Section 143 of the Companies Act, 2013 enumerates the important powers, duties, and responsibilities of auditors in providing corporate accountability and transparency. It vests auditors with substantial rights in dealing with financial records along with inquiries to be carried out that determine the sound health of the company. From examining loans and other monetary deals to monitoring internal control over finances along with detecting potential frauds, Section 143 provides a structured process for the auditors to safeguard the interests of the company and also its stakeholders.
In this article, the provision under Section 143 of every provision will be discussed and analyzed in detail in order to understand the rights of auditors, reporting duties, standards of compliance, and consequences in case of non-compliance.
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Detailed Analysis of Section 143 of the Companies Act, 2013
Section 143 states the powers, duties, and liabilities of auditors in conducting audits of companies with the intent of encouraging transparency and accountability. Here is a more detailed outline:
Subsection (1): Right of Access and Inquiry
Right of Access: The auditor has the right of access to the books of account and vouchers of a company at all times and places where they are kept.
Right to Information: In the conduct of their duties, the auditors can request information from officers of a company.
Specific Inquiries:
Loans and Advances: Loans granted upon securities shall be adequately secured and in favor of the company
Book Transactions: Identify if transactions debited/credited by book entries are adverse to the company.
Asset Sales: If not an investment banking concern, determine if sales of assets (shares, debentures) are sold below the cost of purchase.
Classification of Loans: Check whether loans/advances are correctly shown and deposits over loans/advances are not misclassified.
Personal Expenses: Check that the company's revenue account does not contain personal expenses.
Cash Allotments for Shares: Verify that cash for shares "allotted for cash" has been received by the company
Holding Company Audits: In the case of a holding company, auditors may be allowed to inspect the books and records of subsidiaries and associate companies to prepare consolidated financial statements
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Subsection (2): Reporting to Members
Audit Report Requirement: The auditors must present the report about the audited financial statement to members at the general meeting.
True and Fair View: The report should end with the statement that financial statements present a "true and fair" view of the company's financial position.
Subsection (3): Content of the Auditor's Report
The following should be contained in the auditor's report:
Information Sufficiency: Statement on whether all necessary information was obtained.
Books and Returns: Proof that adequate records had been kept, which include returns from unvisited branches.
Branch Reports: Treatment of branch office audit reports by third-party auditors.
Compliance with Accounting Standards: Confirm whether financial statements have been prepared to comply with Accounting Standards.
Adverse Financial Transactions: Report on material transactions affecting the company adversely.
Disqualification of Directors: Confirm if any director is disqualified under Section 164(2).
Maintenance of Accounts: Report regarding problems in maintaining accounts.
Internal Financial Controls: Opinion regarding adequacy and effectiveness of internal financial controls.
Subsection (4): Negative Findings or Qualifications
If the report item is negative or qualified, then the auditor has to specify the reasons.
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Subsection (5): Government Company Audits
CAG's Appointment: The Comptroller and Auditor-General (CAG) appoints auditors for government-controlled companies.
Reporting to CAG: The auditor submits his report to CAG with the particulars of action taken based upon CAG's directives.
Subsection (6): Additional Audit to be conducted by CAG
Right of Additional Audit: Within 60 days, CAG can conduct an additional audit.
Additional Comments: Any comments or supplementary remarks made by CAG are communicated to the addressees of the audit report.
Subsection (7): Test Audits by CAG
Test Audit: The CAG may deem it appropriate to conduct test audits of some of the companies, if required, as per the provisions under the Comptroller and Auditor-General's (Duties, Powers, and Conditions of Service) Act, 1971.
Subsection (8): Branch Office Audits
Audit of Branch Offices: Branch offices are audited either by the primary auditor of the company or a certified auditor in Section 139.
Foreign Branches: The audit of foreign branches may be undertaken by local auditors qualified within the country.
Submission of Branch Report: The branch auditor submits his report to the main auditor, who subsequently includes it in the primary company audit report.
Subsection (9): Compliance with Auditing Standards
Mandatory Compliance: Auditors are expected to meet the prescribed standards of audit.
Subsection (10): Prescription of Auditing Standards
Central Government Power: The Central Government prescribes the standards through consultation with the National Advisory Committee.
ICAI Standards: Official standards until officially notified, ICAI standards prevail.
Subsection (11): Additional Statements in Auditor’s Report
Additional Requirements: The Central Government can demand further statements in the reports of specific companies.
Consultation Committee: Until the National Financial Reporting Authority (NFRA) comes into existence, a consultation committee headed by an officer of the Ministry of Corporate Affairs discusses further requirements.
Subsection (12): Report of Fraud by Auditor
Mandatory Fraud Reporting: The auditor is expected to report fraud over the threshold limit to the Central Government if he suspects fraud above a set threshold.
Fraud Below Threshold: For fraud below the threshold, the auditor is expected to report the same to the Audit Committee or Board.
Disclosure in the Board's Report: In case lesser frauds are not reported to the government, companies shall disclose them in the Board's report.
Subsection (13): Good Faith Protection
Good Faith Protection: Auditors reporting fraud in good faith are exempted for reporting liabilities.
Subsection (14): Application to Cost and Secretarial Auditors
Cost and Secretarial Auditors: Section 143 is equally applicable to the cost auditors under Section 148 as well as the secretarial auditors under Section 204.
Subsection (15): Penalty for Non-compliance
Listed Companies: In case of a default, an auditor can be penalized with ₹5 lakh.
Other Companies: In case of a default, an auditor can be penalized with ₹1 lakh.
Section 143 provides that auditors have rights, responsibilities, and duties toward the company and its stakeholders to protect the same and enforce strict audits with scope for action if there are suspicious or illegal happenings.
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Conclusion
Section 143 of the Companies Act, 2013, clearly outlines a whole framework of scrutiny of the auditors in respect of financial statements, ensuring the same complies and increases transparency in the companies. This section plays a very vital role in safeguarding the interests of stakeholders and also strengthening corporate governance as it provides an elaborative explanation of rights pertaining to auditors to receive access to information, conduct appropriate audits, and report probable fraud. With different strings and strict actions, the auditors are bestowed with strong powers to apprehend financial errors and malpractices. In total, Section 143 contributes to a more transparent and accountable business environment, which increases confidence and trust in corporate dealings.
Section 143 of the Companies Act, 2013 FAQs
Q1. What is the overall intent of Section 143 of the Companies Act, 2013?
Section 143 defines the powers and responsibilities of the auditor, which enable the auditor to assess and comment upon the company's financial soundness position. This promotes transparency in corporate reporting, accountability, and adherence to accounting standards.
Q2. Is it a right for an auditor to inspect all documents of a company under Section 143?
Yes, an auditor is allowed to have access to all books, records, and vouchers of a company, wherever located, for purposes of conducting audit work.
Q3. What happens if an auditor detects fraud in a company?
If an auditor suspects fraud over a prescribed amount, they are required to report it to the Central Government. For frauds below the threshold, they must report to the company’s Audit Committee or Board.
Q4. Do auditors need to adopt specific auditing standards as stipulated under Section 143?
Yes, the auditors are required to adhere to the auditing standards prescribed by the Central Government after consulting the National Advisory Committee on Accounting and Auditing Standards or the Institute of Chartered Accountants of India.
Q5. What is the punishment given for non-compliance on the part of auditors under Section 143?
For listed companies, the defaulting auditors will face a fine of ₹5 lakh. For other companies, it is ₹1 lakh. Compliance is what will see you avoid the monies and maintain the standard of auditing.
Q6. Is this Section 143 applicable to costs as well as secretarial auditors?
Yes, the provisions of Section 143 are also applicable to cost auditors under Section 148 and to secretarial auditors under Section 204, respectively, so that compliance is uniform across all audit practices.
