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Unit 14: Audit of a Partnership Accounts and Government Company

addressing cost management issues in context of the liberalized business and economic Notes
environment. Further, Government approval for appointment of Cost Auditor for carrying out
such Cost Audit was also not considered necessary.

Special Audit

The Committee felt that the provisions in the present Act requiring Special Audit under certain
circumstances were not relevant in view of the detailed investigation provisions recommended
by the Committee. During the course of investigation, it is expected that the inspector would
have access to the specialized expertise of various professionals as may be required. Further,
such investigation may be carried out by private professionals operating individually or in
teams. In this background, Special Audit taken in isolation would serve no useful purpose and
may be dispensed with.
The Committee discussed the application of the corporate law framework to Government
companies on many occasions and took the view that in general, there should not be any special
dispensation for such companies. In respect of audit of Government companies however,
Companies Act provide a special regime. Pursuant to Section 19(1) of Comptroller and Auditor-
General’s Duties, Powers and Conditions of Service Act, 1971, audit of the accounts of Government
companies is conducted by the Comptroller and Auditor General (C&AG) in accordance with
the provisions of the Companies Act, 1956, the Auditor (Chartered Accountant) of a Government
Company is appointed or reappointed by the C&AG. It is further stipulated that C&AG shall
have the power to (a) direct the auditor to conduct the audit in a specified manner, (b) give
instructions on any matter relating to the performance of his functions, (c) conduct himself a
supplementary or test audit of the company’s accounts and (d) comment upon or supplement the
audit report in such manner as he (C&AG) thinks fit. The comments of C&AG are to be placed
before AGM along with Auditor’s Report.
The Committee noted with concern the delays in finalization of the accounts of Government
companies. In many cases, Government companies and their directors become liable for penal
action but are provided selective exclusions from their liabilities only because they are
Government companies. This is leading to an unhealthy situation which must be addressed.

While considering classifications of companies in Chapter III of this Report, the Committee
discussed the manner in which company law should apply to Government companies (Chapter
III, para 7.1-7.4). The law should clearly provide the definition of a Government company in
context of ownership of the Central and/or State Government. Therefore, the extension of
special exemptions and protections to various commercial ventures taken up by Government
companies in the course of their commercial operations along with strategic partners or general
public should be done away with so that such entities can operate in the market place on the
same terms and conditions as other entities. In particular, reflection of financial information of
such ventures by Government companies and their audit should be subject to the common legal
regime applicable. The existing delays are enabling a large number of corporate entities to
evade their responsibilities and liability for correct disclosure of true and fair financial information
in a timely manner. In this context, the relevance of the present section 619B of the Act was
considered appropriate for a review.
The Committee felt that since statutory audit is conducted by the statutory auditor appointed by
the C&AG in the manner directed by him, the test/supplementary audit is superfluous since it
would duplicate audit work already done by statutory auditor. Further, where any directions
are given by the C&AG to the Statutory Auditor not in accordance with the Accounting Standards,
the Statutory Auditor may be required to mention the same in the notes on accounts.

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