Company Audit: Meaning, Process, Duties & Legal Provisions

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A Company Audit refers to the independent examination of the books of accounts, financial statements, and records of a company to ensure they present a true and fair view of its financial position and performance. It is a statutory requirement under the Companies Act, 2013 in India and serves as a critical tool for promoting transparency, accountability, and confidence among stakeholders.

The audit is conducted by a qualified Chartered Accountant (CA), appointed as the company’s auditor, who expresses an opinion on whether the financial statements comply with applicable accounting standards and legal requirements.

What is a Company Audit?

A company audit is a legally mandated process in which an independent auditor reviews a company’s financial statements to verify their accuracy and compliance with the law. It ensures that the company’s financial position, profits, losses, and cash flows are recorded correctly and reported transparently.

The objective of a company audit is not only to detect errors and frauds but also to confirm that the financial statements are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and the Companies Act, 2013.

Legal Framework Governing Company Audit

Company audits in India are governed primarily by the Companies Act, 2013, and the rules framed under it. These provisions outline the auditor’s qualifications, appointment, powers, duties, and reporting responsibilities.

Aspect	Legal Provision / Authority
Governing Law	Companies Act, 2013
Relevant Sections	Sections 139 to 148
Governing Authority	Ministry of Corporate Affairs (MCA)
Regulatory Body for Auditors	Institute of Chartered Accountants of India (ICAI)
Audit Report Format	As prescribed under Section 143 and relevant rules

Objectives of Company Audit

The main purpose of conducting a company audit is to ensure that financial statements are reliable and in compliance with legal and accounting requirements. Auditors perform various checks and verifications to achieve these objectives.

Key Objectives of a Company Audit

To ensure that financial statements show a true and fair view of the company’s affairs.
To verify the correctness and completeness of accounting records.
To detect and prevent errors, frauds, or irregularities.
To evaluate internal controls and suggest improvements.
To ensure compliance with statutory requirements under the Companies Act.
To build credibility among shareholders, investors, and regulatory bodies.

Types of Company Audits

Companies may undergo various types of audits depending on their nature, size, and regulatory requirements. Each audit type serves a distinct purpose and focuses on specific aspects of operations. The following table provides an overview of the major types of company audits.

Type of Audit	Description
Statutory Audit	Mandatory annual audit of financial statements as per Companies Act.
Internal Audit	Continuous review of internal controls and operations by internal auditors.
Cost Audit	Examination of cost records to ensure efficient cost management (as per Section 148).
Tax Audit	Audit of accounts under Section 44AB of the Income Tax Act.
Secretarial Audit	Review of compliance with corporate laws and governance (for certain companies).
Management Audit	Evaluation of management policies and performance efficiency.

Appointment of Auditor

The appointment of an auditor is a crucial step in the company audit process. The Board of Directors or shareholders appoint auditors based on the provisions of Sections 139 to 142 of the Companies Act, 2013. Before diving into the process, it’s important to note that only a Chartered Accountant (CA) holding a valid Certificate of Practice (COP) can be appointed as an auditor.

Procedure for Appointment of Auditor

The First Auditor of a company (other than a government company) is appointed by the Board of Directors within 30 days from the date of incorporation.
Subsequent auditors are appointed by the company’s shareholders at the first Annual General Meeting (AGM) for a period of five years, subject to ratification at each AGM.
In the case of a Government Company, the Comptroller and Auditor General of India (CAG) appoints the auditor.
The auditor must provide a written consent and certificate of eligibility before appointment.

Powers and Duties of Company Auditor

Under Section 143 of the Companies Act, 2013, auditors are granted extensive powers to perform their duties effectively and independently. These powers ensure that auditors can access necessary information and report findings objectively.

Main Powers of an Auditor

To access all books of account and vouchers at any time.
To obtain information and explanations from company officers as deemed necessary.
To visit branch offices and verify branch accounts.
To receive notices and attend general meetings.

Major Duties of an Auditor

The auditor’s duties go beyond financial verification and include statutory and ethical responsibilities.

Category	Duties
Examination	Examine financial statements and verify their accuracy.
Reporting	Provide a report to shareholders expressing an independent opinion.
Compliance	Ensure adherence to accounting standards and laws.
Detection	Identify and report frauds or irregularities to the Board or Audit Committee.
Documentation	Maintain proper audit documentation for future reference.

Audit Report

The Audit Report is the final output of the auditing process. It communicates the auditor’s opinion on the financial statements’ truth and fairness to the shareholders and other stakeholders. Before preparing the report, the auditor must ensure that all necessary audit evidence has been collected and evaluated.

Contents of an Audit Report

As per Section 143 of the Companies Act, 2013, an audit report must include:

The auditor’s opinion on the company’s financial statements.
Observations or comments on financial transactions.
Any qualification, reservation, or adverse remark.
Reporting on adequacy of internal financial controls.
Compliance with accounting standards and legal requirements.

Audit of Branch Accounts

Many companies operate through multiple branches. The audit of branch accounts ensures that branch transactions are correctly incorporated into the company’s main books.

Important Points Regarding Branch Audits

The company’s statutory auditor can audit branch accounts or another auditor may be appointed with the company’s consent.
The branch auditor submits their report to the company’s main auditor.
Consolidation of branch audit reports is mandatory for final audit reporting.

Removal, Resignation, and Remuneration of Auditor

The Companies Act provides detailed provisions for changing or compensating auditors to maintain independence and transparency.

Key Provisions

Removal: Auditors can be removed before their term only with the prior approval of the Central Government and a special resolution in the general meeting.
Resignation: An auditor who resigns must file Form ADT-3 within 30 days of resignation.
Remuneration: The remuneration is fixed by shareholders or the Board, as per Section 142.

Importance of Company Audit

A company audit is not merely a compliance exercise — it is a fundamental element of good governance and financial discipline.

Key Importance of Company Audit

Builds trust among investors, creditors, and the public.
Ensures compliance with corporate laws and accounting standards.
Detects and prevents fraud and mismanagement.
Assists management in decision-making through accurate financial data.
Enhances the credibility and reliability of financial statements.

FAQs

Q1. What is a company audit?

A1: A company audit is the independent examination of a company’s financial statements to ensure their accuracy, compliance, and fairness as per the Companies Act, 2013.

Q2. Who can be appointed as a company auditor?

A2: Only a Chartered Accountant holding a valid Certificate of Practice can be appointed as a company auditor.

Q3. Is company audit mandatory for all companies?

A3: Yes. Every company, whether public or private, must get its annual accounts audited under Section 139 of the Companies Act, 2013.

Q4. What is included in the auditor’s report?

A4: The auditor’s report includes their opinion, qualifications, remarks, and comments on internal controls and compliance.

Q5. Can a company change its auditor?

A5: Yes. A company may change its auditor before the completion of their term with approval from the Central Government and shareholders.

Tripti Mishra

Hi, I’m Tripti, a senior content writer at Oliveboard, where I manage blog content along with community engagement across platforms like Telegram and WhatsApp. With 3+ years of experience in content and SEO optimization related to banking exams, I have led content for popular exams like SSC, banking, railways, and state exams.