Audit is originated from the word “audire” that is a latin word “ which means to “hear”. Basically, audit is the examination or inspection of various books of financial institution by an auditor. So, Auditing is the process in which the auditor who examined or inspecting of the financial report of an organization that is presented in the annual report by someone independent of that organization. There is no provision related to the definition of auditing mentioned in the Companies Act 2013. Auditing is done by the Auditor . According to the Companies Act 2013, Auditor is the person who conclude the views on whether they give a fair and correct view in relation to functionality and financial position of the company. An Auditor shall be appointed by the Board of Directors of the company.

Who can be an Auditor?

According to section 141 of the Companies Act 2013 states about the Eligibility, qualification and disqualifications Of the auditor-

  1. A person who is a Chartered Accountant in practice shall be eligible for the appointment of an auditor.
  2. Only the partners who is a Chartered Accountants in practice will be authorized by the firm to act and sign on behalf of the firm.
  3. A body corporate , an employee of the company, who is a partner , relative, holding any security or shareholders of the company or with whom has any relationship with business shall not be eligible for the appointment as an auditor.
  4. If any person is appointed as an auditor of a company disqualified the sub section(3) of section 141 of the Companies Act 2013 throughout the tenure of office then it shall be regarded as no Auditor exists in office then Auditor shall vacate the office immediately and no need to serve any notice to the auditor.


As per companies act 2013 under section 139(1) a person who qualifies to be appointed as auditor can be appointed in a company as its statutory auditor.

Every company shall appoint its first auditor in its first annual general meeting subject to the provisions of section 139 of companies act 2013, the appointed auditor shall hold office from conclusion of 1st meeting till conclusion of company’s sixth annual general meeting.

Before such appointment, the written consent of auditor and certificate from him shall be obtained and the certificate must indicate that the auditor satisfies the condition provided under section 141 of companies act 2013.

After appointment company shall file a notice of such appointment with registrar under form ADT-1 within 15 days from meeting date in which the auditor is appointed.




  • All auditors of a company shall have the right to access at all time to book of accounts and vouchers of the company.
  • The auditor of the company have the powers to sign the auditor’s report or sign or certify any other document of the company and financial transactions or matters, which have any adverse effect on the functioning of the company mentioned in the auditor’s report shall be read before the company in general meeting and  open to inspection by any member of the company.
  • Under section 146 of the Companies Act 2013, it has already mentioned that the company must send all notices and communication to the auditor, relating to any general meeting, and he has to attend the meeting either through himself or through his representative, who must also be an auditor. Such auditor shall be given reasonable opportunity to speak at the meeting on any part of the business which concerns him as the auditor.
  • Under section 142 of the Companies Act 2013, it has already discussed that the Auditors has the right to remuneration.


  • The duty of the auditor is to make a report to the members of the company on accounts examined by the auditor on every financial statement. The auditor must make a report to the members of the company on accounts examined by him on every financial statement.
  • The auditor of the government company must be appointed by the Comptroller and Auditor-General of India which has been already discussed under Section 619 of Companies Act 1956 and such auditor has to be act according to the directions given by them. He will submit a report to them which should include the action taken by him and impact on accounts and financial statement of the company. The Comptroller and Audit – General of India  within 60 days of receipt of the report have right-
  1. to conduct a supplementary audit
  2. to comment upon or supplement such audit report. The CGA of India may cause test audit to be conducted of the accounts of such company
  • They Form a negative opinion, where necessary.
  • They Make inquiries.
  • They Lend assistance in case of a branch audit.
  • They Comply with Auditing Standards.
  • They Reporting of fraud.
  • They Adhere to the Code of Ethics and Code of Professional Conduct.
  • They Assistance in an investigation.


Under the Companies Act 2013, there are four type of audit-

  1. Statutory Audit-  Under Sections 139 to 147 under chapter X of the Companies Act 2013 contain provisions of audit and auditors. Under Section 139 contains that at the first annual general meeting all company has to appoint a firm as it auditor who will hold office from the conclusion of the meeting till the conclusion of the sixth annual general meeting(AGM). Section 141 contains that a person  eligible for appointment as an auditor of a company only who is a chartered accountant and in case of a firm whereof majority of partners practising in India are qualified for appointment .Under Section 143 which contains provisions about powers and duties of auditors contains that the statutory auditor will make a report to  the company members on the accounts and financial statements examined by the auditor. The main provisions of statutory audit are:  
  • Auditor will have to access the books of accounts and vouchers etc. at all times and he can seek information from officers of the company as if it may be necessary.
  • In his report he should state, besides other things, whether the financial statements represent a true and fair view of the state of company's affairs as at the end of the financial year.
  • In case of  qualifications in the audit report, the reason for same must be stated in report.
  • Auditor shall comply with Auditing Standards.
  • In case the auditor suspects any fraud, he should immediately report the same to the Central
  1. Internal Audit-Under Section 138 of the Companies Act 2013, states about the Internal Audit. Internal auditing is an independent, objective ensure and consulting activity designed to add value and improve the operations of an organization. Internal audit helps an organization by achieve its objective by bringing a systematic, disciplined and enhance the effectiveness of risk management, control and governance processes.


  1. Secretarial Audit – Under section 204 of the Companies Act 2013, states about the secretarial audit. Secretarial audit is the audit of non financial feature of the company and procedure of checking compliances with conditions of all applicable laws/rules/ regulations and procedure for adherence to good governance practice with regard to the systems and policies followed by the organization and to ensure that activities.


  1. Cost Audit- Cost audit is an audit who defined the verification of account’s cost and checking on the adherence to cost accounting plan. Cost audit finds out the accuracy of costs accounting records to ensure that they are in conformity with cost accounting principles, plans, procedures and objectives.


Steps of Auditing

Step 1 Planning

The audit should be planned so that all the people involved in it remain prepared. The company will talk to, confer with and engage an auditor. The company or auditor must be satisfied with the level of engagement , process or the objective of the auditing process.

Step2:   Requesting Financial documents

The Auditor prepares a list of required documents. This is an initial list and the scope of the audit is not limited to these documents only. The auditor can request for all the previous audited reports, bank statements, ledgers, receipts, board meeting minutes, organizational charts, etc. The auditor will plan the details of the audit process based on these documents. The audit plan will be drafted then.

Step3:  Open meeting

An auditor can call for an open meeting with the senior management and key administrative staff sometimes. During this meeting, the audit plan and scope canbe discussed. If anyProblem ,may be identified . Then the auditor and the management can determine an accurate time frame for the audit. If the auditor plans to interview of the staff, he/she will beinform and discuss it with the management.

Step4:  On-site work

The auditor will be examine data samples in the business records. These can be entries for any date. The transaction records are examined for oddity. The auditor can be pleased with the results or will decide to examine the records in more detail. If there will be doubts, then the auditors can question the people involved to answer satisfactorily. If the transactions are verified, and the procedures followed by the company are examined for accuracy and adherence to accounting principles. The auditor  will be  verify the internal controls presence  in the company and check that how well these controls are working.

Step5:  Draft report:

The auditor will create a draft report based on the examination and findings. If the auditor has found proof of fraud, financial mismanagement, corrected reports, wrong process or accounting policies, etc., they will mentioned that in this report. If the auditors  have any suggestions or corrections on improving or correcting procedures, they will listed it in the report. It is at the caution of the management to implement these suggestions.

Step6:  Additional requirements

If the auditor require further information, a request can be made for more materials and information.  If the additional requirements satisfy the auditor, changes can be made to the draft. Once this step will be completed, the auditor’s report cannot be changed or corrected.

Step7:  Publishing report

In this step, the final auditor’s report will be published to state the auditor's view. It is usually analysed by the auditors, the management, and the people who is involved in the accounting process before publishing. The final report will published and presented to the investors and management. The investors are usually given a combined report rather than the detailed report.

Conclusion : 

It is necessary for the businesses regular audits to maintain consistent performance levels while ensuring accountability across all areas of operation. Auditing helps companies detect potential fraud early & prevent company from fraud , misrepresentation as well as enhancing transparency amongst different parties involved in running a particular organization.

Annual Compliance of companies - Read More 

Article written by

Muskan Jha, an Intern at Corpzo