Act: read the facts for the constituting Act. It tells you the audit route.
Auditor: CAG alone, or chartered accountant appointed in consultation with CAG, with CAG supplementary or test audit.
Assembly: Parliament or State Legislature receives the report; COPU scrutinises public undertakings, PAC scrutinises government accounts.

Common mistakes in Audit of Statutory Corporations and Reporting

Saying the CAG is the sole auditor of every statutory corporation.
Students remember the CAG's constitutional role and generalise it.
Fix: Write that the audit arrangement depends on the constituting Act. Give both patterns.
Saying the CAG has no role when chartered accountants are the auditors.
Students stop at the word 'appointed' and ignore 'in consultation with the CAG'.
Fix: Add that the CAG is consulted on the appointment and may have supplementary or test audit and report comments as the law provides.
Treating COPU and PAC as the same committee.
Both examine CAG reports in Parliament, so the roles blur.
Fix: Link COPU to public undertakings and PAC to government accounts. Use one clear line in the answer.
Describing the Audit Board as an auditor that signs reports.
The word 'Audit' suggests an auditing role.
Fix: Describe it as an expert advisory body attached to the CAG's office that supports quality and method in commercial audit.
Writing that COPU examines day-to-day management or Government policy.
Students assume 'examines affairs' means everything.
Fix: State the COPU test as sound business principles and prudent commercial practices. Add that day-to-day administration and major policy are outside its scope.
Quoting section numbers from memory to look precise.
Students want to show depth.
Fix: Quote a section number only if you are certain. Otherwise state the rule in plain words. A wrong section costs marks.

Worked examples

Example 1

Case: Sagar Rail Port Corporation is a statutory corporation created by an Act of Parliament. Its Act says its accounts shall be audited by chartered accountants appointed by the Central Government in consultation with the CAG. The CFO believes the CAG therefore has no role in the audit. Advise whether the CFO is right.

Show the solution

Provision: for a statutory corporation, the audit arrangement is decided by its constituting Act.
Facts: the Act provides for chartered accountants appointed by the Central Government in consultation with the CAG. The CAG is not the sole auditor here.
Application: the CAG is still involved. He is consulted on the appointment, and the Act or the CAG's own Act may give him a supplementary or test audit and the power to comment on the auditor's report.
Reporting: as a central corporation, its audit report and accounts are laid before Parliament as the Act provides, where COPU can examine them.

Answer: The CFO is not fully right. The CAG is not the sole auditor, but he is consulted on the appointment and keeps a supervisory role (supplementary or test audit and comments), as provided by the law. The report goes to Parliament.

Example 2

Case: COPU is examining a central public undertaking. A member asks the committee to review why a particular clerk was transferred and to question the Government's overall pricing policy for the sector. The chairman says these are outside the committee's scope. Is the chairman correct? What can COPU properly examine?

Show the solution

Provision: COPU examines the reports and accounts of public undertakings and the CAG's reports on them.
Test: it checks whether the undertaking's affairs are managed on sound business principles and prudent commercial practices.
Application: a clerk's transfer is day-to-day administration. Overall pricing policy is a matter of major Government policy. Both fall outside COPU's scope.
What COPU can do: examine the undertaking's accounts, the CAG's audit observations, and whether decisions such as purchases, project costs or investments were commercially sound.

Answer: The chairman is correct. COPU does not examine day-to-day administration or major Government policy. It can examine the undertaking's reports and accounts and the CAG's reports to see whether it is run on sound business principles and prudent commercial practices.

Exam tips

For a case on statutory corporations, begin with 'The audit arrangement is governed by the constituting Act'. Examiners look for this line.
Keep a one-line contrast ready: CAG sole auditor versus chartered accountants appointed in consultation with the CAG. Use it in both MCQs and descriptive answers.
In comparison questions, write PAC and COPU in two parallel lines with their focus: government accounts versus public undertakings.
Do not quote section numbers unless you are sure. Plain-word statements of the rule earn marks safely.
In MCQs, watch for absolute words such as 'always', 'only' and 'sole' about the CAG. They are usually the trap.

Practice questions from Overview of Audit of Public Sector Undertakings

Audit of Statutory Corporations and Reporting in other exams

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

Audit of Statutory Corporations and Reporting: frequently asked questions

Is the CAG the sole auditor of all statutory corporations?

No. It depends on the Act that created the corporation. Some Acts make the CAG the sole auditor. Others provide for chartered accountants appointed by the Government in consultation with the CAG, with a CAG supplementary or test audit.

What is the role of the Audit Board?

It is an expert advisory body attached to the CAG's office. It supports the CAG on the method and quality of audit of commercial and public sector undertakings. It does not replace the auditor.

What does the Committee on Public Undertakings do?

COPU examines the reports and accounts of public undertakings and the CAG's reports on them. It checks whether they are managed on sound business principles and prudent commercial practices. It does not go into day-to-day administration or major Government policy.

What is the difference between PAC and COPU?

The Public Accounts Committee examines government accounts and the CAG's reports on them. COPU examines public undertakings and the CAG's reports on them. The membership of each committee is set by Lok Sabha rules, so focus on the difference in scope when you write your answer.