3.9 Query
Applicability of Directives Issued by the Comptroller& Auditor General of India to GovernmentCompanies vis-à-vis Section 227 of theCompanies Act,1956.
Whether the Directives issued by the Comptroller and Auditor General of India, as published in the ‘Chartered Accountant’ of April 1963 are applicable to all the Auditors of the Government Companies or to some specified Companies? In case these are applicable in respect of the audit of all the Government Companies, how far an auditor is required to report on all the directives issued? Whether the observations on the basis of such directives should form the part of the Auditor’s Report as required under Section 227 of the Companies Act, 1956?
Opinion April 18,1964
Under Section 619 (3)(a) of the Companies Act, 1956, in the case of a Government Company, the Comptroller and Auditor General of India has the power to “Direct the manner in which the Company’s Accounts shall be audited” by its auditor and “to give such auditor instructions in regard to any matter relating to the performance of his functions as such". In exercise of this power, the Comptroller and Auditor General has addressed letters to firms of Chartered Accountants acting as auditors of Government Companies, directing them to audit the Companies’ Accounts in a manner so as to enable the auditor to answer the question in the enclosure to the Auditor General’s letter, which were reproduced in the April 1963 issue of the Journal of the Institute. Thus these directions are applicable only to those auditors of Government Companies to whom they are specifically issued by the Auditor General. It is understood that, for the first year for which such directions were issued, which was the Accounting Year ended 31st March, 1962, the directions were made applicable only in respect of Central Government Companies, but in later years they have also been applied to the large State Government Companies. Where such directions have been issued to the auditor of a Government of the Company by the Comptroller and Auditor General, the auditor would be required to answer all the questions contained in the Directives issued to him as best as he can in the light of the audit carried out by him, including the special enquiries made by him on the points covered by the Directives, so as to enable him to answer the questions therein. It should of course be obvious that some of the questions may have no applicability to the circumstances of a particular Government Company. Thus for example, the question relating to the maintenance of Manufacturing and Production Accounts would obviously not apply to a Government Company which carries on trading activities only and is not engaged in the manufacture or production of any goods or articles. In such case, the auditor may merely point out that those particular questions would not be applicable in the case of the Company audited by him for the reasons given. The Comptroller and Auditor General instructs the auditors of Government Companies to whom such directions are issued that the answers to the various matters specified in the directions should be prepared in the form of a report in addition to the report furnished under Section 227 of the Companies Act,1956. This additional report has to be submitted to the Company with copies to the Comptroller and Auditor General and the Department of Company Law Administration along with the certified copy of the Balance Sheet and Profit and Loss Account or as soon as possible thereafter within a period not exceeding two months. It should be clear from this additional report does not form part of the Auditor’s Report to the Members of the company in compliance with the requirements of Section 227 of the Companies Act, 1956. |