5.      MISCELLANEOUS ISSUES

5.1       Query

Responsibility of An Auditor—Verification of

Compliance with Terms of Import Licences, etc.

Please clarify as to how far a Chartered Accountant, acting as an auditor, is responsible to verify the compliance with terms of Import Licences and internal quotas granted by the Government to a party for its use. If a party to whom users quota has been issued sells off the same and accounts for the cost and sale price both on the purchase and sales sides, is it incumbent on the auditor to bring out the infringement of the quota terms in his audit report? Will the constitution of the party, i.e., an individual, a firm or a company make any difference in this respect?

Opinion                                                                                                           June 30, 1961

he Committee is of the opinion that the Chartered Accountant’s responsibilities as auditor arise either from the statute under which he has been appointed as Auditor or under the terms of his contract of appointment in the case of a non-statutory audit. If, for example, the Auditor was appointed under the Companies Act, his responsibility is laid down in the state and such statute does not cast responsibility for compliance with the terms of grant of Import Licences, quotas, etc. In the case of the audit of the individual or firm, the responsibility of the Auditor is governed by his contract of appointment and it is for him to judge whether it would be necessary to report the breach of the terms of licences to the proprietor of the business.

he Expert Committee, however, points out that if in the particular case provisions corresponding to the provisions of the Companies Act, 1956 applied, the requirements of Section 541 should be borne in mind. Under this Section the books of accounts must exhibit and explain the transactions. It would, therefore, be necessary for the Auditor to be satisfied that the passing of entries of the sale of quota under the heads of purchases and sales explains the transaction. It would appear that if it was an outright sale of the quota itself it would not be correct to debit and credit purchase and sale of goods respectively, as this does not explain the transaction. In respect of the same point in the case of individual or a firm, the contract of appointment would have to be examined to see whether the Auditor has been called upon to report on this aspect of the recording of transactions.

he requirements of the Companies Act as are applicable in India in respect of final accounts of companies lay down that material features including credits or receipts and debits or expenses in respect of non-recurring transactions or transactions of an exceptional nature should be disclosed in the Profit & Loss Accounts. These requirements have also to be borne in mind in case these provisions are applicable to the case under review. It could be argued that the sale of quota was a transaction of an exceptional nature.

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