An Auditor’s Role in a Company

Last Updated at: Feb 23, 2021
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Auditor and His Role in a Company

Running a company is a significant responsibility as there are many compliance regulations and tax laws that all businesses need to satisfy. An integral part of maintaining such compliance depends on the role of an auditor in a company. The role of an internal auditor in a company is quite significant as they help ensure efficiency and maximum productivity. Additionally, the Companies Act, 2013 provides auditors with certain roles, rights and responsibilities. So, what exactly is the auditor’s role in a company? Here’s a look at everything you need to know about an auditor’s role and responsibilities as per India’s company laws.

Who Is an Auditor as per Company Law?

An auditor is a trained individual who reviews, checks, and verifies the accuracy and genuineness of financial records maintained by companies. These individuals also help companies ensure that they comply with Indian tax laws and protect businesses from fraud. They also highlight discrepancies in businesses’ financial documents and accounting methods and help maintain overall compliance. Any auditor who works as an employee of an organisation is referred to as an internal auditor. The role of an internal auditor in a company is to help the business stay compliant and manage its taxes effectively.

As per Section 139(1) of the Companies Act, all companies must appoint either individuals or firms to act as their auditor. This shows the prominence of an auditor’s role in a company. To help auditors perform their roles and responsibilities, the Companies Act, 2013 provides them with various statutory rights. Auditors of sole proprietorships, partnership firms and other organisations have powers and duties as per the service agreement.

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What Are the Duties and Roles of an Auditor in a Company?

The role of an auditor in a company is to help the business maintain its financial reliability by reviewing and verifying its financial documents. Hence, the auditor’s opinion can either make or break the business’s credibility and trustworthiness regarding their financial information. When compared to unaudited statements, audited financial documents boast a high degree of credibility and trust. Let us now look at an auditor’s duties as per company law provided in Section 143 of the Companies Act, 2013.

  1. Preparation of the audit report: All auditors must create an audit report, which serves as an appraisal of the company’s current financial position using its financial statements. The account books verified by the auditor must be maintained as per relevant accounting standards. Additionally, the auditor must ensure the statements reflect an accurate depiction of the company’s financial position.
  2. Form negative opinions whenever necessary: Since the auditor’s report is considered reliable, the auditor must provide an accurate opinion at all times. If he or she feels the statements do not paint an accurate picture, they must form an adverse opinion and state it in the report. In case an auditor feels dissatisfied with the information provided, they may issue a disclaimer and refrain from expressing their opinion. 
  3. Make inquiries: An auditor’s role in a company requires them to make inquiries, as and when necessary regarding loans, advances, personal expenses charged to the revenue account and deposits made.
  4. Assist branch audits: If the auditor is a branch auditor and not the company auditor, then they must help with the branch audit. The auditor must prepare the audit report based on the financial statements of the branch, and then send the report to the company auditor. The company auditor then uses and incorporates this into the primary audit report.
  5. Comply with auditing standards: Issued by the central government and the National Financial Reporting Authority, all auditors must comply with these standards. These standards help auditors in performing their duties with accuracy and attain higher efficiency. 
  6. Report fraud: If the auditor grows suspicions of fraud taking place within the company, they must report the same to the central government. This occurs in situations wherein the figures in the company’s financial statements don’t add up. The auditor must report the fraud to an Audit Committee as per Section 177 by specifying the nature of the fraud, approximate amount involved and names and details of the parties involved. This role is also applicable to cost auditors and secretarial auditors as per Section 148 and Section 204 of the Companies Act, 2013.
  7. Adhere to the Code of Professional Conduct and Ethics: Since the auditor is a professional, he or she must adhere to codes regarding ethics and professional conduct. This involves maintaining confidentiality, performing all duties carefully and being alert to errors and frauds. Additional prerequisites include professional scepticism, having a mind and ensuring maximum accuracy.
  8. Assisting investigations: If the company is under an investigation, the auditor must provide assistance to the investigating officers.

Role of Auditor as per Company Laws in India

Here’s a quick look at the laws regarding an auditor’s role in a company from the Companies Act, 2013.

Sl No Section Number  Nature of the Law
1 Section 139 Appointment of auditors in a company
2 Section 140 Removal and resignation of an auditor
3 Section 141 Eligibility and Qualifications of an auditor
4 Section 142 Remuneration of auditors 
5 Section 143 Powers, duties and responsibilities of auditors
6 Section 144 Services auditors cannot render
7 Section 145 The signing of audit reports
8 Section 146 Attending General Meetings
9 Section 147 Punishment in case of contravention 
10 Section 148 Audit of items of cost for certain companies