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Unit 2: Auditing Practices

An auditor has a fiduciary relationship with the company. The statutory auditors are often Notes
described as the watchdogs of the company.
Companies incorporated under the Companies Act, 1956 must keep proper books and
records, sufficient to give a true and fair view of the company’s affairs and to explain its
transactions. Shareholders of such companies must appoint auditors at the annual general
meeting.
There is no provision in the Companies Act as to the form in which the books of account
are to be maintained, but it is incumbent on a company to maintain such books on an
accrual basis.
Such books and vouchers as are relevant to any entry in the books of account must be
maintained for a period of at least eight years after the end of any financial year.
At every annual general meeting of a company, the Board of Directors must lay before the
shareholders financial statements consisting of a balance sheet and a profit and loss account
(income statement).
The Companies Act requires that only Chartered Accountants within the meaning of the
Chartered Accountants Act, 1949 can qualify for appointment as auditors. The first auditor
of a company is usually appointed by the directors.
Subsequently, except for appointments to fill casual vacancies, auditors are normally
appointed by the shareholders at each annual general meeting by an ordinary resolution
to hold office until the next general meeting by an ordinary resolution to hold office until
the next annual general meeting.
Every company with a total sales turnover or gross receipts over ` 4 million must have its
accounts audited in accordance with the Income tax Act.

The cost auditor submits a report to the Company Law Boards of the Central Government
and sends a copy to the company.

The Institute of Chartered Accountants of India (ICAI) is a member of the International
Federation of Accountants (IFAC), and the Auditing Practices Committee (APC) of the
Indian Institute is committed to giving due consideration to the auditing guidelines issued
by the International Auditing Practices Committee of IFAC and integrating them to the
extent possible with the Indian Auditing Standards being issued by APC, in the light of
conditions and practices prevailing in India.

Audit programs should take into consideration the audit evidence required/desired as
well as the various data gathering techniques.
The technique of audit in depth is based on test checking. It is very difficult for an auditor
to make detailed examination of all the record of a big business house. Thus, the auditor
has to verify about the reliability of internal check.

2.12 Keywords

Depth auditing: This system of checking is undertaken with a view to check the incidence of
errors or frauds in the books of accounts.
Depth Test: It involves taking a transaction or a number of transactions and following them
through the accounting system from start to finish or vice versa.
Tax Audit: This audit in addition to the statutory audit under the Companies Act and mainly
involves verification and confirmation of certain facts, figures and information that are generally
required by the Tax authorities in the course of assessment proceedings.

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