1.28 Query: Directors’ comments on observations made in the auditor’s report under MAOCARO.
1. The following observation has been made by the auditors in their report under MAOCARO, given as an Annexure to the main audit report:
“In our opinion and according to information and explanations given to us the existing system of Internal Audit was not considered to be adequate and wide in its scope and coverage to commensurate with the size and nature of Company’s business. There is an ample scope for improvement of internal audit in the areas of checking of periodical operational results, especially that of year end reconciliation of actual manhours with budgeted manhours, etc.”
2. While dealing with the audit report, the Directors in their report have given their comments on each of the observations made in para 2(d) of the main audit report as required under section 217(3). As in the opinion of the Directors, the observations given in para 1 above, did not construe a reservation or a qualification or an adverse remark but only a suggestion for the improvement, the Directors have not given any comments on it in their report.
3. The querist has approached the Expert Advisory Committee to examine and confirm that the directors’ contention that the aforesaid observation by the auditors in their report does not construe to be a reservation or qualification or adverse remark required to be explained in the Directors’ Report under section 217(3) of the Companies Act.
Opinion April 3, 1991
1. The Committee is of the view that auditor’s opinion that “….. the existing system of Internal Audit was not considered to be adequate and wide in its scope and coverage to commensurate with the size and nature of company’s business”, is an adverse remark. The Committee is, therefore, of the opinion that the Board of the company was “bound to give the fullest information and explanations” on the said remarks of the auditors. _____________________________ |