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CS Professional · CSR and Social Governance · Financial and Non-financial Reporting of Different Non-Corporate Entities

A partnership firm, Mehta & Sons, runs a small business with no statutory audit requirement under the Partnership Act. A bank asks for audited accounts before sanctioning a loan. The partners agree to appoint a chartered accountant. What is the correct characterisation of this audit?

It is a voluntary audit. The Partnership Act, 1932 does not require firms to get accounts audited, so the partners choose to appoint a chartered accountant to give the bank assurance and credibility about the firm's financial statements.

  1. AMandatory statutory audit under the Partnership Act, 1932
  2. BA voluntary audit undertaken to enhance credibility with a lenderCorrect
  3. CAn audit that can be done only by the Registrar of Firms
  4. DAn audit that is invalid because firms cannot be audited

Explanation

The Indian Partnership Act does not mandate audit of firm accounts. Audit here is by agreement among partners to satisfy a lender, so it is voluntary, and any qualified auditor may do it. Other laws such as tax law may separately require audit, but that is not the basis here.

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