Every company needs to appoint an individual or a firm as its auditor as per section 139(1) of the Companies Act 2013. Furthermore, Companies Act, 2013 provides an auditor of a company certain statutory rights and duties in order to help him undertake his commitments honestly.
Without such powers, it will be challenging for an auditor to perform his duties fairly and thus can be held liable for any loss that the company might have to suffer.
In case of an auditor of a sole proprietorship business, partnership firm or any non – statutory organization, his powers and duties depend upon the agreement entered between the auditor and organization. This means the auditors of such non – statutories organizations do not have any specific rights and duties.
However, the auditors of joint stock companies have statutory rights and duties laid down by the Companies Act, 2013.
Thus, to know the powers and duties of a company’s auditor, you first need to understand the role of an auditor in a company.[/vc_column_text]
Who is an Auditor?
An auditor is a professional who is qualified to conduct an audit of the company. Such a person evaluates the validity of the company’s financial statements. This is undertaken to report if the company adheres to the established set of standards or procedures.
Thus, an auditor can render auditing services either as an independent professional or employee. If an auditor works for an organization, he is typically referred to as an internal auditor. Whereas, an auditor rendering auditing services to a company independently is referred to as an external agency.
The very purpose of hiring an external auditor is to undertake an audit that is free of any bias. And the same is not influenced by any internal relationships existing within the company.
Thus, to become eligible for becoming an auditor, a person must be a chartered accountant.
However, where an LLP is appointed as the auditor of the company, the partners who are chartered accountants are authorized to act as auditors and have the authority to sign on behalf of the firm.
Duties of an Auditor
1. Provide an Audit Report
The fundamental duty of a company’s auditor is to make a report regarding accounts and financial statements examined by him and present the same to the members of the company.
Such an opinion of the auditor enhances the credibility of the financial statements. This is because it provides reasonable assurance from the auditor that the financial statements give a true and fair view of the company’s state of affairs.
Furthermore, such an auditor’s opinion assures that the report has been prepared taking into account the accounting and auditing standards.
2. Make Proper Enquiry
It is the duty of every auditor to seek access to books of accounts, vouchers and other information and explanation from the company. Furthermore, an auditor can also inquire information regarding the following matters from the company at any time:
- whether the loans and advances made by the company on the basis of security have been properly secured. Furthermore, he needs to inquire whether the terms and conditions on the basis of which such loans and advances have been made are not unfair.
- if the transactions of the company represented only by book entries have actually taken place and are not unjust to the company in any way
- whether loans and advances made by the company are shown as deposits
if the personal expenses (expenses not associated with the company) are charged to the revenue amount
- whether cash has been received for the shares that were issued for cash. However, if no cash has actually been received, the auditor shall verify that the company’s position as stated in the books of accounts is correct, regular and not misleading.
3. Assist in Branch Audit
The accounts of a branch office can be audited by:
- a company’s auditor
- any individual appointed as the branch auditor as per the act
- company’s auditor or accountant or any competent person appointed as per the laws of the foreign country in case of a foreign branch
Thus, a branch auditor needs to prepare a report with regards to the accounts of the branch examined by him. He needs to ensure that proper books are maintained and hence give reasons of qualification in the report.
After preparing the report, the branch auditor needs to submit this to the company’s auditor. Furthermore, the company’s auditor shall examine such a report in a manner as he deems fit.
4. Compliance With Auditing Standards
The central government establishes the auditing standards in consultation with the ICAI and National Financial Reporting Authority (NFRA).
These standards help the auditors to examine the books of accounts effectively and with great accuracy. Thus, every auditor must comply with the established auditing standards while examining a company’s books of accounts.
5. Reporting of Frauds
A company’s auditor while performing his duties might encounter fraudulent situations. In such circumstances, the auditor may believe that an offence equivalent to a fraud has been committed against the company.
And such a fraud has been committed by any of the officers or the company’s employees. Thus, in such situations, it is the duty of the auditor to report such matters to the central government within 60 days of his knowledge.
6. Provide Assistance in Investigation
Investigation refers to checking of specific records of a business systematically and critically.
Such an examination is conducted when a fault on the part of the company already exists and the intent of the investigation is to find out a reason and person involved in such an activity.
Thus, it is the duty of an auditor to assist the officers undertaking such an investigation.
7. Adhere Principles of Auditing
One of the basic principles that govern an audit is confidentiality. Thus, the auditor should maintain confidentiality of information acquired while performing his duties as an auditor.
He should not disclose the client information without his prior permission. Furthermore, the auditor must be honest, sincere, impartial and free from biasness. Thus, he should exercise a high degree of integrity and objectivity while examining the company’s books of accounts.
8. Provide Negative Opinion
The auditor needs to give his opinion in the auditor’s report. Such an opinion can be qualified or unqualified.
An unqualified opinion is the one that concludes that the company’s financial statements present its affairs fairly in almost all the important aspects.
Furthermore, it states that the company complies with the necessary statutory requirements and Generally Accepted Accounting Principles (GAAP).
A qualified opinion, on the other hand, concludes that the company has dealt with most of the issues except for the few ones. Under this, it is the duty of the auditor to give even an adverse opinion regarding the company’s financial statements.
Such an opinion must be given when the auditor disagrees with the management regarding application, acceptability or adequacy of accounting policies.