Auditing

Module No. 4: Company Audit and Audit of other

Entities (13 Hrs)
• Company Auditor: Appointment (5 marks)
• Qualification, Disqualification, (5 marks)
• Rights, duties and liabilities, (15 marks) (Question – any
two either Rights & duties or Rights and liabilities or
duties and liabilities)
• Professional ethics of an auditor.
• Meaning of Professional ethics (2 marks),
• Need and importance of professional conduct or ethics in
Accountancy profession. Professional misconduct,
Instances of Professional Misconduct (5 marks or 15
marks)
• Other Entities: Audit Procedure of NGOs – Charitable
institutions – Educational Institutions Government Local
Bodies Cooperative societies – hotels-Hospitals – clubs &
Banks. (5 marks or 15 marks – One entity for 5 marks,
two entities for 15 marks)
 COMPANY AUDIT AND AUDIT OF OTHER ENTITIES

Introduction:
Companies Act, 2013 is rule based Act. Sections 139 to 148 of this Act
deals with provisions relating to audit of companies. Therefore, it is
quite important to understand these provisions very carefully.
Students may also study sections 128 to 138 relating to “Accounts” of
companies for better understanding of this particular subject. The
provisions relating to ‘audit’ broadly deal with who can be appointed
as an auditor under the Act, i.e., qualifications and disqualifications,
the manner of appointment and removal of an auditor and rights and
duties of an auditor. Company is the artificial being which separate
entity from the owner or management. At the end of the period the
auditor must submit company’s financial statement to the user after
proper examination. When an auditor apply auditing activities to
examine the statement in order to give expert opinion their on such
types of auditing activities are called company audit.

Company Auditor:
Company Auditor is an individual appointed for preparing an
independent audit report of the company. He can be either appointed
by the company’s Board of Directors, Shareholders, Central
Government or Comptroller and Auditor General of India (CandAG)
accordingly An individual must have expert knowledge and a
practicing certificate from the Indian Institute of Chartered
Accountants for becoming a company auditor.

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Definition of Company Audit
Under the sec 183(3) of the Company Act, 2013, Company Audit
means “the Balance Sheet and Profit and Loss Account or Income or
Expenditure Account, Cash Flow Statement of a company shall be
caused to be audited by the auditor of the company as in the
company act provided.”
The main purpose of appointing an auditor or auditors in a company is
to safeguard the interests of the shareholders because, for every
shareholder, it is neither possible to inspect the books of account of
the company personally nor to participate in its management actively.
An auditor, therefore, is a representative of the shareholders and he
works on their behalf. He is to ensure that the directors have
maintained proper books of account, the accounting records are
correct and genuine, the company has complied ‘with the provisions
of the Companies Act and that nothing has been done to jeopardizes
the interests of the shareholders deliberately.

Qualification and disqualification of an Auditor

Qualification and Disqualification of company auditor are regulated
by the Companies Act, 2013 (Sec 141), and these provisions are
pertinent for all kinds of appointments. For becoming a company
auditor one should have any one of the following qualifications:
1) Chartered Accountant
(a)According to Sec 141(1) of the Companies Act an individual
holding a practicing certificate of being a certified
chartered accountant from the Institute of Chartered
Accountants of India (ICAI) is qualified for being an auditor
of a Company.

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 (b) Chartered accountancy firm where all partners are
practicing in India is also qualified for being a company’s
auditors. Also any partner of the firm acting on behalf of
their firm can work as company auditor.
2) Confined State Auditor: The certificate holder issued by the law
entitling him to act as a company’s auditor in India holds the
right to become an auditor of a company.

Disqualification of an Auditor
Under Section 141(3) the following individuals are not qualified to
become a company auditor,
1) A Corporate Body as it has limited liability.
2) Working employees or officers of the company.
3) Partners of officers who are working in the company.
4) Individual holding security of the company.
5) A person disqualified by any subsidiary company from acting as
a company auditor.
In case of a partnership firm, if any of the partners is disqualified
because of any above reasons, the firm will also be disqualified from
being appointed as company auditor

Appointment of an Auditor
The following are the ways of appointing the company auditor:
1) Appointment by Shareholders: Regardless of the nature of
the company, i.e., whether a company is public or private, it is
obligatory for them to appoint a company auditor in every
Annual General Meeting (AGM). The point which should be kept

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 in mind here is that word “Every” is important as it is
compulsory to pass a resolution at every annual general meeting
to appoint a company auditor. i.e., the retired auditor will not be
automatically re-appointed. The auditor appointed can carry on
his rights till the next annual general meeting of the company. It
is also applicable to foreign companies running their business in
India. The appointed auditor must get declared within the 7 days
of the resolution passed by the company, and the auditor should
send written acceptance or denial of the appointment within 30
days of receiving notice. If he accepts the offer, he will be a
company’s auditor from the appointment date till the next
annual general meeting of the company.
2) Appointment by Central Government: For enabling the
central government power, the company must inform the
government in writing within seven days of their annual general
meeting, that no auditor has been appointed for the company. If
the company and its officers fail to serve the notice, fine of five
hundred will be imposed on every officer of the company. If the
central government is authorized to appoint an auditor for the
company, then the shareholders of the company have no right
to appoint an auditor in their annual general meetings by
passing a resolution. The auditor appointed by the central
government will be the final auditor and cannot be questioned
by the company and its officers.
3) Appointment by the Board of Directors: Appointment of
the first auditor of the company is made by its Board of Directors
within one month from the date of the registration of the
company by means of passing a resolution. After that the
auditor appointed will remain company auditor till the
appointment of next auditor in the first annual general meeting
of the company. If the Board of Directors fails to nominate the

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 auditor for the company, the shareholders can appoint an
auditor in their general meeting (need net to wait for the annual
general meeting, only for the first appointment of auditor).
4) Appointment by Comptroller and Auditor General of
India: The auditor for the government companies should be
appointed by the Comptroller and Auditor General of India
(C&AG). Here, the Government Company implies any company
in which the central government, State government or partially
Central Government and State government holds more than 51%
of Share capital. It also includes subsidiary government
companies.

Rights of Company Auditor

1) Right of Examining Books and Vouchers : The auditor has a
full right to ask for any document of business if required by him
for performing his work. He can ask for all the documents of the
head office or any other branch in the working hours of the
company for verifying the vouchers to prepare his audit report.
The company cannot refuse to present the asked documents by
the company auditor.
2) Right to Acquire Information: The company auditor can ask
for any information of the company from the officers of the
company to perform his duty accurately and precisely and if the
proper information is not received the auditor has a right to
report it to the members of the company.
3) Right to Access Accounts and Visit Branches: The company
auditor has a right to visit the branches of the company and
access their accounts if he feels to go through it for his report
generation even if another auditor audits the accounts of

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 branches. He has full right to access vouchers and books of
accounts of the branches whenever required.
4) Right to attend General Meetings: The company auditor has
a right to receive the notices regarding General Meetings of the
company; although it’s not his duty to take part in the
discussion, he can give clarification on any part where his
consent is required as an auditor. However, he cannot outbreak
responsibility of any omission in his report.
Company Auditor is an individual appointed to examine or verify the
fiscal records of the company, he should have specialized knowledge
in his field and along with expertise, and he should be honest,
thoughtful, cautious and careful.

Duties of Company Auditor

The duties of the company auditor have been mentioned as below:
1) Duty to submit report: It is an important duty of the auditor to
make a report to the members of the company on the accounts
examined by him. The report should contain the following
information:
a) Whether in his opinion, the Profit and Loss Account
referred to in his report shows a true and fair view of the
profit or loss.
b) Whether in his opinion, the Balance sheet referred to in his
report is properly drawn up so as to show a true and fair
view of the state of affairs of the business.
c) Whether the auditor has obtained all the information and
explanation which to the best of his knowledge and belief
were necessary for the purpose of his audit.

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 d) Whether in his opinion proper books of accounts as
required by law have been kept by the company so far as
appear from his examination of those books.
e) Whether the report on the accounts of any Branch office
audited under section 228 by a person other than the
Company’s auditor has been forwarded to him and how he
had dealt with the same in preparing the auditor’s report.
f) Whether the Company’s Balance Sheet and Profit and Loss
Account dealt with by the report are in agreement with the
books of accounts and return.

2) Duties to enquire into the affairs of the Company: An important

duty of the auditor is to enquire the affairs of the company. It
should contain the following information:
a) Loans and Advances: He has to see whether loans and
advances made by the company on the basis of security have
been properly secured and whether the terms on which they
have been made are not prejudicial to the interests of the
company or its members.
b) Transactions represented merely by book entries: He must
see that transactions which are not supported by any facts or
evidence, though recorded in the books, are not prejudicial to
the interests of the company.
c) Sale of investments at less than purchase price: Where the
company is not an investment company or a banking company,
the auditor is required to see whether it has sold any shares,
debentures or other securities at a price which is lower than
their price purchase.
d) Loans and advances shown as deposits: He has to see whether
loans and advances made by the company have not been shown
as deposits, so as to avoid scrutiny by the members or others,

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 e) Personal expenses: He should enquire whether any personal
expenses have been charged to revenue accounts of the
company, so as to improperly utilize the funds of the company
for the individual benefit of any person directly or indirectly in
control of the affairs of the company.
f) Allotment of shares for cash: Where it is stated in the books
and papers of the company that any shares have been allotted
for cash, the auditor must enquire whether cash has actually
been received in respect of such allotment, and if no cash has
actually been received, whether the position as stated in
the account books and the Balance Sheet is correct and regular

3) Duty to sign report: It is the duty of the auditor to sign the report
prepared by him. In case the auditor is a firm, only a partner of
the firm practicing in India may sign the report.
4) Duty as to statutory report: It is the duty of an auditor to certify
statutory report as correct to the extent it relates to: a
a) Shares allotted by the company,
b) Cash received in respect of such shares and
c) Receipts and payments of the company.
5) Duty as to prospectus: It is the duty of the auditor to certify
information given in the prospectus with regards to certain
matters.
6) Duty as to report under voluntary winding-up: If a company goes
into voluntary winding up, the directors are required to file a
declaration of solvency. Thus, it is the duty of the auditor to give
a report about such declaration.
7) Duty to assist investigation: Where an inspector is appointed to
investigate the affairs of the company, it is the duty of the
auditor to assist investigator in connection with the
investigation.

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 8) Duty of care and caution: The auditor holds himself out as an
expert and must act honestly and exercise due care and caution
in the performance of his engagement.
9) Duty to pay damages: As per section 245, the depository and
members of the company have right to file an application before
the tribunal if they are of the opinion that the management or
conduct of the affairs of the company are being conducted in a
manner prejudicial to the interests of the company.
10) Duty to do branch audit: Where a company has a branch
office, the accounts of that office shall be audited either by the
auditor appointed for the company, or by any other person
qualified for appointment as an auditor of the company.
11) Duty to check auditing standards: Every auditor shall
comply with the auditing standards. The Central Government
shall notify these standards in consultation with National
Financial reporting Authority.
12) Duty of fraud reporting: If an auditor of a company, in the
course of the performance of his duties as auditor, has reason to
believe that an offence involving fraud is being or has been
committed against the company by officers or employees of the
company, he shall immediately report the matter to the Central
Government within such time and in such manner as may be
prescribed.
13) Winding up: As per section 305, at the time of voluntary
winding up of a company it is a mandatory requirement that
auditor should attach the copy of the audits of the company
prepared by him.

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Liabilities of an auditor:
The primary duty of an auditor is to present a report on the accounts
and statements submitted by him to members of the company. He is
responsible not only to the members of the company but also to the
third parties of the company, i.e., creditors, bankers etc. Following are
the liabilities of an auditor:
Civil Liability

1) Liability for Negligence: Negligence means breach of duty. An

auditor is an agent of the shareholders. He has to perform his
professional duties. He should take reasonable care and skill
in the performance of his duties. If he fails to do so, liability
for negligence arises. An auditor will be held liable if the client
has suffered loss due to his negligence. It should be noted
that an auditor will not be liable to compensate the loss or
damage if his negligence is not proved.
2) Liability for Misfeasance: Misfeasance means breach of trust.
If an auditor does something wrongfully in the performance
of his duties resulting in a financial loss to the company, he is
guilty of misfeasance In such a case, the company can recover
damages from the auditor or from any officer for breach of
trust or misfeasance of the company. Misfeasance
proceedings can be initiated against the auditor for any
untrue statement in the prospectus or in the event of winding
up of the company.

A. Liabilities under Companies Act

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 1) Liability for Misstatements in the Prospectus [Sec.35]: An
auditor shall be held liable to compensate every person who
subscribes for any shares or debentures of a company on the
faith of the prospectus containing an untrue statement made by
him as an expert.
2) Criminal Liability of Auditor under Companies Act:
a) Untrue statement in Prospectus [Sec.34]: The auditor is
liable when he authorizes a false or untrue prospectus
When a prospectus includes any untrue statement, every
person who authorizes the issue of prospectus shall be
imprisoned for a period of six months to ten years or with a
fine, which may be three times the amount involved in the
fraud or with both.
b) Non compliance by auditor [Sec. 143 and 145]: If the
auditor does not comply regarding making his report or
signing or authorization of any document and makes wilful
neglect on his part he shall be punishable with
imprisonment up-to one year or with fine not less than
25,000 extendable to ₹ 5,00,000.
c) Failure to assist investigation (Sec.217 (6)): When Central
Government appoints an Inspector to investigate the
affairs of the auditor to to the inspectors. Of the company;
it is the produce all books, documents and to provide If the
auditor fails to do so duty. Assistance he shall be
punishable with imprisonment up-to one year and with
fine up-to ₹1,00,000
d) Failure to assist prosecution of guilty officers [Sec.224]: An
auditor is required to assist prosecution when Central
Government takes any action against the report submitted
by the Inspector. If he fails to do so, he is found guilty and
is punishable.

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 e) Failure to return property, books or papers [Sec.299]:
When a company is wound up the auditor is supposed to
be present and subject himself to a private examination by
the court and is also liable to return to the court any
property, books or papers relating to the company. If the
auditor does not comply, he may be imprisoned.
f) Penalty for falsification of books [Sec.336]: An auditor
when destroys, mutilates, alters or falsifies or secrets any
books of account or document belonging to the company
he shall be punishable with imprisonment and also be
liable to fine.
g) Prosecution of auditor [Sec.342]: In the course of winding
up of a company 8 by the Tribunal, if it appears to the
Tribunal that an auditor of the company has been guilty of
an offence, it shall be the duty of the auditor to give all
assistance in connection with the prosecution. If he fails to
give assistance he shall be liable to fine not less than
25,000 extendable up-to₹ 1,00,000.
h) Penalty for deliberate act of commission or omission
[Sec.448]: If an auditor deliberately make a statement in
any report, certificate, balance sheet, prospectus, etc
which is false or which contains omission of material facts,
he shall be punishable with imprisonment for a period of
six months to ten years and fine not less than amount
involved in fraud extendable to three times of such
amount.

B. Criminal Liability under Indian Penal Code

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 If any person issues or signs any certificate relating to any fact
which such certificate is false, he is punishable as if he gave
false evidence. According to Sec. 197 of the Indian Penal
Code, the auditor is similarly liable for falsification of any
books, materials, papers that belongs to the company.

C. Liability under Income Tax Act [Sec.278]

(1)For tax evasion exceeds ₹ 1,00,000, rigorous
imprisonment of six months to seven years.
(2)A person who induces another person to make and
deliver to the Income Tax authorities a false
account, statement or declaration relating to any
income chargeable to tax which he knows to be
false, he shall be liable to fine and imprisonment of
three months to three years. An auditor may also be
charged in case of wrong certification of account.
(3)A Chartered Accountant can represent his clients
before the Income Tax Authorities. However, if he is
guilty of misconduct he can be disqualified from
practicing.
(4)An auditor can face imprisonment up-to two years
for furnishing false information.

D. Liability for Professional Misconduct

The Chartered Accountant Act, 1949 mentions number of acts
and omissions that comprise professional misconduct in relation
to audit practice. The council of ICAI may remove the auditor’s
name for five years or more, if he finds guilty of professional
misconduct.

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 E. Liability towards Third Parties
There are number of persons who rely upon the
financial statements audited by the auditor and enter
into transactions with the company without further
enquiry viz. creditors, bankers, tax authorities,
prospective shareholders, etc.

Professional ethics of an auditor

Accountancy and Auditing are complex and technical processes.
Ethics, in contrast, might be considered relatively simple. The difficult
part of ethics, it may be argued, is not knowing what we ought to do,
but getting ourselves, and others, to do the right thing. Truthfulness,
honesty, care, loyalty and integrity: we know what they require, but
we do not know if and how these requirements can be met. If this is
indeed the case, and we want to promote ethical auditing, then we
need to attract honest people into the profession, train them well,
and not subject them to more temptation than they can cope with.
Professionals and those working in acknowledged professions
exercise specialist knowledge and skill. How this knowledge should be
governed when providing a service to the public can be considered a
moral issue and is termed professional ethics. Professionals can make
judgments, apply their skills, and reach informed decisions in
situations that the general public cannot because they have not
received the relevant training.
Meaning of Ethics
Ethics is a branch of philosophy considering value based on human
behaviour to truth or falseness of the acts or good or evil outcomes of
these acts. In a broader definition, “ethics is a set of ethical values.
Each of us is with a set of values and considers them appropriately

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and sometimes we ignore them. Philosophers, religious institutions
and other groups defined ideal ethical values by various methods.
Meaning of Professional Ethics
Professional ethics refers to “the professionally accepted standards of
personal and business behavior, values, and guiding principles. It
encompasses the personal, organizational, and corporate standards of
behaviour expected of professionals.”
Professional ethics is part of human ethics. Professional organizations
often establish codes of professional ethics to help guide members in
performing their job functions according to sound and consistent
ethical principles.

Ethical guidance in Accounting and Auditor

The professional ethical guidance includes two parts of
fundamental and rules, Principles define professional
responsibility to society, employer and members. Rules show
practical use of principles. The major principles in professional
ethics of accounting and auditing are including:

1) Considering the beneficiary benefits: Professional

accountant should consider the benefits of all
beneficiaries including society, employer, creditor
and employees.
2) Responsibility: Deep understanding of professional,
ethical and legal responsibilities is the necessities of
works in this profession.
3) Doing work truly: Resorting of professional
accountant to general ethical principles.

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 4) Impartiality in judgment: The professional
accountant should have a judgment without
benefits contradict and others influence and don’t
prejudice.
5) Autonomy: The ability of professional accountant to
keep impartiality and the independent auditor
shouldn’t have direct benefits or important indirect
benefits in the unit.
6) Confidentiality: The information of employer should
be confidential. The auditor is not obliged to
disclose the employer confidential information
without his permission and the disclosure is only in
legal courts.
7) Observing the type of service: This principle shows
that the limitations of services are observed and the
work is compatible with the professional role.
8) Professional qualification: The professional
accountant should have adequate information of
techniques in professional work and should have
required skills and experiences.
9) Observing the technical regulations: Observing the
accepted accounting and auditing standards is
obligatory. The professional accountant should
consider professional care in the work as observing
law, report form, timely report, and accuracy in
figures, work appropriate method, quality standards
and other accepted standards.
10) Professional behavior observation: Observing
the position of professional accountant is necessary.
The accountant should behave as making the job
creditability problematic.

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Fundamental Principles of Ethics

As stated above, one of the areas where the International Federation

of Accounts (IFAC) Code of Ethics helps auditors is the identification of
fundamental principles. This code requires auditors to follow all of
these principles, which include the five as mentioned below:
1) Integrity: Integrity refers to the use of honesty and directness
during their work. The code states that members should be
honest and straightforward in all their professional and business
relationships.
2) Objectivity: Objectivity deals with auditors’ independence
during their work. The code states that members should not
allow bias, conflicts of interest, or undue influence of others to
override their professional or business judgments.
3) Professional behavior: Professional behavior refers to acting
professionally during audits. The code states that members
should comply with relevant laws and regulations. Furthermore,
it requires them to avoid any actions that discredit the
profession.
4) Professional competence and due care: Professional
competence and due care relate to the auditor’s knowledge and
performance. The code states that members should maintain
professional knowledge and skill at a specific level to provide
competent professional services. Members should also act
diligently under applicable standards.
5) Confidentiality: The code states that members should respect
the confidentiality of the information and not disclose it to third
parties. However, they can do so if there is a legal or
professional right or duty to disclose or if they have the

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 authority. Similarly, they must not exploit their professional and
business relationships for personal gains.

Audit of other Entities

Audit of Non-Government Organization (NGO)
NGOs are established as public trusts as per Trust Laws, or
as per Societies Registration Act or as Companies under the
Companies Act, 2013. All these acts apply to entities as per
their choice of the memorandum of association. Further,
this act requires the NGO to receive a foreign contribution
for getting its books of accounts audited by the chartered
Accountants.

Audit process of NGO

The Auditor needs to conduct the following tasks while conducting an
NGO Audit:
1) Since the NGO has its own memorandum the Auditor while
conducting NGO Audit must have few insights about the
company.
2) The Auditor, while conducting NGO Audit, must investigate
about the amount received as subscription ratifying with
counterfoils of the receipts.
3) The Auditor during an NGO Audit must evaluate the decisions
taken by the executives.
4) The Auditor must make physical verification of assets ratifying
with store ledger.
5) The Auditor shall check the liabilities and also that its assets
during NGO Audit and whether its transfer is proper or not.

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 6) NGOs receives grant from foreign institutions as well. So it is the
duty of the Auditor to check whether it is accepted as per the
provision of financial rules and regulations of the nation or not.
7) The Auditor during the NGO Audit should check the use of
Government grants. It should also look if the accounts are
adequately maintained or not for recording the grants.
8) In case such an institution has received the donation from any
individual or organization, an auditor should check accounting of
such amount and its use.

Audit of Charitable Institutions

Charitable institution means “a public or private non-profit, tax-
exempt entity organized for charitable or public welfare purpose.” In
other words Charitable Institutions refer to “those organizations
which are constituted and worked for the purpose of public charity. It
may be a trust registered under respective act or a company
registered under section 8 of the Companies, Act, 2013 (or section 25
of the Companies Act, 1956) for the cause of social wellbeing”.

For audit of such institutions following matters should be kept in mind

during audit procedure:

1) Constitution of Charitable Institution under which it has been set

up and their scope.
2) Examine the laws which is properly followed or not by the
institution.
3) Verify the Accounting of collections under Internal Check
System.

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 4) Proper utilization of income and their supporting where they
used.
5) Subscriptions and donations are the important source of Income
which must be accounted properly.
6) Examine the frequency or movement of life membership
subscription during the year..
7) Verification of official receipts.
8) Control check over unused receipt books.
9) Verify the sequence of all receipt books.
10) Examine the source of subscriptions and donation as well
as their list of names.
11) Give proper attention on counterfoils of Cash book.
12) Check the total subscriptions and donations with the books
and tally with figures.
13) Examine the process of Cash management and their
accounting with books.
14) Examine the available resource and verify them in figures
with amounts received.
15) Grants play a key role in the income of any charitable
Institutions because as per Income Tax Act there is a provision to
use the grant for their purpose. So, it must be check carefully.
16) Obtain the certificate of grant received.
17) Vouch the grant amount with receipts and Minute Books.
18) Vouch the Bank book and Investment Certificate on which
amount received as Interest and Dividend.
19) Check the computation of Interest received.
20) Reconcile the Bank Book with appropriate details
maintained by Institutions.
21) If the Institution is registered under Income Tax Act, then
check their 26AS and

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 22) Reconcile the TDS deduction with books. 22) Examine the
rent agreement and their applicability along TDS provision if
available.
23) Vouching of receipts and expenditure in respect to any
special events organized.
24) Verify the fixed assets schedule and their physical
appearance.
25) Examine the Income Tax refund and calculation of claim
repayment.

26) Vouch the payment of grants and their utilization as per

laws under which the Institute had been set up.
27) Physical verification of documents of securities.
28) Verify the Cash and Bank Balance.
Ascertain the documents regarding any funds contributed for a
special purpose.

Audit of Educational Institutions

An audit of educational institutions is a thorough examination and
assessment of their financial records, operations, and compliance
with relevant regulations and standards. It aims to ensure
transparency, accountability, and efficiency in the institution’s
financial and administrative practices.
Generally, the procedure for auditing is same like other audit even
auditor need to follow other steps.
The steps for audit of educational institutions are as follows:
1) Study of the trust deed or regulations.
2) Examine the previous financial statements.

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 3) Noting of provisions applicable.
4) Evaluation of internal control system.
5) Examine the minute of the meeting and resolution.
6) Verification of students fee register.
7) Authorization for fee concessions.
8) Verification of cashbook with respect of counterfoils of receipts
and payments.
9) Examination of capital fund regarding admission fees.
10) Verify free studentship and concessions.
11) Confirmation of fines for late payment or absence.
12) Check hostel dues recovery.
13) Verification of rental income or expenses.
14) Examine the bank pass book of different nature.
15) Verification of investment registers and also asks about
any interest and dividend from investment if any.
16) Verify grants from any local bodies or Government with
reference to memo or sanction letter.
17) Reporting of any arrears.
18) Vouch counterfoils of receipts taken from donors.
19) Confirmation of any deposits and caution money and its
treatment.
20) Examination of expenses for library books and sports
equipment’s.
21) Checking of acknowledgement letter if any with regards to
scholarship.
22) Examination of payments with respect to prizes if any.
23) Examine the salary register.
24) Verify the Provident Fund Register.
25) Check annual report with accurate supporting documents.
26) Vouching of all establishment expenses.
27) Vouch payment for electricity and water bill.

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 28) Examination of payment for hostel maintenance and any
other miscellaneous expenses.
29) Inspection of facilities given to students under any schemes
associated with government
30) Verification of Fixed Assets Register.
31) Verify ownership and existence of Fixed Assets.
32) Confirmation of statutory compliance i.e. P.F., Income Tax
etc
33) Verification of separate statements of accounts for
different funds.
34) Checking of calculation of salary payable and deductions.
35) At last, Cross check all procedure.

Audit of Government
The distrust on the part of the citizens towards the Public
Administration has been affected in the last years. The lack of control
and supervision of money from public coffers, as well as public
tenders, has led to serious cases of fraud and corruption. The
government audit is the means through which public management is
verified and controlled. Their activity and economy are analyzed,
which work around efficiency and transparency, always acting in
accordance with the relevant legal provisions applicable to the
specific case.
Government audit means “the organised and independent
examination of a public entity’s financial, administrative and other
operations for evaluating and verifying them.”

Types of Government Audit

Government audit may be classified into two types:

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1.Audit of Financial Statements: Its objective is to determine if the
audited public financial statements have logic, and analyze whether
the operations and results of the exercise are framed within
accounting principles. This type of audit focuses mainly on the
programs and activities designed and determine if they act within the
legal requirements.
2.Management Audit: This type of audit does not only focus on how
the resources available to the Administration are allocated and
distributed; it also analyzes the work and performance of the officials,
if they act on the basis of good faith, working with the objective of
meeting the goals and objectives proposed.

Duties of Comptroller and Auditor General

Following are the duties required for comptroller and auditor general:
1) To compile and submit accounts,
2) To audit receipts and expenditure,
3) To audit grants and loans,
4) To audit receipts of unions or states,
5) To audit accounts of stores and stock,
6) To audit books of accounts of government companies and
corporations,
7) To audit and report, and
8) To submission of accounts.

Audit of Local Bodies

The Act (Articles 243 J and 243 Z) dealing with the provision for the
maintenance of accounts and audit of local bodies merely said ‘The

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Legislature of a State may, by Iaw, make provisions with respect to
the maintenance of accounts by the Panchayats, Municipalities
and/or corporations.
The Comptroller and Auditor General of India (CAG), who is the head
of the Supreme Audit Institution of India (SAI) derives his duties and
powers mainly from Articles 149 to 151 of the Constitution of India
and the Comptroller and Auditor General’s (Duties, Powers and
Conditions of Service) Act, 1971.
Under the provisions of the Constitution of India and the Act, the CAG
is the sole auditor of the accounts of the Central (Union) Government
and the State Governments. CAG is also responsible for the audit of
local bodies (i.e., Panchayath Raj institutions and urban local bodies)
under the provisions of some of the State Acts and provides technical
and administrative guidance for accounting and audit functions in all
States as per orders issued by Ministry of Finance, Government of
India.
The reports of the CAG relating to the accounts of the Union and the
States are submitted to the President/Governor of the State for being
laid before the Parliament/ State Legislature. The CAG is also
responsible for ensuring a uniform policy of accounting and audit in
the Government sector as a whole. The Act authorizes the CAG to lay
down for the guidance of the Government departments, the general
principles of Government accounting and the broad principles in
regard to audit of receipts and expenditure.

The mandate of CAG includes audit Of:

1) Receipts and expenditure from the Consolidated Fund of India
and of the State and Union Territories.

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 2) Transactions relating to the Contingency Funds and Public
Accounts.
3) Trading, manufacturing, profit and loss accounts and balance
sheets, and other subsidiary accounts kept in any Government
department.
4) Accounts of stores and stock kept in Government offices or
departments.
5) Government companies as per the provisions of the Companies
Act, 1956.
6) Corporations established by or under laws made by Parliament
in accordance with the provisions of the respective legislation.
7) Authorities and bodies substantially financed from the
Consolidated Funds.
8) Any Body or Authority even though not substantially financed
from the Consolidated Fund, the audit of which may be
entrusted to SAI.
9) Grants and loans given by Government to Bodies and Authorities
for specific purposes.
10) Panchayath Raj Institutions and Urban Local Bodies.
The audit mandate also provides for the periodic inspection of records
and accounts of the Government departments to supplement the
audit of vouchers and sanctions that are with the accounts compiling
offices.

Audit of Co-Operative Societies

Any ten persons who are competent to enter into contract may make
an application to the Registrar of Co-operative Societies as per Section
6 of the Co-operative Societies Act, 1912. By-laws may be framed by
each society and should be registered with Registrar of Co-operative
Societies. Effectiveness of change in by-laws of societies is applicable

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only when changes are approved by Registrar of Societies. There are
two types of society’s, limited liabilities and un-limited liabilities
societies. Any member is not liable to pay more than the nominal
value of share held by them and no member can own more than 20%
of shares of societies.

An Auditor needs to consider the following points to be able to

perform his duties in an efficient way:
1) An Auditor should be well-versed with the Co-operative Society
Act, 1912 and the by-laws of the society.
2) If there is any type of irregularities and improprieties found by
an Auditor during his audit regarding Co-operative Societies Act,
1912 and by-laws, he should immediately point out the same.
3) An Auditor should ascertain that how many shares are held by
each member of the society; for this, he should check the
member ship registers. 4) An Auditor should be well aware of
power of officers regarding loan, investment, Borrowings,
advancing of the funds.
4) He should thoroughly check and vouch the cash book and bank
book.
5) An Auditor should check all the receipts and payments of the
society according to standard auditing practice.
6) He should go through the agreements between society and
borrower to check the interest due on loan and repayment
schedule. An Auditor should also check and compare the actual
interest received and the repayment of loan received with dues
from them.
7) He should go through the agreements between society and
borrower to check the interest due on loan and repayment
schedule. An Auditor should also check and compare the actual

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 interest received and the repayment of loan received with dues
from them.
8) He should carefully vouch and verify that loan given to members
of the society is according to agreement, regulation and
resolution passed by the Managing Committee of the society or
not.
9) An Auditor has to assure that a loan given to a non-member is
not without the permission of the Registrar.
10) He should verify the loan given by Co-operative bank
should be according to the prescribed limit.
11) An Auditor should physically examine and verify the assets
of a society.
12) He should adopt different methods for different kind of
societies.
13) Balance-sheet, profit and loss account and Auditor report
should be according to the proforma given by the Chief Auditor
of the Co-operative Society of the State.
14) Accounts should be according to the Co-operative Society
Act and also with the provision of Income Tax Act.
15) All the assets, expenses, income, cash-in-hand, etc. should
be vouched and verified according to standard accounting
procedures and principles.

Audit of Hospitals
Being non-profit organizations, hospitals prepare Receipt and
Payment account, Income and Expenditure account and Balance
Sheet; following are various items that fall under income and
expenditure in the hospitals.
Audit of major Items of Income

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 1) Room Rent,
2) Medical Care,
3) Dentistry Charges,
4) Delivery Room Charges,
5) Anaesthesia Charges,
6) Laboratory Charges.
7) Grants for Operating Needs of Hospital,
8) Grants for Fixed Assets,
9) Donations,
10) Miscellaneous Income,
11) Interest on Investments,
12) Fees from Nursing Training School,
13) Bed Charges,
14) Operating Room Charges,
15) X-ray Charges,
16) Pharmacy Charges, and
17) Physiotherapy Charges.

Audit of various Expenses and/or Payments

The following are the major expenses and payments from Hospital
business is discussed as below:
1) Electricity and Water Charges,
2) Pharmacy Charges,
3) Salaries and Wages,
4) Pharmacy Expenses,
5) Building Repair and Maintenance,
6) Laundry Charges,
7) Rent for Nursing Hostel Accommodation (in case of rented
premises),
8) Telephone Expenses,

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 9) Laboratory Expenses,
10) Surgery Expenses,
11) Operation Tools and Equipment Expenses, and
12) Depreciation.

Audit of Clubs
Club refers to “an organization of people with a common purpose or
interest, who meet regularly and take part in shared activities.” The
following points need to be considered while conducting Audits of
Clubs:
1) An Auditor should decide his scope of work from his
appointment letter.
2) He should know whether he is engaged for only accounting and
financial matter or some other assignment too.
3) He should know about the constitution and the legal status of
the Club under which Act the club is registered.
4) A Club may be registered under the Companies Act, the Societies
Registration Act or the Public Trust Act.
5) An Auditor should note down all the related provisions of the
applicable Act relating to the accounts and audit.
6) He should study the Memorandum of Association and the
Articles of Association to know the powers of executive
committee.
7) An Auditor should be aware of the important decisions relating
to accounts, finance, sale and purchase of fixed assets and
investment from the minute book of meeting of the Board of
Directors or the Trustees or the Managing Committee.
8) He should obtain a list of books of accounts, related documents
and other records maintained by that club.

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Audit of Banks
Bank audit is a procedure performed by an auditor appointed by RBI
and ICAI to verify the financial statements of the banking institutions
and to verify whether the banking concerns are following the law and
compliances or regulatory framework applicable on them or not. A
Bank audit is a routine examination of the records and services of the
organization to ensure whether they are in compliance with the laws
and standards of the industry. Banks have to get many types of audits
done such as statutory audit, revenue audit, concurrent audit, etc.

Process of Audit of a Bank

The audit of banking involves various stages to complete the
procedure successfully.
1) The first stage is the initial consideration by the statutory
auditor by the declaration of Indebtedness, engagement risks,
team discussion
2) The second stage is to identify the risk of misstatement and
access the risk management
3) The third stage is understanding the institution’s environment
and control system to process the next step, accounting
4) The next steps are team discussions to plan an overall strategy
to develop an audit plan
5) Reviewing the previous year’s audit reports and internal
inspection reports is very beneficial

Audit Procedure of a Bank

Banking sector is a dynamically changing sector. Thus, it requires
proper and effective audit measures to understand the exact financial
condition of the banks for which the following procedure is adopted:

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 1) RBI and Institute of Chartered Accountants of India (ICAI)
together scrutinise and appoint an auditor or audit firm for the
audit of the bank after obtaining indebtedness declaration from
a respective firm or an auditor.
2) The audit firm or an auditor cannot assign with any other
statutory audit in the year they are appointed as a bank auditor.
Before initialising the audit, the firm needs to establish the
undertaking of engagement terms describing the time period of
audit term. However, as per ICAI Act, 1949 before getting
engaged the auditor need to communicate with the previous
auditor of the bank in writing for taking his consent.
3) After that, the new auditor will review the initial opening
balance, and if he founds any material misstatement or errors
affecting financial statement, he can assert his point of view in
his audit report by way of qualified or adverse report.
4) Thereafter, banks accounting process, risk management process
and risk identification are made along with control and
monetary activities considered by the management.
5) At last, after reviewing all the relevant elements, an auditor
prepares an audit report defining his opinion regarding the
financial condition of the bank as well as if any loopholes found
in following the mentioned regulations under Act.

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