Rights, duties & liabilities of an auditor & rules laid down in following cases

Q.1 Explain in brief duties of an auditor under Indian Companies Act and other Acts.
Ans Duties of Company Auditor:-
Duties under Indian Companies Act.1956
1- To inquire the following :-
 Whether loans advanced are secured and their terms are not against the interest of members.
 Personal expenses have been charged to revenue account
 Whether position shown in books of accounts and in the balance sheet is correct, regular and not misleading.
To submit the audit report to the members of the company: - This job is over once he submits report to the company secretary. It is the duty of comp. secretary & board of directors to place the report in general body meeting.
2- To Specify a few points in audit report such as :-
 Whether he has received all information & explanation required for completing audit.
 Books have been maintained as required
 B/S & P&L have been prepared as per provision of company law.
 P&L exhibits true position of profit.
 B/S show true and fare view of financial position of the company.
 He has received audit reports of branches which were not audited by him.

 B/S & P&L is in agreement with books.
 No director is disqualified as per companies act.
 Cess payable by company under section 441-A has been paid.
Negative answers need to be mentioned in the audit report.
3. Duties under section 227(4A) :- If auditor conducts audit of any of the company engaged in following business, he has to see those aspects also which has been mentioned in the appointment order.
 Manufacturing , mining, processing
 Supplying and rendering services
 Trading
 Business of financing, investment, chit fund.
4. If existing companies issues a prospectus, audit report should ensure that following are included in the prospectus.
 profit and loss for last five years
 assets and liabilities of previous year
 Rate of dividend paid on different share's during last 5 years.
 Certificate of statutory report: - he has to certify that following portion of statutory report are correct.
- shares allotted by the company
- cash received against allotted shares
- receipt and payments of the company
5. To submit report on the B/S & P&L appended in the declaration of solvency at the time of voluntary winding up- such a declaration is made by creditors to pay off debts, this declaration should have auditor's report in respect of B/S & P&L
- Further, there are duties under chartered accountants Act which auditor has to discharge such as:
- Not to allow unqualified person to practice in his name.
- Not to share income of an advocate/ auctioneer/ broker or any person who is not member of CA institute
- No partnership with unqualified persons.
- Intimating his appointment to previous auditor.
- Not to accept fee/remuneration linked with profit of the company
- Maintain secrecy of accounts

- No certificate without proper checking
- To include material misstatements in the report.
- Not to be negligent & use of reasonable skill and care.
Q.2 Explain in brief liabilities of an auditor of a Joint Stock Company.
Ans Liabilities of an auditor
The liabilities of a company auditor can be divided in two categories i.e.
1- Civil liability :-
2- Criminal liability :-
- Under companies Act.
- Under Indian Penal code.
The civil liability may be towards.
Employer for:-
- negligence
- breach of duty or misfeasance
- Under companies act.
Towards third parties.
Civil liability may be in the form of:-
- compensation
- indemnity
Criminal Liability may be in the form of:-
- Fine
- compensation
- Imprisonment.
Civil liability:-
1- Liability for negligence: - If auditor does not discharge his duties with reasonable skill and care resulting in loss to the plaintiff, auditor is guilty of negligence.
2- Liability for misfeasance or breach of duty i.e. auditor does not approach and perform his duties - here also plaintiff must suffer loss due to nonperformance of duty by auditor.
3- Liability towards third party :- Auditor is not liable towards third parties for negligence.

Criminal Liability :
1. Any person who violates section 57 including auditor Section 59 says that for violating section 57, person can be punished with fine up to Rs.50000/- This pertain to including a statement in the prospectus by an expert including a auditor (CA)
2. For not signing/authenticating any document statement, fine up to Rs.1000/- if default is will ful.
3. For not helping inspector or not handing over books/documents to inspector, fine up to Rs.20000/-. If default continues, further fine of Rs.2,000 per day.
4. For destroying, mutilating altering falsifying books papers securities of a company being would up imprisonment up to 7 years and also fine.
5. Making false statement in audit report by previous or present auditor, imprisonment up to 2 years and fine.
6. For a misstatement in the prospectus, imprisonment for 2 years and five up to Rs,50000/-
7. For fraudulently inducing a person to invest in a company, imprisonment up to 5 years or with a five up to 100000 or both.
8. For making a false statement on examination on oath imprisonment up to 7 years and also five.

Criminal liability under Indian Penal Code :-
Act of auditor Guilty under Section
1. for giving false evidence section 191
2. for issuing a false certificate section 597
3. Un law full use of company’s assets section 403
4. for damaging prestige or assets of
Company through deception section 415
5. for destroying/harming assets of company section 425
6. misrepresenting accounts section 477


(i) London & General Banks Case (1985)
- Making suggestion to directors/share holders is not the duty of auditor.
- It is duty of auditor to ascertain true & correct financial position at the time of audit.
- Auditor does not give guarantee of correctness of books.
- Auditor must be honest
- Auditor must perform his duty with reasonable care and skill.
- Auditor is not bound to exercise more than reasonable care and skill even in the case of suspicion.
- If auditor is not satisfied with accounts, he must express the same in clear terms to share holders.
(ii) Hedly Bynce & co.Vs Heller & Partners Ltd.
- Auditor can be held liable to third party for negligence.
(iii) Aupam Roy Vs P.K.Mukharjee (1956) -
- Auditor must be honest to his article clerk and should pay promised remuneration.
(iv) Commissioner of Income Tax V/s G.M.Tandekar (1952)
Following three points emerged from this case :-
- Auditor is not liable for third parties.
- Auditor under this case cannot he disqualified for professional misconduct.
- Auditor in this case represented as a lawyer in a civil case.
Q.3 Write in brief points to be seen while conducting audit of Educational Institutions, Club, Cinema, and Hospital.
Ans
Points to be seen in audit of different types of constitutions like Educational Institutions, Clubs, Cinema, Hospital

Educational Institutions: - 

They include school, colleges, universities and
Hence while auditing them; auditor must see the rules governing them particularly provisions relating to maintenance of accounts, audit investment of surplus etc.
Key items of income and expenditure to be seen during audit are:-
Income:-


(i) Fees: - To be checked with relevant receipts and relevant record maintained like cash book and individual record of students. Different types of fees should be credited with respective account/ head.
(ii) Donations :- To be checked with donation register receipts of donations issued and cash book.
(iii) Govt. Aid: - Most of the institutions get govt. aid and generally as a percentage of expenditure. Auditor should see the grant register and ensure compliance of grant rules by the institution. He should also check utilization of grant as per directions of govt.
(iv) Income From assets/investments: - Should be checked with relevant vouchers and see that proper accounting entries hare been made for income receivable and income received in advance.
Expenses:
(i) Salaries: - Should be checked with salary register and ensure that they were properly authorized and no undue deductions were made.
(ii) Administrative expenses: - To be checked with relevant vouchers- extra ordinary increase need to be probed.
(iii) Capital Expenditure: - Assets created to be examined with relevant record -proper authorization for purchase to be seen.
(iv) Refundable Fee: - Like caution money, library fee etc. to be properly checked.
(v) Purchases: - Made to be seen with reference to purchase procedure.
(vi) Income & Expenditure :- To be examined with reference to budget approval
(vii) Deduction of staff provident fund:- To be examined with reference to rules, depositing P.F. with concerned authorities in time. PF register to be examined. Investment of PF if any to be seen with reference to rules and similarly withdrawals and final payment is as per rules.

CLUB

Aim of a club is to provide entertainment facilities to its members. It is managed on no profit no loss basis. It is managed by a managing body.

Auditor should see that body has been elected properly and they are exercising their power in accordance with rules governing them.
Income of the club consists of admission fee, annual fee, aid from govt., donations, sale of absolete items and there may be some miscellaneous receipts. All these items are to be examined with reference to relevant vouchers and records.
Audit of payments:-Audit should see that payments were properly authorized, properly recorded in books. Items purchased need to be checked with relevant vouchers and records.
Assets and liabilities:- Are to be verified and examined with reference to final accounts and their relevant record. Similarly, the position of capital fund created to met future contingencies also to be examined.
Cinema Company
Auditor should check internal control system for recording receipts and expenses.
Income:- The main sources of income is sale of tickets of box office - to be checked with counterfoil and other record.System of advance booking to be seen.Income from advertisement to be seen with reference to advertisement book and relevant tenders.
Expenditure:- Main expenditure is on hiring of films and payment to distributors. They need to be checked with relevant record of film distributors and contract signed with them. Payment on advertisement to be checked with reference to their bills.Similarly wages and salaries paid to be examined with reference to concerned registers & vouchers.
Entertainment Tax:- Accounts to be seen and ensure that this tax has been timely deposited with govt. authorities.
Assets & liabilities:-To be verified

HOSPITAL

Auditor should first of all see whether hospital has been established by Govt. or under trust on private public partnership (PPP)
basis. Hence auditor has to see the rules governing the hospital or trust deed.In case of a trust, the power and duties of trust members. Auditor should also see in detail internal check system regarding various items of stores, their purchases, maintenance etc.
The income may consists of registration fee from patients, subscriptions/donations, rental income from patients, income from pathological tests, govt. aid etc. Internal control system about various items of income should be seen.
Expenditure side may consists of purchases of various hospital items like medicines, plaster, bandages, medical instruments, furniture, blankets, X-Ray plates, equipments etc, salary and wages to staff ,electricity & water charges, stationary ,telephone expenses, etc. these expenses are to be vouched with relevant vouchers/records/registers.
Auditor should also verify assets & liabilities and also verify and check consumable stores which may be in huge quantity at the end of year.