New Delhi: To check corporate
wrongdoings, the government today made it mandatory for auditors to flag
off any lapses found on the company's part, including those related to
frauds, inventory and asset management, outstanding dues and compliance
to statutory regulations.
The order comes against the backdrop of
enhanced efforts by the government and regulators to
strengthen overall
corporate governance standards and to prevent instances of financial and
accounting frauds.
Issuing a detailed set of directions to be
followed by auditors, the Corporate Affairs Ministry said that various
aspects about the functioning and management of a company should be
mentioned by them in their audit reports.
Auditors would now have
to mention about internal control systems, records of fixed assets,
undisputed statutory dues, and default in repayment of loans, among
other factors related to a corporate whose books they audit.
The
Ministry said an auditor should mention whether there is "an adequate
internal control system commensurate with the size of the company and
the nature of its business, for the purchase of inventory and fixed
assets and for the sale of goods and services".
In addition, any continuing failure to correct major weaknesses in internal control system should be flagged off.
With regard to outstanding statutory dues, the Ministry said auditors have to mention about the same in their reports.
This
would be applicable on dues related to provident fund, employees' state
insurance, income, sales, wealth and service taxes, customs and excise
duties, among others.
"... the extent of the arrears of
outstanding statutory dues as at the last day of the financial year
concerned for a period of more than six months from the date they became
payable, shall be indicated by the auditor," it said.
Tax disputes should also be mentioned by the auditors.
Besides,
the auditor is required to report whether a firm is maintaining proper
records, including quantitative details and situation of fixed assets.
The
auditor has to mention whether the company's management physically
verifies fixed assets at reasonable intervals and about any material
discrepancies. Also, it has to be mentioned whether lapses have been
properly dealt with in the books of account.
The directions have
been issued through the Companies (Auditor's Report) Order, 2015, and
would have to be followed for the financial year that started on or
after April 1, 2014.
The order would be applicable on audits of
banking, insurance, foreign and one-person companies. It would also be
applicable on certain private companies, which among other criteria,
whose turnover is not more than Rs 5 crore at any point of time during
the financial year.
Auditors are now required to report "any fraud on or by the company" along with its nature and amount involved.
When lapses are noticed, they would have to state the reasons for such unfavourable or qualified matter.
Where
the auditor is unable to express any opinion in answer to a particular
question, the report "shall indicate such fact together with the reasons
why it is not possible for him (auditor) to give an answer to such
question", the Ministry said.