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Company Auditor
While auditing for entities other than
companies is typically voluntary and not mandatory, the audit of a company is compulsory under the provisions outlined in the Companies Act.
The appointment, powers, and duties of
auditors in the context of companies are governed by specific rules laid out in the Companies Act. Need for a Company Auditor 1. Legal Requirement: Compliance with these regulations is mandatory to ensure the company operates within the bounds of the law. 2. Financial Transparency: auditors provide assurance to stakeholders that the financial information presented is reliable and free from material misstatement. 3. Investor Confidence: External audits enhance investor confidence by providing an independent assessment of a company's financial health and performance. 4. Risk Management: Auditors help identify and assess financial risks, internal control weaknesses, and areas of operational inefficiency within a company. 5. Fraud Detection: deter fraudulent activities and protects the interests of shareholders and stakeholders. 6. Regulatory Compliance: Auditors ensure that companies comply with accounting standards. Role of Internal and External Auditors Internal and external auditors are like financial detectives who help make sure companies are honest and secure.
Internal auditors are like inside detectives; they check the
company’s own systems to prevent problems.
External auditors are like outside detectives; they double-check
a company’s financial reports to make sure everything adds up. Internal Auditors Their primary objectives include: 1. Evaluating the effectiveness of internal controls: Internal auditors examine the company's policies, procedures, and processes to identify weaknesses and vulnerabilities that could lead to errors, fraud. 2. Conducting operational audits: They review various operational areas of the organization, such as procurement, inventory management, and human resources, to ensure efficiency, effectiveness, and adherence to company policies. 3. Assessing compliance: Internal auditors verify compliance with laws, regulations, and internal policies to mitigate legal and regulatory risks. 4. Providing recommendations for improvement: Based on their findings, internal auditors offer recommendations to management for enhancing internal controls, streamlining processes, and mitigating risks to achieve organizational objectives more effectively. External Auditors Their key responsibilities include: 1. Auditing financial statements: examine the company's financial records, transactions, and disclosures to assess whether they present a true and fair view of its financial position and performance. 2. Testing internal controls: they do assess the effectiveness of key controls relevant to financial reporting to determine the extent of substantive testing required. 3. Reporting findings to stakeholders: External auditors issue an audit opinion expressing their professional judgment on the fairness of the financial statements. 4. Providing insights and recommendations: may offer insights and recommendations to management based on their observations during the audit process. RIGHTS AND POWERS OF AN AUDITOR 1. Right to Inspect Books of Accounts: This right includes access to branch books and vouchers, ensuring a comprehensive audit.
2. Right to Ask for Information and Clarifications: The auditor can request information and explanations from the company's directors and officers necessary for auditing duties.
3. Right to Receive Notice of General Meetings and Attend: This allows the auditor to stay informed about company affairs and address any concerns directly with shareholders.
4. Right to be Indemnified: The auditor is entitled to be indemnified from the company's
assets for legitimate expenses incurred while defending against civil or criminal proceedings.
5. Right to Take Legal and Technical Advice: This ensures auditors have access to necessary expertise to address complex audit issues and comply with regulatory requirements.
6. Right to Sign the Audit Report: The auditor has the right to sign the audit report, providing assurance on the accuracy and fairness of the company's financial statements.
7. Right to Correction of Wrong Statements: The auditor has the right to correct any incorrect statements made by directors during general meetings, particularly if those statements relate to the audited accounts of the company. Duties of an Auditor Duties of an auditor can be classified under two categories:
A.Duties under the Companies Act.
B.Duties as per Legal Decisions. Duties under the Companies Act: 1. Special Enquiries and Investigations. 2. To Make Report to Share holders 3. Duty to State the Reasons for Negative Answers. 4. Duty to Include Matters Directed by Central Government. 5. Duty to Sign the Audit Report 6. Duty to Give a Report upon the Prospectus. 7. Duty to Certify the Statutory Report. 8. Duty to Declare the Solvency of Directors. 9. Duty to Give a Report upon Profit and Loss Account and Balance 10. Duty Sheet. to Assist Investigators. Duties as per Legal Decisions. 1. Duty to inform members and shareholders about contraventions of company law. 2. Duty to enroll with the Institute of Chartered Accountants and obtain a certificate. 3. Duty to acquaint oneself with company law provisions and inquire from predecessors. 4. Duty not to canvass for appointment as auditor. 5. Duty to verify cash in hand and not to be negligent in work. 6. Duty to inspect securities personally and ensure safe custody. 7. Duty to perform tasks with ability, care, and skill, including verifying inventories and ledger accounts. REMOVAL OF AN AUDITOR An auditor of a company can be removed from office before the expiry of their term in several ways:
1. Approval of Central Government is required for removal of
auditor. 2. The concerned auditor shall be given an opportunity of being heard. 3. Company must take Shareholders’ approval within 60 days of receipt of approval of Regional Director.
"The Language of Business: How Accounting Tells Your Story" "A Comprehensive Guide to Understanding, Interpreting, and Leveraging Financial Statements for Personal and Professional Success"
"The Language of Business: How Accounting Tells Your Story" "A Comprehensive Guide to Understanding, Interpreting, and Leveraging Financial Statements for Personal and Professional Success"
