Page 222 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes 5. To make report for inclusion in prospectus. (Section 53 read with Part I of Schedule II).
6. To certify receipts and payments account in the statutory report (Section 157).

7. To make report on declaration of solvency in case of voluntary winding up.
8. To exercise reasonable care and skill in carrying out his duties and make such inquiries as
considered necessary.

9. Reading and Inspection of Auditors’ Report (Section-256): Auditor’s report shall be read in
general meeting and shall be open to inspection by the members.

Task Students should know the contents of report from examination point of view.
Please see section 255(3) of the Companies Ordinance, 1984.
11.5.3 Signature & Date on Auditors’ Report (Section 257)

1. The person appointed as auditor shall sign the auditors’ report or other documents required
under the law.

2. The report should indicate the date and place.
Audit of Cost Accounts

Where a company is required to maintain any records relating to its costs of production etc., it
will also get these accounts audited. The auditor, in this case, shall be a Chartered Accountant or
a Cost and Management Accountant.

Position of an Auditor

The audit is intended for the protection of the shareholders and the auditor is expected to
examine the true financial position of the company. The directors occupy a fiduciary position in
relation to the shareholders and in auditing the accounts maintained by the directors the auditor
acts in the interest of the shareholders who are in the position of beneficiaries. The auditor is like
a trustee for shareholders. Thus, auditors have a fiduciary relationship vis-a-vis the shareholders
as a body. The statutory auditors are the watchdogs of the company and they have access to the
books of accounts, vouchers and documents which no member of the company has. These
powers are given to the auditors to facilitate discharge of their functions and responsibilities.
The reason for the fiduciary relationship of the auditors with the company has been explained
by the Calcutta High Court in the case of Deputy Secretary v. S. N. Das Gupta: A joint stock
company carries on business with capital furnished by persons who buy its shares. The owners
of the capital are, however, not in direct control of its application, which is left to the executive
of the company. In those circumstances, some arrangement is obviously called for by which
those who provide the capital know periodically what is being done with their money how the
affairs of the company stand? and what the present value of their investment is?
The Companies Act, therefore, provides for the employment of an auditor who is the servant of
the shareholder and whose duty is to examine the affairs of the company on their behalf at the
end of a year and to report to them what he has found. That examination by an independent
agency such as the auditors is practically the only safeguard which the shareholders have against
the enterprise being carried on in a business like way or their money being misapplied or
misappropriated without their knowing anything about it. The Act provides the safeguard in
two forms. It makes the duty of the auditor to give an expression of opinion on certain specified

216 LOVELY PROFESSIONAL UNIVERSITY