COMPANY AUDIT Table of Contents

INTRODUCTION ................................................................................................................................. 2 HISTORY OF AUDIT ............................................................................................................................ 2 QUALIFICATIONS AND DISQUALIFICATIONS OF COMPANY AUDITOR : ........................................... 4 GENERAL CONSIDERATION IN COMPANY AUDIT.............................................................................. 6 MATERIALITY AND AUDIT RISK ....................................................................................................... 10 OBJECTIVES AND STANDARDS ........................................................................................................ 12 SPECIFIC PROVISIONS AS REGARDS ACCOUNTS IN THE COMPANIES ACT, 1956........................... 13 AUDIT OF PAYMENT ........................................................................................................................ 16 CONSIDERATIONS IN INITIAL AUDITS.............................................................................................. 22 SPECIAL REQUIREMENTS OF COMPANY AUDIT .............................................................................. 26 AUDIT OF LIABILITIES ...................................................................................................................... 31 CONCLUSION ................................................................................................................................... 34

 INTRODUCTION
A company is said to be an artificial person created by law having a separate legal entity distinct from its shareholders. It cannot be directly managed by its owners, i.e., shareholders, because they are very large in number having small holding and also scattered over a wide area. As such, the management and control of the affairs of the company is done by other persons generally known as directors. Hence, it becomes essential for a company to appoint an independent and qualified person, i.e., an auditor, to verily and certify the truth and fairness of the financial statements.

HISTORY OF AUDIT
Clinical Audit was introduced by Florence Nightingale (1855) during the Crimea War (1853 1855) (Bull 1992). Although the Russians were defeated at the battle of the Alma River (20 September 1854), the Times newspaper criticized the British medical facilities. Sidney Herbert, the British Secretary for War asked Florence Nightingale a mathematician to become nursing administrator and oversee the introduction of nurses to military hospitals (Porter N. Regional Audit Gleanings Issue 16 May 2005). Nightingale at the end of the war was able to show positive outcomes from quality of care. Few other clinicians at this time used audit.
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 QUALIFICATIONS AND DISQUALIFICATIONS OF COMPANY AUDITOR :

1. Auditors qualifications :

According to section-226 of Companies Act, person or firm having the following qualification can be appointed as an auditor : (1) Person who is the member of Institute of Chartered Accountant. (2) Any firm whose all the partners are serving as chartered accountants in India. (3) A person holding a certificate under the restricted auditors certificate (part B. state) rules, 1956 can be appointed as an auditor. 2. Disqualifications of an auditor : According to section-226(3) of Companies Act, the following person cannot be appointed as an auditor : (1) Any registered institute. e.g. Company; (2) Any salaried officer or employee of the company (3) Officer of the company, partner of an employee or any person who is serving there; (4) A person who is indebted to the company for an amount exceeding Rs.1,000 or
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who has provided any security in connection with the indebtedness of any third person (party) to the company for an amount exceeding Rs.1000 cannot be appointed as an auditor. (5) According to section-226(4) of Companies Act, if a person is disqualified with relation to either a holding company or its sub - Sidiary Company, he shall be disqualified for being an auditor of the first company. If an auditor becomes the subject to any of the disqualification mentioned above, after his appointment, he shall be deemed to have left his rank (position) as an auditor.Besides provisions of Companies Act, auditor can be disqualified according to the disqualifications shown in section-8 of Charter Accountants Act, 1949.

 GENERAL CONSIDERATION IN COMPANY AUDIT

1. True and fair view : True and fair view in auditing means that the financial statements are free from material misstatements and faithfully represent the financial performance and position of the entity - Although the expression of true and fair view is not strictly defined in the accounting literature, we may derive the following general conclusions as to its meaning: True suggests that the financial statements are factually correct and have been prepared according to applicable reporting framework such as the IFRS and they do not contain any material misstatements that may mislead the users. Misstatements may result from material errors or omissions of transactions & balances in the financial statements. Fair implies that the financial statements present the information faithfully without any element of bias and they reflect the economic substance of transactions rather than just their legal form. -Preparation of true and fair financial statements has been expressly recognized as one of the responsibilities of the directors of companies in the corporate law of several countries such as in the Companies Act 2006 in the UK. Auditors must therefore consider whether directors have fulfilled their responsibility for the preparation of true and fair financial statements when providing an audit opinion. Company law of certain jurisdictions require the auditors to expressly state in their audit report whether in their opinion the financial statements

present a true and fair view of the financial performance and position of the entity.

2.Accounting Policies
The specific policies and procedures used by a company to prepare its financial statements. These include any methods, measurement systems and procedures for presenting disclosures. Accounting policies differ from accounting principles in that the principles are the rules and the policies are a company's way of adhering to the rules. Accounting principles are lenient at times, so the policies of a company can be very important. Looking into a specific company's accounting policies can signal whether management is conservative or aggressive when reporting earnings. This should be taken into account by investors when reviewing earnings reports. Also, outside accountants that are hired to review a company's financial statements should check the company's policies to ensure they conform to accounting principles.

3.Internal control

Internal control is under the Board of Director's responsibility. Internal control's function is, for example, to ensure the efciency and protability of
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operations, the reliability of information, and adhering to rules and regulations. Internal control is a part of day-to-day management and company administration.

An essential part of internal control is the Internal Audit, which operates as a separate unit under the CEO and reports its observations to the Board of Directors. The Internal Audit supports the Group's management in directing operations by inspecting and evaluating the efciency of business operations, risk management and internal control, and by producing information and recommendations to enhance efciency. Internal Audit also inspects the processes of business operations and nancial reporting. Internal Audit's directive has been approved by Stockmann's Board of Directors. The operations of the Internal Audit are guided by being risk-focused and emphasising the development of business operations.

4.Audit Approach

The Audit Approach is a risk analysis methodology that focuses on the combined impact of the environment in which a client operates, the client's management information and financial results, and the effectiveness of the client's internal controls. It is based on a thorough, up-to-date understanding of the client's business and industry, which is obtained through a comprehensive analysis of the external and internal operating environments. It enables us to design an audit programme that includes the most effective and efficient combination of test responsive to a client's

unique circumstances. In addition, it provides a uniform method for developing and documenting the basis for the audit programme. The Audit Approach enables us to plan our effort to be proportionate to the risk of material error in specific accounts and transactions. This provides the basis for planning the minimum effort necessary to limit audit risk in each area to a low level. As a result, every audit procedure has a specific purpose that is related to the company's particular situation nothing is "routine" and hence potentially unnecessary. By following this approach we can avoid over auditing and under auditing, and we can distribute our audit work more evenly throughout the year.

 MATERIALITY AND AUDIT RISK

Professional standards require us to consider materiality and audit risk when planning the nature, timing and extent of our audit procedures, and when evaluating the results of those procedures. Materiality is determined at two levels during the initial planning stage : 1. An overall level as relates to the accounts taken as a whole planning materiality; and 2. An individual balance or class of transactions level tolerable error. Audit risk is defined as the risk that an auditor may unknowingly fail to modify his or her opinion on accounts that are materially misstated. We address materiality and audit risk at an overall level to help us develop an audit strategy that will provide sufficient evidence to enable us to evaluate whether the accounts are materially misstated. At the account balance or class of transactions level, audit risk is the product of the risks that : 1. Factors in a company's internal or external operating environment, before considering the functioning of internal controls, will lead to a material error inherent risk;

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2. A material error will not prevented or detected on a timely basis by the system of internal control control risk; and 3. The auditor's procedures will fail to detect a material error not detected by the system of internal control detection risk. The Audit Approach provides a methodology for relating these risk concepts to materiality and correlating them to the nature, timing, and extent of our audit procedures. This is accomplished through the Specific Risk Analysis and the Preliminary Audit Approach.

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 OBJECTIVES AND STANDARDS

A companys internal accountants are primarily responsible for preparing financial statements. In contrast, the purpose of the auditor is to express an opinion on the assertions of management found in financial statements. The auditor arrives at an objective opinion by systematically obtaining and evaluating evidence in conformity with professional auditing standards. Audits increase the reliability of financial information and consequently improve the efficiency of capital markets. Auditing standards require that all audits be conducted by persons having adequate technical training. This includes formal education, field experience, and continuing professional training.

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 SPECIFIC PROVISIONS AS REGARDS ACCOUNTS IN THE COMPANIES ACT, 1956

The provisions in the matter of books of account which a company is required to maintain are contained in section 209 of the Companies Act, 1956. They are briefly summarised below: (1) Every company shall maintain at its registered office proper books of account

with regard to : (a) all sums of money received and expended by the company and the matters in respect of which the receipts and expenditure take place; (b) all sales and purchases of goods by the company;

(c) the assets and liabilities of the company; and (d) in case, it is a company engaged in production, processing, manufacturing or

mining activities, particulars relating to utilisation of material or labour or other items of cost, provided there is such a requirement by the Central Government in respect of the class of companies to which it belongs. N.B. - It is permissible, however, for all or any of the books of account may be kept at such place in India as the Board of directors may decide but, when a decision in this regard is taken, the company shall file with the Registrar of Companies a notice giving full address of the other place.
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(2)

When a company has a branch office, whether in or outside India, to comply

with the aforementioned provisions, the company must maintain proper books of account relating to transactions effected at the branch office, also arrange to obtain from the branch proper summarised returns, at intervals of not more than three months, for being kept at the registered office or the other place. (3) For the purposes of sub-sections (1) and (2), proper books of account shall not be

deemed to be kept with respect to the matters specified therein : (a) if there are not kept such books as are necessary to give a true and fair view of the state of affairs of the company or branch office, as the case may be, and to explain its transactions; and (b) if such books are not kept on accrual basis and according to the double entry system of accounting. (4) The books of account and other books and papers shall be open to inspection by

any director during business hours.

4A) The books of account together with vouchers relevant to any entry made therein for

a period of not less than eight years immediately preceding the current year shall be preserved by the company in goodorder. (5) If any of the persons referred to in sub-section (6), fails to take reasonable steps to secure compliance with the requirements of law aforementioned or by a wilful act
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causes any default by the company, he shall be punishable for each offence with imprisonment for a term which may extend to six months or a fine which may extend to ` 10000 or with both. But he may be relieved from such a liability if he can show that he has reasonable ground to believe that a competent and responsible person was charged with the duty of seeing that these requirements were complied with and he was in a position to discharge that duty. (6) Where the company has a managing director or manager, such managing director or manager and all officers and other employees of the company; and where the company has neither a managing director nor manager, every director of the company. (7) If a person, not being a person referred to in the foregoing paragraph, who has been charged with the duty of seeing that requirements of law in regard to the books of account is complied with, makes a default in doing so, he shall, in respect of each offence,
be punishable with a fine which may extend to ` 10,000.

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 AUDIT OF PAYMENT
Managerial Remuneration The term remuneration covers the following types of expenditure incurred by the company for its Director or his family

Rent free accommodation; Any benefit or amenity in respect of accommodation free of charge; Any other benefit or amenity free of charge at a concessional rate; Any personal obligation; and Insurance on the life of, or to provide any pension, annuity or gratuity for, any of the director or his /her spouse or child. But the definition is inclusive one. It covers every amount that the company pays or spends for or for the benefit of a Director, in whatever form and by whatever name. Applicability: Section 198 and 309 deals with the provisions relating to managerial remuneration. The term managerial remuneration mentioned in section 198 and 309 covers the remuneration of all Directors and also its manager. It is applicable to all public companies and private company which is a subsidiary of public company. Provisions of the above mentioned section are not applicable on government companies (within the meaning of section 619 of the Act). Ceiling on Managerial Remuneration:

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Section 198(1) lays down 11% of net profits of the company computed in the manner as laid down in section 349 and 350 as the overall ceiling on the total remuneration of the company. While computing the net profits the remuneration of the Directors shall not be deducted from the gross profits. The above mentioned limit shall be exclusive of sitting fees payable to the directors in terms of section 309 (2).

Purchase of Goods: Cash purchases should be verified by reference to cash memos or receipted invoices by suppliers. Payments made against credit purchases should be vouched with the receipts issued by the suppliers and the credit to their accounts on the basis of invoices entered in the Purchases Day book. There must be also evidence of the goods having been received through an entry in the Goods Inward Books or stock ledger. It is necessary, however, to make a distinction between a payment for goods and an advance against supplies to be made in future; the latter should be classified as advance recoverable in cash or in kind or for value to be received. Since the amount shown as an advance paid against goods may be only a camouflage for assistance to a party, it is necessary for the auditor to confirm that the advance was paid pursuant to a normal trade practice and supplies were, subsequently, received with a reasonable period of the advance.

Remuneration paid to Directors:

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The following points must be considered while vouching the directors remuneration in case of a public company and private company which is a subsidiary of a public company(i) Examine the Entitlement: The directors are not automatically entitled to

remuneration. It is paid either according to the term of articles of association or in accordance with a resolution of the general meeting. (ii) Examine Adherence to Legal Provisions: The auditor should examine adherence

torelevant sections of the Act such as (4) which deals with manner of payment of managerial remuneration.

for payment of remuneration for companies having profits those having no profits or inadequate profits and companies having negative effective capital.

PERSONAL EXPENSES MEET BY DIRECTOR 1) AUTORIZATION: check article of association, service contract ,minutes of general meeting to chek authorization of such payment

2) S.227(1A): ensure and enquire that personal expenses are not camouflaged in any other item as contemplated under section 227(1a)
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3)

Supporting documents:

check the

documents

to examine

the payment

reimbursement

4) CARO 2003: chek the compliance with requirements of CARO 2033

DIRECTOR COMMISION 1)A/A: see the article of association of company and note the rules regarding the payment of commission

2) Agreement : examine the terms and condition of the agreement to find out the rate of commission payable

3) Compliance: check section 198 and 309 also see calculation as per section 349,350 and 351 of the act

4) calculation :vouch calculation of commission paid and verify with receipt

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 DIVIDENDS :-

The return on investment in share is called dividend. It is the part of the profit earned by the company. Dividend rate approved in the general meeting by the shareholders.

DUTIES OF AUDITOR RELATING TO DIVIDENDS :Following are the important duties of the auditor :

1. Rules Of Company :The auditor should check the rules of a company. He should examine that articles of association and companies ordinance allow the management to propose dividends out of revenue profits.

2. Rate Of Dividend :The auditor should check that rate of dividend must not be above the rate of profit. It should also not exceed the market rate.

3. Reasonable Profit :The auditor should check that amount of revenue profits is reasonable. If it is not reasonable then dividend should not be paid.

4. Account :Dividend amount is payable with in the days. The auditor should check that dividend
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account is opened in the bank or not. The amount equal to dividend must be deposited.

5. Tax :It is also the duty of the auditor that he should check the tax payable or dividend is paid to the Govt. or not ? The payment of tax is a legal formality.

6. Not Collected :Sometimes shareholders fail to collect the amount from the banks. The auditor should check such amount because it is stated in the balance sheet as liability.

7. Profit & Loss Account :The profit and loss appropriation account must be checked by the auditor. He should note the amount of dividend recorded in it.

8. Account Statement :The auditor examines that amount of dividend paid and due prepares reconciliation statement of dividend account. He should make detailed checking in case of discrepancy. The errors can be detected.

9. Warrant :To register the shareholder management issues dividend warrants. Such amount can be claimed by the shareholders from the bank. The auditor should check these warrants has been issued or not?
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 CONSIDERATIONS IN INITIAL AUDITS

The auditor should undertake the following activities before starting an initial audit: a. Perform procedures regarding the acceptance of the client relationship and the specific audit engagement; and b. Communicate with the predecessor auditor in situations in which there has been a change of auditors in accordance with AU sec. 315, Communications Between Predecessor and Successor Auditors. c. . The purpose and objective of planning the audit are the same for an initial

audit or a recurring audit engagement. However, for an initial audit, the auditor should determine the additional planning activities necessary to establish an appropriate audit strategy and audit plan, including determining the audit procedures necessary to obtain sufficient appropriate audit evidence regarding the opening balances.

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 The Central Government hereby directs vide General Circular No:

2/2011 (issued by MCA dated 08-02-2011) that provisions of Section 212

shall not apply in relation to subsidiaries of those companies which fulfil the following conditions:(i) The Board of Directors of the Company has by resolution given consent for not

attaching the balance sheet of the subsidiary concerned; (ii) The company shall present in the annual report, the consolidated financial statements of holding company and all subsidiaries duly audited by its statutory auditors; (iii) The consolidated financial statement shall be prepared in strict compliance with applicable Accounting Standards and, where applicable, Listing Agreement as prescribed by the Security and Exchange Board of India; (iv) The company shall disclose in the consolidated balance sheet the following information in aggregate for each subsidiary including subsidiaries of subsidiaries:(a) capital (b)reserves (c) total assets (d) total liabilities (e) details of investment

(except in case of investment in the subsidiaries)

(f) turnover (g) profit before

taxation (h) provision for taxation (i) profit after taxation (j) proposed dividend; (v) The holding company shall undertake in its annual report that annual accounts of the subsidiary companies and the related detailed information shall be made available
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to shareholders of the holding and subsidiary companies seeking such information at any point of time. The annual accounts of the subsidiary companies shall also be kept for inspection by any shareholders in the head office of the holding company and of the subsidiary companies concerned and a note to the above effect will be included in the annual report of the holding company. The holding company shall furnish a hard copy of details of accounts of subsidiaries to any shareholder on demand; (vi) The holding as well as subsidiary companies in question shall regularly file such data to the various regulatory and Government authorities as may be required by them;

(vii) The company shall give Indian rupee equivalent of the figures given in foreign currency appearing in the accounts of the subsidiary companies along with exchange rate as on closing day of the financial year; (Note: Students may note that as per section 227 of the Act, the duty of the auditor extends to expressing an opinion on balance sheet and profit and loss account and all other documents annexed thereto. Since section 212 requires that particulars of subsidiary company are required to be attached to balance sheet of holding company, the same shall not be covered by auditors report. Also refer to section 222 which deals with construction of references to documents annexed to accounts. The Boards Report under section 217 is also attached to every balance sheet of a company.
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Profit and loss account to be annexed and auditors report to be attached to balance sheet - The profit and loss account shall be annexed to the balance sheet and the auditors report including the auditors separate, special or supplementary report, if any shall be attached thereto.

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 SPECIAL REQUIREMENTS OF COMPANY AUDIT

(i) Verification of the constitution and powers - A company can function within the

limits prescribed by the documents on the basis of which it has been registered. It raises its capital from the public on certain conditions, specified in the Prospectus. Before commencing business, to purchase a property or to have subscription to its capital underwritten on this account, it is essential that the auditor, prior to starting the audit of a company, shall examine: (a) The Memorandum of Association. (b) The Articles of Association. (c) Contracts entered into with vendors and other persons relating to purchase of

property, payment of commission, etc. A company cannot enter into a contract before it has been registered. What is more, a public company cannot commence business until the certificate of commencement of business has been granted to it by the Registrar of Companies. It is, therefore, the duty of the auditor to take into account, while examining the transaction entered into by the company, the dates when these were entered into for confirming the validity. With a view to carrying out the audit effectively, it is necessary that the auditor should know the authority structure of the company. Under Section 291 of the Act, the Board of Directors of a company are entitled to exercise all such powers, and to do all such acts and things, as the

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company is authorised to do. However, the Board shall not exercise any power or do any act or thing which is directed or required by any legislation (including the Companies Act) or by the memorandum or articles of the company, to be exercised or done by the company, in general meeting. Section 292 specifies six types of decisions that can be taken by the Board of Directors only in Boards meetings. These relate to : (i) (ii) (iii) making calls on partly paid shares. issue of debentures, borrowing monies otherwise than on debentures,

(iv) investing the funds of the company, and (v) making loans. The transaction barring the first three can be delegated to any of the following: (a) a committee of directors, (b) managing director, (c) manager, (d) any other principal officer of the company, or (e) principal officer of the branch office, in relation to the branch.

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Apart from the above, a number of other functions are also carried out by the Board. A few of such functions are stated herein by way of examples : (a) Adopting of accounts before the same submitted to the auditor for their reportSection 215. (b) Appointment of the first auditors and filling of casual vacancy - Section 224. (c) Investment in shares of companies within the limits specified in Section 372A. (d) Entering into contracts with persons who are directors of the company or related to or associated with the directors as are specified in Section 297 of the Act. Some of the matters which only the shareholders can sanction at a general meeting : (a) Appointment and fixation of remuneration of auditors in the annual general

meeting -Section 224. (b) (c) Declaration of dividends - Regulation 85, Table A. Appointment of relatives of directors etc. to an office or place of profit in the

company under Section 314 of the Act. (d) Sale, lease or a disposal of the whole of the companys undertaking or a

substantial part of it and donations above a certain limits [Section 293(1)]. (ii) Matters which require sanction of the Central Government :

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Loans to directors by a company other than a banking or a finance company (Section 295). For verifying the foregoing transactions and others authorised by the directors or shareholders, the auditor should refer to the minutes of the meeting at which these have been considered. Further, for judging the validity or otherwise of section accorded, the relevant provision of law must be referred to. A few such instances are given below : (a) Appointment of Directors (Section 256). (b) Disqualifications of Directors (Section 274). (c) Conduct of Board Meeting (Sections 285-290). (d) General powers of Board (Section 291). (e) Powers which the Board must exercise only at a meeting (Section 292). (f) Restriction on powers of the Board regarding disposal of the undertaking or part

of it etc. (Section 293). (g) Prohibitions and restrictions regarding political contributions (Section 293A). (h) Power of Board and other persons to make contributions to the National Defence Fund, etc. (Section 293B). (i) (j) Restriction on advancing loans to Directors, etc. (Section 295). Restriction on a Director or his relative, a firm in which a director or relative is

a partner; or any other partner of the firm or a private company of which such a
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director is a member or director to enter into a contract of sale or purchase of goods except with the sanction of the Board of Directors (Section 297). (k) Restriction on an interested director in participating in or voting at Boards proceedings (Section 300). (l) (m) Disclosure of interest by directors (Section 299). Register of contracts, Companies or firms in which directors are inspected

(Section 301) (n) Remuneration of directors (Section 309). (o) Restraint on a directors holding offices or places of profit (Section 314). (p) Restraint on payment of compensation for loss of office to a director (Sections 318 to 321). (q) Restriction on loans, etc., to companies under the same management (Section 370). (r) Regulation of inter-corporate loans and investments (Section 372A).

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 AUDIT OF LIABILITIES

Liabilities reorganization is the concession items made by a creditor in accordance with the agreement made with a debtor in financial difficulty or rules of the court. There are four major forms of liabilities reorganization: 1. To confirm whether the date of liabilities reorganization is accurately defined. The fair market price of assets varies from date to date, the amount of liabilities payable with interest also varies from each other. Consequently, the profits and losses of liabilities reorganization and the relevant records of assets and liabilities recognized in different dates vary from each other. In addition, the date of liabilities reorganization is also the basis for defining the accounting period. No matter when the assets transactions were conducted, the reorganization date should be the accounting cut-off date. Auditors, in carrying out auditing, shall obtain the asset reorganization agreement files in the first place to identify the date of reorganization. They should then review the accounting information to check whether the valuation of the assets and liabilities are based on the reorganization date and the accounting information prepared are within the corresponding accounting period.

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2. To check whether the accounting of the liabilities reorganization is proper. Major tool of such auditing is to examine on a sample basis the accounting vouchers of liabilities reorganization. These vouchers are verified against relevant agreement to make sure (1) relevant assets, liabilities and capital items are consistent with the agreement,- (2) proper accounting items have been applied and (3) accurate amounts have been recorded. Special attention shall be paid to see if the capital received and the capital reserve have been classified accurately, if the bad debt provision of the creditor has been written off and if contingent expenditures have been given due consideration?

3.

To check whether the calculation and recognition of the profits and losses of liabilities reorganization has been conducted in accordance with relevant requirements. Review of the calculation of the profits and losses of liabilities reorganization is done through consulting and examining such information as the reorganization agreement, information provided by intermediary institutions and market information, the book value of debtor's liabilities, book value of assets, fair value of assets, fair value of shareholder's equity, future payables, the creditor's net credit value, future receivables. The calculation of the profits and losses of the enterprise is then reviewed to make sure data has been applied correctly and correct calculation has been conducted. Special attention shall be paid to see if the fair market value of assets, shareholder's equity and the amount of contingent liabilities have been accurately defined on proper basis and, whether the accounting period of the profits and losses is appropriate.

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4.

To audit whether the disclosure of reorganization is sufficient. Accounting standards require that liabilities reorganization be disclosed in the footnotes of the financial statements at the end of an accounting period, explaining the contents and impact of the reorganization. Such disclosure aims to make the user of financial statements better informed of the financial condition of the enterprise. The user of the financial statements will not be able to understand the full impact of the reorganization on the assets and liabilities, profits and losses of the enterprise, nor can they study the value for money of the enterprise correctly if the disclosure is not properly made. It is therefore necessary to observe carefully if complete disclosure has been made by the enterprise through examining the disclosure of the process of liabilities reorganization.

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 CONCLUSION
Every Company registered under Companies Act 1956, need to do its audit every year, which is known as statutory audit..During the company audit, the auditor discusses his observations with those charged with governance, such as the audit committee of the company, before finalising the report. The auditor should be firm in his opinion, and exercise his independence at this level. This part of the audit is critical, and calls for resilience on the part of the auditor. An audit report, being a public document, should be drafted skilfully. The code of conduct prohibits an auditor from divulging any information received by him in the course of his professional assignment, unless legally required so to do. Therefore, the auditor shouldn't hesitate to take the help of a legal expert on whether to include certain comments in his report. And atlast he submit the reports with adverse , modified or with qualified opnion.

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