General considerations

The statutory duties of the auditor cannot be limited in any way either by the Articles or by the directors or members but a company may extend them by passing a resolution at the general meeting or making a provision in the articles. [Newton v. Birmingham Small Arms Co. Ltd. [1875]. An auditor is expected to determine the scope of his duties on a consideration of the nature of business carried on by the concern, provisions of the law that govern the organisation and the system of internal control in operation. Under the Companies Act, sub-sections (1A), (2), (3) (4) and (4A) lay down scope of auditor’s duties. However, on taking into account the legal decisions in the cases which so far have been taken to courts, his duties and responsibilities can be summarised as follows :

  1.  To verify that the statements of account are drawn up on the basis of the books of the business : The auditor is not responsible for failure to disclose the affairs of the company kept out of the books and concealed from him which could not be known in the ordinary course of exercise of reasonable care and diligence. However, it is his duty to check the books for finding out that the position, as shown by the books of account, is true and substantially correct.
  2.  To verify that the statements of account drawn up on the basis of the books exhibit a true and fair state of affairs of the business : The duty of the auditor is not limited to mere verification of the arithmetical accuracy of the statements of account. He must find out that these are substantially correct, having regard to provisions in the Articles and the statute governing the business of the organisation under which it is being carried on.
  3.  To confirm that the management has not exceeded the financial administrative powers vested in it by the Articles or by any specific resolution of the shareholders recorded at a general meeting
  4.  To investigate matters in regard to which his suspicion is aroused as to the result of a certain action on the part of the servants of the company – He is, however, not required to start an audit with a suspicion or to prove in the manner of trying to detect a fraud or an irregularity unless some
    information has reached him which excites his suspicion or should arouse suspicion in a professional man of reasonable competence. This is because his duty is verification and not primarily detection of fraud.
  5. To perform his duties by exercising reasonable skill and care – For the verification of matters which are not capable of direct verification, he can rely on what he believes to be honest statements of the management. He must, however, review the verification of assets by the company and not rely merely on the statement made by the persons appointed by the company. Reporting on matters contained in the Directors’ Report – The duty of any auditor for making a report on the statement of account also extends to matters reported upon by the directors to the shareholders in so far as information which is required to be given by the Act in the statements of account or can be given in a statement annexed to the accounts, are contained in the report of directors (Provisio to Section 222). For instance, the opinion of the Board of Directors as regards current assets, loans and advances, when contained in the directors report, must be considered by the auditor.
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