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CA Final · Advanced Auditing, Assurance and Professional Ethics · Overview of Audit of Public Sector Undertakings

CA Deepa, appointed by the CAG as auditor of Sagar Ports Ltd, a Government company, finds that the company has waived recoveries of Rs 4 crore due from a private contractor without proper sanction. Management says waivers are an administrative matter. Which is the most appropriate conclusion?

The auditor should include the matter in the report because a Government company's auditor must state whether waivers or write-offs of debts, loans or interest were properly accounted for and justified. Management's view that it is administrative does not remove this reporting duty.

  1. AInclude the matter in the report, since for Government companies the auditor must report on whether waiver or write-off of debts, loans or interest, if any, is properly accounted for and justifiedCorrect
  2. BLeave it out, as waivers are management decisions not subject to audit
  3. CReport only to the CAG privately and omit it from the audit report
  4. DAdjust the amount directly in the financial statements without reporting it

Explanation

Directions for Government companies require the auditor to report whether the waiver or write-off of debts, loans or interest was properly done and accounted for. Management's view does not remove the reporting duty. The auditor cannot omit the matter or merely adjust the financial statements.

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