1.9  Query:    

        Meaning of ‘nil’ comments in the C& AG’s report.

1.The statutory audit of a Government company was conducted by a firm of chartered accountants. The audit report contained numerous substantial qualifications as a result of which the balance sheet and profit and loss account did not reflect a true and fair view.

2.Supplementary audit u/s 619(3) of the Companies Act, 1956 was done by the Comptroller and Auditor General. He has stated as follows:

“I have to state that the Comptroller and Auditor General of India has no comments upon or supplement to the Auditor’s Report under section 619(4) of the Companies Act, 1956.”

3.The letter from the Comptroller and Auditor General addressed to the company, enclosing the above ‘nil’ comments report contains the following paragraph.

“The qualifications have been examined in the light of your explanations and the accounting rules and conventions. As they are not found to be tenable a ‘nil’ comment certificate is issued.”

4.The querist has referred the following issues for the opinion of the Expert Advisory Committee:

(a) Whether the Comptroller and Auditor General is in agreement with the qualifications made by the auditors since he has stated that he has no comments upon or supplementary to the Auditor’s Report.

(b) If he does agree, will not the paragraph reproduced above from his letter enclosing the ‘nil’ comments report contradict his report u/s 619(4)?

(c) When the Comptroller and Auditor General has found the qualifications not tenable based on accounting rules and conventions and explanations offered by the company, is he required to call for explanations from the auditor?

(d) Whether the Comptroller and Auditor General is obliged under law to state the fact in his supplementary report that the qualifications made by the auditor are not tenable?

(e) If the auditor has not been called for to explain the basis for his qualifications, can he insist on being heard?

(f) If the auditor cannot insist on being heard will not the independence of auditors suffer?

                                                                                Opinion                                  May 29, 1991

1.The Committee notes sub-sections (3) of section 619 of the Companies Act, 1956, which states as under:

                        “(3) The Comptroller and Auditor General of India shall have power-

(a) to direct the manner in which the company’s accounts shall be audited by the auditor appointed in pursuance of sub-section (2) and to give such auditor instructions in regard to any matter relating to the performance of his functions as such;

(b) to conduct a supplementary or test audit of the company’s accounts by such person or persons as he may authorise in his behalf; and for the purposes of such audit, to require information or additional information to be furnished to any person or persons so authorised, on such matters, by such person or persons, and in such form, as the Comptroller and Auditor General may, by general or special order, direct.

(4) The auditor aforesaid shall submit a copy of his audit report to the Comptroller and Auditor General of India who shall have the right to comment upon, or supplement, the audit report in such manner as he may think fit.”

2. The Committee is of the view that audit of accounts of an entity is independent examination of the financial information and such examination is conducted with a view to express opinion thereon. In the audit report, the auditor expresses his opinion and, therefore, it is not necessary that two different auditors should express the same opinion.

3.The Committee is also of the view that the supplementary audit conducted by the Comptroller and Auditor General of India is an independent audit. The opinion of Comptroller and Auditor General of India may be different from the opinion of the statutory auditor auditing the accounts of the Government company.

4.The Committee is also of the view that the expression ‘As they are not found tenable’ in the letter from C & A.G. quoted in para 3 of the query could be interpreted to mean either of the following:

                        (i)  The qualifications are not found tenable, or

                        (ii)  The explanations thereto are not found tenable.

5. The Committee is, therefore, of the following opinion in respect of issues raised in para 4 of the query:

(a) The C & A.G. seems to be in agreement with the qualifications made by the statutory auditor. If the C. & A.G. wanted to disagree with qualifications made by the statutory auditor, he could have expressly stated so in his audit report.

(b) The contents of the letter received from C. & A.G. can be interpreted in the manner as stated in para 4 (ii) above. If C. & A.G. wanted to disagree with the qualifications made by the statutory auditor, he could have expressly done so in his audit report.

(c) The Comptroller and Auditor General is not required to call for explanations from the auditor in case he finds his qualifications not tenable in view of the accounting rules and conventions and explanations given by the company.

(d) No. But if he wants to disagree with the qualifications made by the auditor he should state in his audit report and not in the covering letter.

(e) No.

(f) No.

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