Analysis of Sub-sections of Section 143 of Companies Act 2013: Powers and Duties of Auditors and Auditing Standards

Introduction

Section 143 of the Companies Act 2013 is the section of the Indian companies law that pertains to the powers and duties of auditors and auditing standards in India. This section covers both the functions of chartered accountants and cost accountants who hold positions as auditors of companies. It provides the definition of audit and its scope as well as the standards that must be adhered to by the auditors while auditing the accounts and financial statements of the companies.

Section 143(1): Powers of the Auditors and Authority of Auditing

This subsection states that the auditor shall have the right to examine the books of accounts and other financial and relevant records of the company to the extent and in the manner as provided by the Act, generally accepted accounting principles and auditing standards. Auditors also have the authority to receive information and explanations from officers, directors and agents of the company.

The expression “generally accepted accounting principles” is defined as accounting principles or norms which are generally accepted by all and form the basis for accounting and financial statements that should be followed for the preparation and the presentation of financial statements of a company. Similarly, the expression “auditing standards” is defined as the rules or standards which are prescribed by the Institute of Chartered Accountants of India (ICAI) and which must be followed by auditors while auditing the accounts and financial statements of companies.

Section 143(2): Filing of Auditor Report

This subsection states that the auditor shall report to the company and shareholders in writing, with reference to the company’s financial statements and books of account, with his opinion on the matters specified therein. It also states that upon the agreement of the company, the auditor may present a report in the form of management representation letter in respect of the state of affairs of the company.

Section 143(3): Duty to form Opinion

This subsection states that the opinion formed by the auditor should include:

•  Whether the financial statements are prepared in agreement with applicable accounting standards and applicable laws;
•  Whether the financial statements reflect a true and fair view of the state of affairs of the company;
•  Whether proper accounting records are kept;
•  Whether the company has applied proper internal financial controls and such internal financial controls are adequate, operating effectively;
•  Whether there is any fraud committed by the company or on the company.

Section 143(4): Duties and Powers of the Cost Accountants

This subsection states that in case of companies which require cost accounting records to be maintained under the cost and works accounting rules, the auditor is supposed to verify that the company has complied with the said rules and regulations, and also examine the cost accounts, cost audit documents and related vouchers, if any.

Section 143(5): Duty to Report Anything Unlawful or Incorrect

This subsection states that the auditor shall report any activities that he feels are conducted in an unlawful or incorrect manner, or any irregularities that he may find during his course of audit. The auditor must report such matters to the company and to respective authorities. The auditor will also have the right to withhold his report to the company if he feels that his opinion will be misrepresented.

Section 143(6): Preservation of Information

This subsection states that the auditor has the duty to preserve all information relating to audit and related paper, documents and reports of the company, for such period as may be prescribed by the Board of Directors of the company.

Conclusion

Section 143 of the Companies Act 2013 clearly lays down the powers and duties of the auditors when it comes to auditing the accounts and financial statements of companies. This section also sets out the standards to be followed by the auditors while carrying out their duties and functions. Hence, it is important that auditors take note of all the aforementioned provisions and adhere to them while ensuring a complete and accurate audit of the company’s books of account. This will enable the shareholders to gain complete trust in the company’s financial statements and will ensure complete transparency in the dealings of the company.