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CA Intermediate · Auditing and Ethics · Special Features of Audit of Different Type of Entities

CA Nikhil is the statutory auditor of Bharat Rural Power Ltd., a government company. The Comptroller and Auditor-General of India has appointed him and issued directions under the Companies Act on specific areas to be examined. During the audit, he finds that the CAG's directions require him to report whether the company has a system to process all accounting transactions through IT and the financial implications of any processing outside it. Which course of action is correct?

The auditor must comply with the CAG's directions and report on them in the audit report. The CAG may also conduct a supplementary audit or comment upon the auditor's report. Independence does not permit ignoring statutory directions, and no Board approval is required before reporting.

  1. AReport on the directions in the audit report as required, and the CAG may also conduct a supplementary audit or comment on the auditor's reportCorrect
  2. BIgnore the directions since the auditor is independent and bound only by Standards on Auditing
  3. CReport on the directions only to the Board and not in the audit report
  4. DSeek the Board's approval before reporting on the directions

Explanation

For a government company, the auditor is appointed by the CAG and must comply with the CAG's directions and report on action taken, as required by the Companies Act. The CAG may also order a supplementary audit and comment on the audit report. Independence does not allow disregarding statutory directions, and Board approval is not needed.

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