CA Intermediate · Auditing and Ethics · Risk Assessment and Internal Control

Auditor CA Rao identifies during the audit of Bharat Steels Ltd (a company covered under the Companies Act) that deficiencies in internal financial controls over financial reporting exist. Rao has assessed that controls are ineffective in the purchase cycle and wants to report on this. Which statement correctly states the audit position?

The auditor must report under the Companies Act on whether the company has adequate internal financial controls over financial reporting and whether they operate effectively, unless the company is exempt. It is a statutory requirement, not a voluntary or Board-requested matter, and ineffective purchase controls lead to a modified opinion.

1. AReporting on internal financial controls is voluntary and a matter of management's choice for every company
2. BThe auditor's report must state whether the company has adequate internal financial controls with reference to financial statements in place and their operating effectiveness, unless exempted, and the auditor's opinion on this is reported under the Companies ActCorrect
3. COnly the Cost Auditor reports on internal financial controls
4. DThe auditor reports on internal financial controls only if the Board requests it in writing