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Auditors of Government Companies

The auditor of a Government company is appointed or re-appointed by the Central Government on the advice of the Comptroller and Auditor-General of India provided that the audit would be within the number of acceptable audits available to each auditor.

The Comptroller & Auditor General of India has the power :-

to direct the manner in which the company’s accounts are to be be audited by the auditor so appointed and to give such auditor instructions in regard to any matter relating to the performance of his functions as such

to conduct supplementary or test audit of the company’s accounts by such person or persons or persons as he may authorise in this behalf; and for the purpose of such audit, to require additional information to be furnished to any person or persons so authorised, on such matters, by such person or persons, and in such form, as the Comptroller and Auditor-General may, by general or special order, direct.

The auditor must submit a copy of his audit report to the Comptroller and Auditor-General of India who shall have the right to comment upon or supplement, the audit report in such manner as he may think fit.

Any such comments upon, or supplement to, the audit report must be placed before the annual general meeting of the company at the same time and in the same manner as the auditors’ report.

Auditors of Other Companies

It is the duty of the auditor conduct the audit of the books of accounts of the company and to make his report to the members of the company on the accounts examined by him, and on every balance sheet, every profit and loss account and on every other document declared by the Act to be part of or annexed to the balance-sheet or profit and loss account and laid before the company in general meeting during his tenure of office. The auditor’s report, besides other things necessary in any particular case, must expressly state-

whether, in his opinion and to the best of his information and according to explanation given to him, the accounts give the information required by the Act and in the manner as required;

whether the balance-sheet gives a true and fair view of the company’s affairs as at the end of the financial year and the profit and loss account gives a true and fair view of the profit or loss for the financial year;

whether he has obtained all the information and explanations required by him for the purposes of his audit;

whether in his opinion, the profit & loss account and balance sheet refered to in his report comply with the accounting standards recommended by the Institute of Chartered Accountants of India;

whether, in his opinion, proper books of account as required by law have been kept by the company, and proper returns for the purposes of his audit have been received from the branches not visited by him;

whether the company’s balance sheet and profit and loss account dealt with by the report are in agreement with the books of account and returns.

In case any of the above matters is answered in the negative or with a qualification, the auditor’s report must state the reason for the same. Where the auditor is unable to express any opinion in answer to a particular question, his report shall indicate such fact together with the reasons why it is not possible for him to give an answer to such question.

The Central Government is empowered to issue orders requiring the auditor to include in his report a statement on such matters as may be specified. In exercise of this power the Central Government has issued an order called “The Manufacturing and other Companies (Auditor’s Report) Order, 1975. It is the duty of the auditor to comply with this order when making his report to the shareholders.

Only the person appointed as auditor of the company or where a firm of auditors is so appointed, only a partner of that the firm practising in India, can sign the auditor’s report or sign or authenticate any other document of the company required by law to be signed or authenticated by the auditor.

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Inter Corporate Loans and Investments

A company cannot :-

make any loan to any other body corporate

give guarantee or security in connection with any loan made by any person to another body corporate

acquire, by subscription, purchase or in any other manner, securities in any other body corporate

exceeding 60 % of its paid up share capital and free reserves or 100 % of its free reserves, whichever is more, unless approved by a special resolution passed at a general meeting of members.

The Board of the company may give a guarantee without being previously authorised by a special resolution of members if all the following conditions are satisfied :-

a Board resolution is passed to this effect

there exist exceptional circumstances which prevent the company from obtaining previous authorisation by special resolution

the Board resolution is confirmed within 12 months in a general meeting or its next Annual general meeting, whichever is earlier.

Notice of such resolution must clearly indicate the specific limits, the particulars of the body corporate in which the investment / loan / guarantee / security is proposed, the purpose of the investment / loan / guarantee / security, sources of funding, etc.

No investment / loan / guarantee / security may be made or given unless the Board resolution sanctioning it is with the consent of all directors present at the meeting and prior approval of the public financial institution ( if any term loan is outstanding ) is obtained.

Approval of the public financial institution is not required if the investment / loan / guarantee / security is with the 60 % limit as mentioned above and there has been no default in repaying the term loan and / or interest thereon.

No loan can be made at a rate of interest lower than the bank rate prescribed by the Reserve Bank of India.

A company which has defaulted in repaying public fixed deposits cannot make or give any investment / loan / guarantee / security unless the fixed deposit is fully repaid along with interest due as per the terms and conditions of the fixed deposit.

A register of such inter-corporate loans and investments must be maintained giving the relevant details.

The above provisions do not apply to :-

Any loan / guarantee / security made or given by :-

a banking company or an insurance company or a housing finance company in the ordinary course of its business or a company established with the object of financing industrial enterprises or providing infrastructural facilities

a company whose principal business is the acquisition of shares, stocks, debentures or other securities

a private company unless it is a subsidiary of a public company

Investment made under Rights issue of securities

Loan made by holding company to its wholly subsidiary company

Guarantee or security given by a holding company for loan to its wholly owned subsidiary

Acquisition of securities by a holding company in its wholly owned subsidiary


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