Company Law and Practice · Accounts and Auditors

Auditor's Report and Reporting Requirements under Companies Act

Updated 11 October 2026 · Fact-checked

The auditor's report is the auditor's written report to members on the accounts and financial statements. Under section 143(2) it states whether they give a true and fair view. Section 143(3) adds matters to be stated, including internal financial controls. Negative or qualified answers need reasons under section 143(4). To answer, state provision, facts, conclusion.

Understand Auditor's Report and Reporting Requirements

A company's accounts are prepared by management. Members need an independent check. The auditor gives that check through the auditor's report, addressed to the members of the company.

Section 143(2) says the auditor reports on the accounts examined and on every financial statement required to be laid before the company in general meeting. The report must take into account the Act, the accounting and auditing standards, and matters required by rules or by an order under section 143(11). The core opinion is that, to the best of the auditor's information and knowledge, the accounts and financial statements give a true and fair view of the state of affairs at year end and of profit or loss and cash flow for the year.

Section 143(3) lists further matters the report must state. These include whether the auditor got all information and explanations needed, whether proper books were kept, whether the balance sheet and profit and loss account agree with the books, whether the statements comply with accounting standards, adverse observations on financial transactions, director disqualification under section 164(2), qualifications on maintenance of accounts, and internal financial controls. Under section 143(4), if any of these is answered in the negative or with a qualification, the report must give the reasons.

Section 143(11) lets the Central Government, in consultation with the National Financial Reporting Authority, direct that for specified classes of companies the report must also include a statement on specified matters. The Companies (Auditor's Report) Order (CARO) is issued under this power. It adds matters such as fixed assets, inventory, loans, statutory dues and fraud to the report for companies it covers. Check the study material for the exact scope and the clauses.

A clean report is an unmodified opinion. If the auditor finds a material misstatement or cannot get enough evidence, the opinion is modified: qualified (the problem is material but not pervasive), adverse (the statements do not give a true and fair view) or a disclaimer (the auditor cannot form an opinion). These labels come from auditing standards, not from section 143 itself, so do not quote a section for them.

Key rules to remember

Core opinion - section 143(2): Auditor reports to members; accounts and financial statements give a true and fair view of state of affairs, profit or loss and cash flow; Opinion is to the best of the auditor's information and knowledge and after considering the Act and standards.
Matters to be stated - section 143(3)(a) to (j): Information obtained; proper books; branch returns; agreement with books; accounting standards; adverse observations; director disqualification; qualifications on accounts; IFC adequacy and operating effectiveness; other prescribed matters; Clause (a) to (j) is a checklist. Learn it as a list.
Reasons for negative answers - section 143(4): Negative or qualified answer on a required matter → report must state reasons; Applies to any matter required in the report under section 143.
Internal financial controls - section 143(3)(i): Report whether the company has adequate internal financial controls with reference to financial statements and their operating effectiveness; Two tests: adequacy and operating effectiveness.
Order on additional statements - section 143(11): Central Government + NFRA consultation → order for specified companies → report includes statement on specified matters; CARO works through this power.
Auditing standards - section 143(9): Every auditor shall comply with the auditing standards; Mandatory, not optional.
Fraud reporting - section 143(12) and (15): Reason to believe fraud by officers or employees → report to Central Government; lower amount → audit committee or Board; penalty for non-compliance ₹5,00,000 (listed) or ₹1,00,000 (other); Good-faith reporting is not a breach of duty under section 143(13).

How to solve Auditor's Report and Reporting Requirements questions

Use this method for any question on the auditor's report, whether it asks for contents, a modified opinion or a case.

1Identify what is asked: contents, IFC, CARO, opinion type or fraud reporting.
2Quote the provision: section 143(2) for the opinion, 143(3) for the matters, 143(4) for reasons, 143(11) for CARO.
3List the matters under 143(3) that apply, in brief and in the Act's order.
4Apply to the facts: find the clause that the facts breach, such as missing books, non-compliance with accounting standards, or weak controls.
5Say what the auditor must do: state the matter and give reasons if negative or qualified.
6Close with a clear conclusion in one sentence, such as the report must be qualified with reasons stated.

Quickest way: Clause-hook method

When to use it: When you have little time and a short case question on what the report must say.

Find the fact in the question (books, controls, standards, fraud).
Match it to the 143(3) clause by its letter.
Write: provision, fact, conclusion in three lines.
Add 143(4): reasons must be given.
If fraud is involved, add 143(12) and the reporting route.

Common mistakes in Auditor's Report and Reporting Requirements

Treating qualified, adverse and disclaimer as sections of the Act.
Students assume every exam term has a section.
Fix: Section 143 does not use these labels. Explain them as types of modified opinion and cite section 143(2) and (4) for the duty to report and give reasons.
Omitting reasons when the answer is negative.
Students list the matters but forget section 143(4).
Fix: Always add that a negative or qualified answer must be supported by stated reasons.
Confusing the auditor's IFC reporting with management's controls.
Both are called internal controls.
Fix: Section 143(3)(i) asks the auditor to say whether adequate controls exist and are operating effectively. The controls themselves are the company's.
Saying CARO applies to every company in the same way.
Students overlook the order's class-based scope.
Fix: Say it applies to the classes of companies specified in the order under section 143(11) and check the exact scope in the study material.
Mixing up fraud reporting routes.
The two provisos in section 143(12) look similar.
Fix: Fraud at or above the specified amount goes to the Central Government. Lower amounts go to the audit committee or the Board, and the Board's report discloses them if not reported to the Central Government.
Leaving out the conclusion.
Students stop after listing the provision.
Fix: ICSI answers need provision, analysis and conclusion. End with a definite statement.

Worked examples

Example 1

During audit of Sundaram Textiles Ltd, the auditor finds that the company did not maintain proper books of account for one unit. Management refuses to correct this. What must the auditor do in the report?

Show the solution

Provision: section 143(3)(b) requires the report to state whether proper books of account as required by law have been kept, so far as appears from examination.
Facts: books for one unit are not properly kept, so the answer to this matter is negative.
Section 143(3)(h) also requires any qualification, reservation or adverse remark on maintenance of accounts to be reported.
Section 143(4): a negative or qualified answer must state the reasons.
The auditor also considers the effect on the true and fair view under section 143(2).

Answer: The auditor must state in the report that proper books have not been kept, give reasons, and report the qualification on maintenance of accounts. The effect on the true and fair view is then considered for the opinion.

Example 2

Explain what the auditor must report on internal financial controls under section 143(3)(i).

Show the solution

Provision: section 143(3)(i) requires the report to state whether the company has adequate internal financial controls with reference to financial statements in place.
It also requires a statement on the operating effectiveness of such controls.
So there are two tests: adequacy (design) and operating effectiveness (working in practice).
If the answer is negative or qualified, section 143(4) requires reasons.
The wording 'with reference to financial statements' limits the scope to controls relevant to financial reporting.

Answer: The auditor must say whether adequate internal financial controls with reference to financial statements exist and whether they operate effectively. A negative or qualified answer must be supported by reasons.

Exam tips

Learn section 143(3) clauses (a) to (j) as a list; a short question may ask for the matters.
In case questions, name the clause, apply the facts, then conclude.
Do not cite a section for qualified, adverse or disclaimer; explain them by meaning.
Do not state CARO clause details unless you are sure from your study material.
For fraud questions, state the route by amount and the penalty amounts only if you remember them exactly.

Practice questions from Accounts and Auditors

Auditor's Report and Reporting Requirements in other exams

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

Auditor's Report and Reporting Requirements: frequently asked questions

What does the auditor's report contain under the Companies Act, 2013?

The opinion on true and fair view under section 143(2) and the matters in section 143(3). These include information obtained, books of account, agreement with books, accounting standards compliance and internal financial controls.

What is the difference between a qualified and an adverse opinion?

A qualified opinion means the issue is material but limited, so the statements are fair except for that matter. An adverse opinion means the statements do not give a true and fair view. These terms come from auditing standards.

What is CARO and under which power is it issued?

It is the Companies (Auditor's Report) Order. It is issued under the power in section 143(11), which allows the Central Government to direct that the report include statements on specified matters for specified companies.

What must the auditor report on internal financial controls?

Under section 143(3)(i), the auditor states whether the company has adequate internal financial controls with reference to financial statements and whether they operate effectively.