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

Constitutional Role of the CAG and Audit Mandate

Updated 5 October 2026 · Fact-checked

The Comptroller and Auditor General (CAG) is an independent constitutional authority under Article 148 who audits the accounts of the Union, States and bodies the law assigns to him. His duties and powers are set out in the CAG's (Duties, Powers and Conditions of Service) Act, 1971. In exams, state the provision, apply it to the facts, then conclude.

Understand Constitutional Role of the CAG and Audit Mandate

The CAG is the head of the Indian Audit and Accounts Department. The Constitution creates the office (Article 148) and protects its independence. He audits government money on behalf of Parliament and State Legislatures, and reports to them. He is not a statutory auditor chosen by shareholders.

Independence is built into the Constitution. The CAG is appointed by the President. He can be removed only in the way and on the grounds a Supreme Court judge can be removed. His salary and other service conditions are as determined by law made by Parliament (Article 148(3)), and until Parliament so determines, as set out in the Second Schedule. They cannot be varied to his disadvantage after appointment. A State Government has no say in them. After he ceases to hold office, he is not eligible for further office under the Union or a State (Article 148(4)). The administrative expenses of his office, including salaries and allowances, are charged on the Consolidated Fund of India (Article 148(6)). These safeguards let him report without fear of the executive.

The mandate comes from Articles 148 to 151 and the CAG's (DPC) Act, 1971. Article 148 creates the office and also covers his oath, his salary and service conditions, and the administration of his office. The service conditions of his staff are prescribed by the President by rules made after consulting him, subject to Parliament's law (Article 148(5)). Article 149 provides that he performs the duties and exercises the powers over the accounts of the Union, States and any other authority or body that Parliament prescribes by law. Article 150 provides that the form in which the accounts of the Union and States are kept is prescribed by the President on the advice of the CAG. Article 151 requires his reports on Union accounts to go to the President, who places them before Parliament, and his reports on State accounts to go to the Governor, who places them before the State Legislature.

Since the separation of accounts from audit in 1976, the accounts of the Union and the States are compiled by the executive departments, not by the CAG. The CAG audits those accounts. Under section 11 of the 1971 Act, he may still be entrusted with compiling the accounts of the Union or of a State, at the request of the President or the Governor respectively.

The main powers and duties under the 1971 Act are these:

Section 13: he audits the receipts and expenditure of the Union and of the States from their Consolidated Funds, Contingency Funds and Public Accounts.
Section 14: he audits the receipts and expenditure of bodies and authorities substantially financed from Union or State funds.
Section 15: he audits grants and loans given by the Government to authorities or bodies for specific purposes.
Section 16: he audits government receipts, and checks that the rules and procedures give an effective check on assessment, collection and proper allocation of revenue.
Section 17: he audits accounts of stores and stock.
Section 18: he has powers of access to records, such as inspecting offices of accounts and requiring the production of books, accounts and information, in connection with audit of receipts and expenditure.

Government companies and corporations are audited as the law governing them provides. For government companies, the Companies Act, 2013 gives him the power to appoint the statutory auditor. The CAG appoints the auditor under section 139(5) within 180 days from the commencement of the financial year. For the first auditor, the CAG appoints within 60 days of registration (section 139(7)). He also directs the auditor on the manner of audit (section 143(5)). He may also conduct a supplementary or test audit and comment upon or supplement the auditor's report. His comments are sent to the company and placed before the annual general meeting along with the auditor's report (section 143(6)(b)).

Keep the contrast clear. A company's statutory auditor is appointed by shareholders and reports to them on whether the financial statements give a true and fair view. The CAG audits public money on behalf of the legislature and goes beyond that to look at regularity, propriety and performance. In a government company, both exist: the CAG-appointed auditor does the statutory audit, and the CAG then reviews it.

Key rules to remember

Constitutional basis: Article 148 = office, appointment, removal, oath, salary and service conditions (148(3)), staff service conditions (148(5)), expenses of office (148(6)); Article 149 = duties and powers as Parliament provides; Article 150 = form of accounts; Article 151 = reports; Learn what each article covers. Say that reports go to the President or Governor, who place them before the legislature.
Independence safeguards: Appointment by President + removal like a Supreme Court judge + salary and service conditions fixed by Parliament's law and not varied to his disadvantage (Art 148(3)) + expenses charged on the Consolidated Fund (Art 148(6)) + not eligible for further office under the Union or a State after ceasing to hold office (Art 148(4)); Use these five points to answer any question on his independence. Service conditions are set by Parliament, not by the executive or a State.
Source of audit mandate: Constitution (Arts. 148-151) + CAG's (DPC) Act, 1971 + Companies Act, 2013 for government companies; Always name all three sources when the question mentions government companies.
Key provisions of the 1971 Act: s.13 = Consolidated Fund, Contingency Fund and Public Account receipts and expenditure; s.14 = bodies substantially financed; s.15 = grants and loans for specific purposes; s.16 = receipts; s.17 = stores and stock; s.18 = powers of access to records; Match the section to the entity or duty in the question, then apply it to the facts.
Government company audit chain: CAG appoints statutory auditor (s.139(5) within 180 days from the start of the financial year; first auditor within 60 days of registration, s.139(7)) → auditor reports → CAG supplementary or test audit and comments; The CAG's comments upon, or supplement to, the audit report are sent to the company and placed before the annual general meeting along with the auditor's report (section 143(6)(b)).
Reporting line: Union accounts: CAG → President → Parliament; State accounts: CAG → Governor → State Legislature; The CAG reports to the legislature, not to the management of the audited body.

How to solve Constitutional Role of the CAG and Audit Mandate questions

Use this method for any question on the CAG's role, independence or audit mandate.

1Read the question and identify what is asked: constitutional position, independence, powers and duties, or comparison with statutory audit.
2State the source of authority first: the Constitution article or the CAG's (DPC) Act, 1971, or the Companies Act, 2013 for government companies.
3Write the rule in plain words with its exact conditions, such as who appoints, who receives the report, and what is audited.
4Apply it to the facts: identify the entity type (Union or State department, government company, statutory corporation, body substantially financed by government).
5Check for traps, such as a body that is not a government company, or an auditor who was appointed by shareholders instead of the CAG.
6Conclude with a clear answer in one sentence, using the words of the question.

Quickest way: Source-Entity-Reporting check

When to use it: Use when you have under five minutes for a short note or a case MCQ.

Source: write which law gives the CAG authority.
Entity: classify the body audited and who appoints its auditor.
Reporting: write who receives the CAG's report and where it is placed.
Independence: add two or three safeguards if the question asks about his position.
Conclude in one line.

Common mistakes in Constitutional Role of the CAG and Audit Mandate

Saying the CAG is appointed by the Parliament or the Prime Minister.
Students link the CAG with Parliamentary control and forget the formal appointment route.
Fix: Write: appointed by the President by warrant under his hand and seal.
Treating the CAG as the statutory auditor of every government company.
Both audits happen on the same entity, so they blur.
Fix: Write that the CAG appoints the statutory auditor, who audits; the CAG then conducts a supplementary or test audit and comments.
Writing that the CAG reports to the management or Board of the audited body.
Students transfer the idea of the auditor's report to members of a company.
Fix: State that he reports to the President or Governor, who places the report before the legislature.
Listing independence points without linking them to the reason.
Students memorise a list but not its purpose.
Fix: After each safeguard, add one phrase on what it protects, for example fixed service conditions stop pressure through pay.
Citing the wrong section of the 1971 Act for a duty, such as using section 13 for a body that is only substantially financed.
Students memorise the section numbers as a list without linking each to the entity it covers.
Fix: Link each section to its subject: s.13 Consolidated Fund, Contingency Fund and Public Account; s.14 substantially financed bodies; s.15 grants and loans; s.16 receipts; s.17 stores and stock; s.18 powers of access.

Worked examples

Example 1

Case: A State Government's Finance Department asks the CAG's office to stop examining a loss-making State Government department because the Chief Minister fears adverse comment. A new proposal also says the CAG's pay could be reduced if he refuses. Advise on the CAG's position.

Show the solution

Provision: the CAG is a constitutional authority under Article 148. He is appointed by the President, not by a State, and can be removed only like a Supreme Court judge.
His salary and other service conditions are determined by law made by Parliament (Article 148(3)) and cannot be varied to his disadvantage after appointment. A State Government has no power over his salary or service conditions. His office expenses are charged on the Consolidated Fund of India (Article 148(6)).
Application: the Chief Minister cannot direct the CAG to stop an audit of a State department that falls within his duties under the Constitution and the 1971 Act. The State's proposal to cut his pay is not permitted, because the State has no power over his pay and Parliament's law does not allow it to be varied to his disadvantage.
The CAG reports on State accounts to the Governor, who places the report before the State Legislature. The executive does not control the report.

Answer: The request and the proposal are not valid. The CAG is appointed by the President, and his pay and service conditions are fixed by Parliament's law and cannot be varied to his disadvantage. He must continue the audit and report to the Governor for placing before the State Legislature.

Example 2

Case: Rampur Power Ltd is a government company. Its shareholders pass a resolution at the annual general meeting to appoint a firm of chartered accountants as statutory auditor. The Board asks whether the CAG can still review the audit and how it differs from the auditor's work.

Show the solution

Provision: for a government company, the statutory auditor is appointed by the CAG under the Companies Act, 2013, not by shareholders.
Application: the shareholders' resolution cannot validly appoint the statutory auditor of a government company. The appointment must come from the CAG.
The CAG directs the auditor on the manner in which the accounts are to be audited (section 143(5)). After the auditor reports, he may conduct a supplementary or test audit and comment upon or supplement the auditor's report. His comments are sent to the company and placed before the annual general meeting along with the auditor's report (section 143(6)(b)).
Difference: the statutory auditor gives an opinion on the financial statements to the members. The CAG acts for the legislature and reviews the auditor's work and the company's accounts, including propriety and performance as required.

Answer: The shareholders' appointment is not valid for a government company. The CAG appoints the auditor, directs the manner of audit, and may conduct a supplementary or test audit and comment on the auditor's report. His comments are placed before the annual general meeting along with the auditor's report.

Exam tips

For 'powers and duties' questions, give the three sources: Constitution, the 1971 Act and the Companies Act, 2013 for government companies.
In independence answers, give at least four distinct safeguards. Examiners reward a complete list tied to reasons.
In comparison questions, set out appointer, reporting line, scope and purpose side by side in plain sentences.
In case MCQs, check who appoints the auditor and who receives the report first. These two facts usually decide the answer.
In powers and duties answers, cite the 1971 Act section that fits the entity (ss.13 to 18), state what it requires, and then apply it to the facts.

Practice questions from Overview of Audit of Public Sector Undertakings

Constitutional Role of the CAG and Audit Mandate in other exams

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

CMA FinalRole of CAG and Accounting Authorities

Constitutional Role of the CAG and Audit Mandate: frequently asked questions

What is the role of the CAG in the audit of government companies?

The CAG appoints the statutory auditor of a government company and directs the auditor on the manner of audit. After the auditor reports, he can conduct a supplementary or test audit and comment on the report. His comments are sent to the company and placed before the annual general meeting along with the auditor's report (section 143(6)(b)).

How is CAG audit different from statutory audit?

A statutory auditor is appointed under company law and reports on the financial statements to members. The CAG acts under the Constitution and the 1971 Act on behalf of the legislature. His audit can extend to regularity, propriety and performance of public money.

Why is the CAG independent?

The Constitution gives him protection: appointment by the President and removal only like a Supreme Court judge. His salary and service conditions are as determined by Parliament's law (Article 148(3)) and cannot be varied to his disadvantage after appointment. His office expenses are charged on the Consolidated Fund (Article 148(6)), and he is not eligible for further office under the Union or a State after ceasing to hold office (Article 148(4)).

To whom does the CAG submit his reports?

For Union accounts, the report goes to the President, who places it before Parliament. For State accounts, it goes to the Governor, who places it before the State Legislature.