Skip to content

CMA Final · Corporate and Economic Laws

Accounts and Audit for CMA Final Paper 13

Accounts and Audit in Paper 13 covers how a company keeps books and prepares financial statements, and how auditors are appointed, rotated, paid, empowered and made to report. Learn each rule with its condition, then apply it to a short case. Section 143 is the core of the auditor's powers and report.

What this chapter covers

This chapter deals with the Companies Act, 2013 provisions on accounts and audit. It starts with the company's duty to keep books and prepare financial statements. It then moves to the auditor: who can be appointed, for how long, who is disqualified, what the auditor can demand, and what the report must say. It also covers internal audit, cost audit, secretarial audit, the audit committee and the audit of a liquidator's accounts.

The chapter is a mix of rules with conditions: who, when, how many years, which class of company. Many questions test whether you can spot which condition applies to a given company. Section 143 is the best-anchored part. It gives the auditor a right of access to books and vouchers at all times, a right to require information and explanation, a list of matters to inquire into, the contents of the report, and the duty to report fraud.

The chapter links to other parts of Paper 13. Board and committee topics connect to the audit committee. Company winding up connects to the liquidator's accounts. Directors' disqualification connects to the auditor's statement on disqualification. Paper 17 (Cost and Management Audit) also builds on the cost audit and auditor reporting ideas, so the effort pays off twice.

Paper 13 has a compulsory Section A of 15 MCQs worth 30 marks, with one short case study of 4 MCQs, and written questions on top. Accounts and Audit is rule-heavy and condition-heavy, which suits MCQs and short case answers. If you know the conditions precisely, you can score reliably here. The chapter also feeds Paper 17, so the same learning helps in Group IV.

Accounts and Audit: topics in the order to study them

  1. 1Books of Account and Financial StatementsStart here. It sets out what the company must keep and prepare, which is what the auditor later examines.
  2. 2Appointment and Rotation of AuditorsOnce you know what is audited, learn who audits it, how the auditor is appointed and when rotation applies.
  3. 3Auditor Qualifications, Disqualifications and RemunerationThis builds on appointment. It tells you who is eligible, who is barred and how fees are fixed.
  4. 4Powers, Duties and Reporting of AuditorsThe heart of the chapter. Study it after the appointment rules so that section 143 sits on a clear base.
  5. 5Internal Audit and Cost AuditThese are other audit types. Section 143 applies to cost audit with the necessary changes, so learn it after section 143.
  6. 6Secretarial Audit and Audit Committee AspectsThis adds a further audit type and the committee that works with auditors. It is easier once the main audit is clear.
  7. 7Audit of Company Liquidator's AccountsA narrow topic tied to winding up. Finish with it and revise it with the liquidation material.

How to prepare Accounts and Audit

Treat this chapter as a set of rules plus conditions. Build a clean one-page summary for each topic and practise applying it to short facts.

  1. Read the topic once for the flow, then list each rule with its condition: who, which company, how long, by when.
  2. Study section 143 closely. Learn the auditor's right of access and the matters to inquire into in sub-section (1), and the contents of the report in sub-sections (2) and (3).
  3. Note the rule in sub-section (4): if any required matter is answered in the negative or with a qualification, the report must give the reasons.
  4. Learn fraud reporting in sub-section (12) and its penalty in sub-section (15): five lakh rupees for a listed company and one lakh rupees for any other company.
  5. Make a comparison chart for the audit types: statutory, cost, secretarial and internal. Note who does each and which company it applies to.
  6. Solve MCQs on each topic. For each wrong answer, note which condition you missed.
  7. Revise the one-page summaries every week and rewrite them from memory before the exam.

Common mistakes in Accounts and Audit

  • Mixing up the auditor's powers with the contents of the report

    Fix: Remember that sub-section (1) is access and inquiry, and sub-sections (2) and (3) are the report. Keep them in separate columns in your notes.

  • Applying a rule without checking the type of company

    Fix: Before answering, write down the company type from the facts. Then pick the rule that fits.

  • Forgetting the fraud-reporting split

    Fix: Learn both routes, the proviso on lesser amounts and the Board's report disclosure, along with the two penalty figures.

  • Quoting section numbers or limits from memory when unsure

    Fix: Quote a section number only when sure. Otherwise state the rule in plain words with its conditions, which still earns marks.

  • Treating all audits as the same

    Fix: Use a comparison chart of who conducts each audit, for which companies, and what it reports.

  • Writing long recall answers to case questions

    Fix: State the rule in one line, apply it to the facts given, then give a clear conclusion.

Last-day revision: Accounts and Audit

  • Under section 143(1), the auditor has a right of access at all times to books of account and vouchers, wherever kept.
  • The auditor can require from officers such information and explanation as he considers necessary for his duties.
  • A holding company's auditor can access records of its subsidiaries and associate companies for consolidation purposes.
  • The auditor reports to the members on the accounts and financial statements, stating whether they give a true and fair view.
  • Under section 143(4), a negative or qualified answer on any required matter needs reasons.
  • The report must state whether the company has adequate internal financial controls with reference to financial statements and their operating effectiveness.
  • Every auditor must comply with the auditing standards (section 143(9)).
  • Fraud by officers or employees: the auditor must report as prescribed. Below the specified amount, report to the audit committee or the Board.
  • Penalty for not reporting fraud: five lakh rupees for a listed company, one lakh rupees for any other company.
  • Section 143 applies with the necessary changes to a cost accountant doing cost audit and a company secretary in practice doing secretarial audit.
  • Branch auditor's report goes to the company's auditor, who deals with it in his report as he considers necessary.
  • For Government companies, the CAG appoints the auditor and may conduct a supplementary audit within sixty days of receiving the audit report.

Accounts and Audit practice questions

Accounts and Audit in other exams

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

Accounts and Audit: frequently asked questions

Which section is most important in Accounts and Audit?

Section 143 is the most useful anchor. It covers the auditor's access rights, inquiry matters, report contents, fraud reporting and penalty. Learn it closely, then connect the other topics to it.

Does section 143 apply to cost audit and secretarial audit?

Yes. Section 143(14) says its provisions apply with the necessary changes to a cost accountant conducting cost audit and a company secretary in practice conducting secretarial audit.

What happens if an auditor does not report fraud?

Under section 143(15), the auditor, cost accountant or company secretary in practice is liable to a penalty of five lakh rupees for a listed company and one lakh rupees for any other company.

How should I study this chapter for MCQs?

Build short rule-and-condition notes for each topic and practise MCQs on them. Check every wrong answer for the condition you missed. There is no negative marking in the exam, so attempt every question.