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

Under the Companies Act, 2013, the auditor's report on a company such as Himalaya Beverages Ltd. must state whether the company has an adequate internal financial controls system with respect to financial reporting and the operating effectiveness of such controls. Which statement is correct?

The auditor must report on whether the company has adequate internal financial controls over financial reporting and whether they operate effectively, unless the company is exempt under the Act or rules. The reporting covers financial reporting controls and is the auditor's responsibility, not the board's.

  1. AThe auditor must report on internal financial controls over financial reporting, unless exempted under the Act or rulesCorrect
  2. BThe auditor is never required to report on internal financial controls for any company
  3. CThe auditor reports only on the internal controls over operations and not financial reporting
  4. DThe report on internal financial controls is given by the board of directors in place of the auditor

Explanation

Section 143(3)(i) requires the auditor's report to state whether the company has adequate internal financial controls with respect to financial reporting and their operating effectiveness, subject to exemptions such as for certain small private companies. The reporting concerns financial reporting controls, not all operational controls. The auditor, not the board, gives this opinion.

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