1.67     Query

Audit of Accounts of Government Companies.

    In the course of an audit of a Government Company, by the Comptroller and Auditor General (C & AG) certain errors in the accounts, which had escaped the attention of the statutory auditors, are found and a draft of the comments proposed to be issued by the C & AG is given to the company and a copy of the same is also endorsed to the statutory auditors.  In most cases, majority by the draft comments are dropped on furnishing replies to the draft comments and on the assurance by the company that necessary corrections will be carried out in the succeeding year.  In a few cases, the company agrees to amend the balance sheet and profit and loss account and prepares amended balance sheet and profit and loss account incorporating the corrections agreed to be carried out.  When such balance sheet is again submitted to statutory auditors for their report thereon, a question arises as to whether they should insist on the company carrying out the corrections in respect of all the errors pointed out in the draft comments and admitted by the company and not merely those which were insisted upon by the C & AG and agreed to by the company for alteration.  The committee’s clarification is solicited.

                                                                  Opinion                                                              April  30, 1981

    The Committee draws the attention of the querist to the “Guidance Note on Auditor’s Report on Revised Accounts of Companies” published in the ‘Chartered Accountant’, December, 1979, at page 554, and reproduced at pages 93 and 94 of “A Guide to Company Audit” (Fourth Edition, 1980).  The statutory auditor should take the precaution referred to in that Note when issuing his report on the revised accounts.

   The specific point on which the querist wishes to be advised is whether the statutory auditor should, in reporting on the revised accounts of government companies, insist on all the corrections pointed out by the C & AG’s audit team being made in a situation where the C & AG’s audit team and the company agree on correction of only significant errors pointed out.  It is assumed that the statutory auditor agrees with the company and the C & AG as to the relative immateriality of the errors not being corrected at this stage, or being minor ones to be followed up in the next period.  Materiality being a dominant consideration in accounting and auditing, if the errors left uncorrected are immaterial in nature, the statutory auditor need not insist on their correction.

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