Auditors Power, Duties and Types

Powers of Auditors

1. Right to access

Every auditor of a company shall have right to access at all time to book of accounts and vouchers of the company. The Auditor shall be entitled to require from officers of the company such information and explanation as he may consider necessary for performance of his duties. There is an inclusive list of matter for which auditor shall seek information and explanation.

The list includes issues related to:

(a) Proper security for Loan and advances

(b) Transaction by book entries

(c) Sale of assets in securities in loss

(d) Loan and advances made shown as deposits

(e) Personal expenses charged to revenue account

(f) Case received for share allotted for cash. The auditor of holding company also has same rights.

2. Auditor to sign audit reports

The auditor of the company shall sign the auditor’s report or sign or certify any other document of the company and financial transactions or matters, which have any adverse effect on the functioning of the company mentioned in the auditor’s report shall be read before the company in general meeting and shall be open to inspection by any member of the company.

3. Auditor in general meeting

It is a prime requirement under section 146, that the company must send all notices and communication to the auditor, relating to any general meeting, and he shall attend the meeting either through himself or through his representative, who shall also be an auditor. Such auditor must be given reasonable opportunity to speak at the meeting on any part of the business which concerns him as the auditor.

4. Right to remuneration

The remuneration of the auditor of a company shall be fixed in its general meeting or in such manner as may be determined therein. It must include the expenses, if any, incurred by the auditor in connection with the audit of the company and any facility extended to him but does not include any remuneration paid to him for any other service rendered by him at the request of the company.

5. Consent of auditor

As per section 26, the company must mention in their prospectus the name, address and consent of the auditors of the company.

Duties of Auditors

1. Make report

The auditor shall make a report to the members of the company on accounts examined by him on every financial statement and shall state:(a)   Whether he has sought and obtained all the necessary information and explanations,(b)  Whether proper books of account have been kept,(c)  Whether company’s balance sheet and profit and loss account are in agreement with books of accounts and returns.

2. Audit report of Government Company

The auditor of the government company will be appointed by the Comptroller and Auditor-General of India and such auditor shall act according to the directions given by them. He must submit a report to them which should include the action taken by him and impact on accounts and financial statement of the company. The Comptroller and Audit – General of India shall within 60 days of receipt of the report have right to (a) conduct a supplementary audit and (b) comment upon or supplement such audit report. The Comptroller and Audit – General of India may cause test audit to be conducted of the accounts of such company.

3. Liable to pay damages

As per section 245, the depository and members of the company have right to file an application before the tribunal if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company. They also have right to claim damages or compensation from the auditor for any improper or misleading statement made in his audit report or for any fraudulent or unlawful conduct.

4. Branch Audit

Where a company has a branch office, the accounts of that office shall be audited either by the auditor appointed for the company, or by any other person qualified for appointment as an auditor of the company. The branch auditor shall prepare a report on the accounts of the branch examined by him and send it to the auditor of the company who shall deal with it in his report in such manner as he considers necessary.

5. Auditing Standards

Every auditor shall comply with the auditing standards. The Central Government shall notify these standards in consultation with National Financial reporting Authority. The government may also notify that auditors’ report shall include a statement on such matters as notified.

6. Fraud Reporting

If an auditor of a company, in the course of the performance of his duties as auditor, has reason to believe that an offence involving fraud is being or has been committed against the company by officers or employees of the company, he shall immediately report the matter to the Central Government within such time and in such manner as may be prescribed.

7. Winding up

As per section 305, at the time of voluntary winding up of a company it is a mandatory requirement that auditor should attach the copy of the audits of the company prepared by him.

Types of Auditors

Auditors carefully examine financial records so they can evaluate an entity’s financial position and the authenticity of its data.

This requires experience not only in all types of accounting practices but also in various tax, laws and financial regulations governing the use of certain documents.

While it takes a highly trained accountant to work as an auditor, there are different types of auditors with different audit aims.

Several types of auditors conduct these procedures.

Types of Auditors are:

• Independent/External Auditors: Profesional Audit services providors.
• Internal Auditors: Company’s own in-house expert auditors to maintain internal control and audit the company’s internal activities.
• Government Auditors: Auditors that are working with various government agencies; where why audit internal agency audit and/or audit the corporations by court order or government law.
• Forensic Auditors: They are hired to play Sherlock. Auditors that specialize in crimes and are used by law enforcement organizations.

1. Independent/External Auditors

Independent auditors are usually Chartered Accountants (CAs) who are either individual practitioners or members of public accounting firms who render professional auditing services to clients.

In general, licensing involves passing the uniform CA examination and obtaining practical experience in auditing.

2. Internal Auditors

Internal auditors are employees of the organization they audit. This type of auditors is involved in an independent evaluation of evidence, called internal auditing, within an organization as a service to the organization.

The objective of internal auditing is to assist the management of the organization in the effective discharge of its responsibilities.

3. Government Auditors

Government auditors are employed by various local, state, and federal governmental agencies.

At the federal level, the three primary agencies are the General Accounting Offices (GAO), the Internal Revenue Services (IRS), and the Defense Contract Audit Agency.

4. Forensic Auditors

Forensic auditors specialize in crimes and are used by law enforcement organizations when financial documents are involved in a crime.

This does not necessarily mean the crime was financial (although this can be the case) but rather that the law enforcement organization needs to track money used to find out where it began or ended up.

The roles of auditors are intertwined with the evolution of the auditing theory itself, as auditing evolved based on circumstances the evolution directly influence the functions and the entire practice of auditors.