Powers and Duties of Auditor under Section 143

Understand Powers, Duties and Rights of Auditors

Key rules to remember

Right of access (s.143(1))

Access at all times to books of account and vouchers, at the registered office or any other place + right to require information and explanation from officers

The right is wide but limited to what the auditor considers necessary for performing his duties.

Matters of inquiry (s.143(1)(a) to (f))

(a) secured loans and advances; (b) book-entry transactions; (c) sale of securities below cost; (d) loans shown as deposits; (e) personal expenses charged to revenue; (f) shares allotted for cash

Remember as: Loans secured, Book entries, Cheap sale of securities, Deposits, Expenses personal, Cash on allotment. Item (c) applies where the company is not an investment or banking company.

Holding company proviso

Auditor of a holding company has right of access to records of all its subsidiaries and associate companies, so far as it relates to consolidation

Access is limited to the consolidation purpose.

Core report (s.143(2))

Report to members on accounts examined and financial statements: true and fair view of state of affairs, profit or loss and cash flow

Prepared after considering the Act, accounting and auditing standards and matters required in the report.

Additional report matters (s.143(3)(a) to (j))

Information obtained; proper books; branch reports; agreement with books; accounting standards; adverse observations; director disqualification; qualifications on accounts; internal financial controls; other prescribed matters

If any matter is answered in the negative or with a qualification, the report must state the reasons (s.143(4)).

Branch audit (s.143(8))

Branch accounts audited by company's auditor or another qualified person appointed under section 139; branch auditor sends report to company's auditor, who deals with it as he considers necessary

For a branch outside India, an accountant or person qualified under that country's laws may audit.

Auditing standards (s.143(9))

Every auditor shall comply with the auditing standards

Until standards are notified, standards specified by ICAI are deemed to be the auditing standards (s.143(10) proviso).

Fraud reporting (s.143(12))

Reason to believe offence involving fraud against the company by officers or employees: report immediately to Central Government, within the time and manner prescribed

If the fraud involves less than the specified amount, report to the audit committee (s.177) or to the Board in other cases. Company must disclose such unreported-to-Government frauds in the Board's report.

Good faith protection (s.143(13))

No duty of the auditor is regarded as contravened by reason of reporting under (12) if done in good faith

Protects the auditor from breach of confidentiality claims.

Penalty for non-reporting (s.143(15))

Listed company: penalty of ₹5,00,000; any other company: penalty of ₹1,00,000

Applies to an auditor, cost accountant or company secretary in practice who does not comply with sub-section (12).

How to solve Powers, Duties and Rights of Auditors questions

1. 1Identify what the question tests: right of access, inquiry matters, report contents, branch audit, or fraud reporting.
2. 2State the relevant sub-section in words first, for example the right of access at all times under s.143(1).
3. 3If it is a scenario, match each fact to a listed item, such as personal expenses charged to revenue matching s.143(1)(e).
4. 4List the report matters you need, using the sub-section order (a) to (j), and mention that negative answers need reasons under s.143(4).
5. 5For fraud scenarios, decide first whether the amount is above or below the specified threshold, then name the recipient: Central Government or audit committee/Board.
6. 6Mention the protection and penalty where relevant: good faith under (13), penalty under (15).
7. 7Close with a one-line conclusion that answers the exact question asked.

Quickest way: Three-bucket recall for Section 143

Common mistakes in Powers, Duties and Rights of Auditors

• Saying the auditor can access books only at the registered office.

  Students assume books are always kept at one place.

  Fix: Write that access is at all times, to books and vouchers kept at the registered office or any other place.

• Treating the six matters in s.143(1) as report contents.

  Inquiry matters and reporting matters sit close together in the section.

  Fix: Remember (1)(a) to (f) are matters the auditor inquires into. The report contents are in (2) and (3).

• Reporting every fraud to the Central Government.

  Students remember only the first part of s.143(12).

  Fix: Check the amount. Frauds below the specified amount go to the audit committee or the Board, and the company discloses them in the Board's report.

• Forgetting to state reasons when a report matter is answered in the negative.

  Students list (a) to (j) but skip s.143(4).

  Fix: Always add that a negative answer or qualification must be accompanied by the reasons.

• Saying the holding company auditor can access subsidiary records without limit.

  The proviso is read loosely.

  Fix: State that access covers subsidiaries and associate companies only so far as it relates to consolidation.

• Writing that the branch auditor's report replaces the company auditor's report.

  Students confuse who signs the report to members.

  Fix: The branch auditor sends the report to the company's auditor, who deals with it in his own report as he considers necessary.

Worked examples