Joint Auditors, Branch Audit and Cost Audit

Understand Joint Auditors, Branch Audit and Cost Audit

Key rules to remember

Branch audit - who can audit (section 143(8))

Branch auditor = company's auditor OR other person qualified and appointed under section 139

For a branch outside India, the company's auditor or an accountant or other person duly qualified under that country's laws.

Branch auditor's report (proviso to section 143(8))

Branch auditor → report → company's auditor → deals with it as he considers necessary

The branch auditor does not report to members on the branch. The company's auditor does, in the main report.

Main report must mention branch report (section 143(3)(c))

State whether the branch auditor's report was sent and how it was dealt with

Applies where a branch is audited by a person other than the company's auditor.

Returns from branches not visited (section 143(3)(b))

State whether proper returns adequate for audit were received from branches not visited

Part of the report on proper books of account.

Cost audit and section 143 (section 143(14)(a))

Section 143 applies mutatis mutandis to the cost accountant conducting cost audit under section 148

Applicability thresholds come from the rules under section 148, not from section 143.

Fraud reporting duty (section 143(12) and (15))

Penalty for non-compliance: ₹5,00,000 (listed company); ₹1,00,000 (any other company)

Applies to an auditor, cost accountant or company secretary in practice.

How to solve Joint Auditors, Branch Audit and Cost Audit questions

1. 1Identify which arrangement the question is about: joint auditors, branch audit, or cost audit.
2. 2For a branch, note whether it is in India or outside India. This decides who may audit it.
3. 3Name the person who audits the branch: the company's auditor, or another qualified person appointed under section 139 (or a person qualified under foreign law for a foreign branch).
4. 4State the reporting chain: the branch auditor sends his report to the company's auditor, who deals with it as he considers necessary in his own report.
5. 5For joint auditors, state how the work is divided, which matters are common, and that each is responsible for his own area and jointly for common matters.
6. 6For cost audit, state that it covers cost records, is done by a cost accountant under section 148, and that section 143 applies mutatis mutandis under section 143(14).
7. 7Where the question asks about applicability, say it depends on the rules under section 148 and apply the thresholds given in the question or your study material.
8. 8Close with the practical effect on the audit report, such as the section 143(3)(c) statement.

Quickest way: Who audits, who reports to whom

Common mistakes in Joint Auditors, Branch Audit and Cost Audit

• Saying the branch auditor reports directly to the members.

  Students assume every auditor signs a report to shareholders.

  Fix: Remember the proviso to section 143(8): the branch auditor sends his report to the company's auditor, who deals with it in his own report.

• Saying the company's auditor must accept the branch auditor's report as it is.

  Students overlook the discretion in the proviso.

  Fix: Write that the company's auditor deals with it in such manner as he considers necessary.

• Treating joint auditors as each responsible only for their own part.

  Work is divided, so students assume liability is divided too.

  Fix: State that each is responsible for his own work, but all are jointly responsible for common matters and for the audit report being in proper form.

• Confusing joint audit with branch audit.

  Both involve more than one auditor.

  Fix: In joint audit, several auditors are appointed for the whole company. In branch audit, one person audits a particular branch and reports to the company's auditor.

• Treating cost audit as an audit of the financial statements.

  The word 'audit' suggests the same scope.

  Fix: Say cost audit examines cost records, is done by a cost accountant under section 148, and has its own report.

• Quoting cost audit turnover limits from memory without being sure.

  Thresholds are in rules, not in the Act sections.

  Fix: Use the figures given in the question or in your ICMAI material, and state that applicability comes from rules under section 148.

Worked examples