CONCEPT & SIGNIFICANCE OF AUDIT CONTD… DEFINITION OF AUDIT The Institute of Chartered Accountants of India in its publication, General Guidelines on Internal Auditing, defines Auditing as under: “Auditing is a systematic and independent examination of data, statements, records, Operations and performance (financial or otherwise) of an enterprise for a stated purpose. In any auditing situation, the auditor perceives and recognizes the propositions before him for examination, collects evidences, evaluates the same and on this basis, formulates his judgment which is communicated through his audit report”. Key phrases in the above definition are : i) Independent ii) Systematic iii) Data, statements, records operations and performance iv) Specific purpose v) Perceives and recognizes the propositions before him for examination vi) Collects evidence, evaluates the same vii) Formulates his judgment which is communicated through his audit report MFM/III/2009

CONCEPT & SIGNIFICANCE OF AUDIT CONTD… MFM/III/2009

CONCEPT & SIGNIFICANCE OF AUDIT CONTD… LIMITATIONS OF AUDITING: i)Conceptual restrictions ii)Obstructs work iii)Minimization and not elimination of errors iv)Inconclusiveness of evidence v)Exercise of judgment vi)Inherent limitations of internal control system MFM/III/2009

PROVISIONS OF COMPANY LAW FOR AUDITS  PROVISIONS OF COMPANY LAW FOR ACCOUNTS AND STATUTORY AUDIT Books of Accounts (Section 209) - Receipt and Payments, Sales and Purchases, Assets and Liabilities - Cost records [209(1)(d)] - Accrual basis and double entry system of Accounting [209(3)(b)] - Books of accounts and vouchers to be preserved for the period of 8 years Annual Accounts and Balance Sheet (Section 210) - Presentation of accounts in Annual General Meeting - Profit and Loss account vis-à-vis Income & Expenditure account - Period of Accounting * First AGM * Subsequent AGM * Financial year Form and Contents of balance sheet and profit and loss account (Section 211) - True & Fair view - Schedule VI of the Companies Act - Insurance companies, Banking Companies, Electrical company - Compliance for the Accounting Standards - Non - Compliance MFM/III/2009

CONTD… PROVISIONS OF COMPANY LAW FOR AUDITS CONTD… Schedule VI of the Companies Act Profit and Loss Account to be annexed and auditors’ report to be attached to balance sheet (Section 216) - Profit & Loss Account - Auditors Report Board of Directors report (Section 217) - Board report to be attached with Balance Sheet - Contents of Board Report (major items)[217(1)] * Company affairs * Proposed dividend * Material changes and financial commitment * Conservation of energy, technology absorption, forex earning and out go. - Affairs of subsidiaries, class of business etc [217(2)] - Details of employees [217(2A)] - Directors responsibility statement [217(2AA)] MFM/III/2009

CONTD… PROVISIONS OF COMPANY LAW FOR AUDITS CONTD… Appointment and remuneration of auditors (Section 224) - Appointment - Limits for audit of no. of companies [224(1)(c)] - Appointment by Central Government - First auditor of the Company [224(5)] - Casual vacancy due to resignation - Removal of auditor before expiry of the term - Remuneration of auditors Auditor not to be appointed except with the approval of the company by special resolution in certain cases (Section 224A) - More than 25% paid up capital held by Government undertaking, nationalized bank or General Insurance companies - Special resolution MFM/III/2009

PROVISIONS OF COMPANY LAW FOR AUDITS CONTD….. Provisions as to resolutions for appointing or removing auditors (Section 225) - Special notice Qualification and disqualification of auditors (Section 226) - Chartered Accountant - Following persons are qualified to become the auditor: * Body corporate * An office or employee of the company * Partner or employed by the employee of the company * Indebted to company for an amount exceeding Rs. 1,000/- * Person holding any security of the company (which carries voting right) Powers and duties of auditors (Section 227) Audit of Accounts of branch office of company (Section 228) - Appointment of branch auditor - Same rights and duties as Statutory auditor - Branch office outside India - Branch Audit report MFM/III/2009

PROVISIONS OF COMPANY LAW FOR AUDITS CONTD….. Signature of audit report, etc. (Section 229) Reading and inspection of auditors’ report (Section 230) Right of auditor to attend general meeting (Section 231) Power of Central Government to direct special audit in certain cases (Section 233A) - Mis-management of financial position - Special auditor - Report to Central Government Audit of costs accounts in certain cases (233B) - Appointment of Cost Auditor - Power and duties of the Cost Auditor - Report of Cost Auditor Schedule VI of the Companies Act Audit Committee (Section 292A) - Public company having paid up capital of 5 crores and above. - Audit Committee Certain companies to have secretaries (Section 383A) MFM/III/2009