CS Executive · Company Law and Practice

Accounts and Auditors: CS Executive Company Law Chapter Guide

Accounts and Auditors covers how a company keeps books, prepares and authenticates financial statements, files the Board's report, and appoints an auditor. It also covers the auditor's powers, duties and report, plus cost, secretarial and internal audit. Learn each provision, apply it to the facts, and close with a clear conclusion.

What this chapter covers

This chapter in Paper 2 (Company Law and Practice) follows the life of a company's financial information. First the company keeps books of account and prepares financial statements. Then the Board approves them, signs them and attaches a Board's report. Then an independent auditor examines them and reports to the members.

The second half of the chapter is about the auditor. You study who can be appointed, for how long, and when rotation applies. Then you study what the auditor can demand and inquire into, and what the report must say. Section 143 is the centre of this part. It gives the right of access to books, the matters to inquire into, the content of the report, the duty to follow auditing standards, and the duty to report fraud.

The chapter connects to the rest of the paper in several ways. Financial statements are laid before members at the annual general meeting, so it links to meetings and the Board's duties. Director disqualification appears in the auditor's report. Fraud reporting links to the audit committee and the Board's report. It also supports Paper 4, where you work with financial statements as numbers.

Paper 2 is answered in writing, and this chapter suits that style. Its rules are precise and lists are common, such as the matters in Section 143(1) and the items in Section 143(3). Students who learn the exact wording and apply it to short facts score well. The chapter also feeds practical questions on fraud reporting, branch audit and CAG-appointed auditors, where one wrong detail costs marks. Steady work here pays off because the provisions repeat across topics and reward structured answers.

Accounts and Auditors: topics in the order to study them

1Books of Account and Financial StatementsStart here because everything later, the Board's report, the audit and the auditor's report, works on these books and statements.
2Board's Report and Authentication of AccountsNext learn how the Board approves, signs and reports on the statements, since the auditor then examines what the Board has authenticated.
3Appointment and Rotation of AuditorsBefore studying what the auditor does, learn who the auditor is, how the auditor is appointed and when the term must end.
4Powers and Duties of Auditors under Section 143This is the core section. Learn the right of access, the matters to inquire into, branch audit, auditing standards and fraud reporting.
5Auditor's Report and Reporting RequirementsStudy this after Section 143 because the report content comes from Section 143(2) to (4) and you need the powers first to understand it.
6Cost Audit, Secretarial Audit and Internal AuditFinish with the other audits. Section 143 applies with necessary changes to cost audit and secretarial audit, so the earlier topic makes this one easier.

How to prepare Accounts and Auditors

Treat this chapter as a sequence of provisions you must be able to write out and apply. Work in short sessions that suit a phone or a work break.

Read the chapter in the study order above and write a one-line purpose for each topic before you go deeper.
For Section 143, build a memory list in three groups: the matters in sub-section (1), the contents of the report in sub-section (3), and the special rules in sub-sections (5) to (15). Say each group aloud without looking.
Make a short table on paper for appointment and rotation covering who appoints, when, for how long and what happens on a vacancy. Fill it from the Act and check it again after a day.
Practise three-part answers: state the provision, apply it to the facts, then give a clear conclusion citing the section.
Solve past-style fact questions on fraud reporting, branch audit and government company audit. Check each answer against the exact words of the section.
Revise the lists every few days, and in the last week write each list from memory and mark gaps.

Common mistakes in Accounts and Auditors

Writing the Section 143 lists from memory but mixing up sub-sections (1) and (3).
Fix: Link each list to its purpose. Sub-section (1) is what the auditor may inquire into. Sub-section (3) is what the report must also state. Practise each list separately.
Reporting every fraud directly to the Central Government.
Fix: Learn both routes. Fraud at or above the specified amount goes to the Central Government. Fraud involving lesser than the specified amount goes to the audit committee constituted under section 177 or, in other cases, to the Board. The Board's report must then disclose frauds reported to the audit committee or the Board but not to the Central Government.
Leaving out the reasons when a matter is answered in the negative.
Fix: In any report question, add that a negative answer or qualification must carry the reasons for it.
Treating the penalty for non-compliance with the fraud-reporting duty as the same for all companies, or as applying only to the auditor.
Fix: Remember the split under Section 143(15): ₹5,00,000 for a listed company and ₹1,00,000 for any other company. It applies to an auditor, cost accountant or company secretary in practice who does not comply with sub-section (12).
Giving a conclusion without citing the provision or applying it to the facts.
Fix: Follow the three-part format: provision with section, analysis of the given facts, then a clear conclusion.
Studying the auditor's report separately from the auditor's powers.
Fix: Connect them. The report items in Section 143(3) come from the rights and inquiries in Section 143(1), so revise them together.

Last-day revision: Accounts and Auditors

Under Section 143(1), the auditor has a right of access at all times to the books of account and vouchers, wherever they are kept.
The auditor may require from officers such information and explanation as he considers necessary for his duties.
A holding company's auditor also has access to the records of its subsidiaries and associate companies, as far as they relate to consolidation.
Section 143(1) lists six inquiry matters: whether loans and advances made on security are properly secured and whether their terms are prejudicial to the interests of the company or its members, book entries, sale of securities below cost, loans shown as deposits, personal expenses and shares allotted for cash.
The auditor reports to the members on the accounts and the financial statements to be laid before the company in general meeting.
The report must state whether the statements give a true and fair view of the state of affairs, profit or loss and cash flow.
Under Section 143(4), any negative or qualified answer must state the reasons.
The report must say 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, under Section 143(9).
For a branch, the branch auditor sends a report to the company's auditor, who deals with it as he considers necessary.
Fraud by officers or employees: the auditor reports to the Central Government. For fraud involving lesser than the specified amount, the report goes to the audit committee constituted under section 177 or, in other cases, to the Board.
Good-faith fraud reporting is not a breach of duty. Under Section 143(15), an auditor, cost accountant or company secretary in practice who does not comply with sub-section (12) is liable to a penalty of ₹5,00,000 for a listed company and ₹1,00,000 for any other company.

Accounts and Auditors practice questions

Accounts and Auditors 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 Auditors: frequently asked questions

Which section matters most in the Accounts and Auditors chapter?

Section 143 is central. It covers the auditor's right of access, inquiry matters, report contents, auditing standards, branch audit, CAG provisions and fraud reporting. Learn it sub-section by sub-section.

Does Section 143 apply to cost audit and secretarial audit?

Yes. Section 143(14) says the section applies with necessary changes to a cost accountant conducting cost audit under Section 148 and a company secretary in practice conducting secretarial audit under Section 204. This matters for your own profession.

What must an auditor do on finding fraud by officers or employees?

If the auditor has reason to believe an offence involving fraud is being or has been committed against the company, he must report it immediately to the Central Government in the prescribed time and manner. For fraud below the specified amount, he reports to the audit committee or the Board.

How should I answer a Section 143 question in the exam?

State the provision and cite the section. Apply it to the facts given, then end with a clear conclusion. Use the exact words of the Act for lists and conditions.