1.4              Query

Whether a branch auditor can insist on approval of final accounts

by the board of directors before submitting his report.

The querists sought the opinion of the Expert Advisory Committee on the Following:

         (i)         Can a branch auditor insist that he would submit his report only after the balance sheet and the profit and loss                   account of the company have been approved by the board of directors as per the requirements of Section 215 of the                   Companies Act, 1956?

         (ii)        If the answer to the above is in the affirmative whether the same is applicable to the bank audit also.

                                                Opinion                                                                 February 14, 1983

1.The Committee noted that Section 228(3)(b) of the Companies Act, 1956 provides that the branch auditor “shall have the same powers and duties in respect of audit of the accounts of the branch office as the company’s auditor has in respect of the same”. The Committee is of the view that this section basically relates to the powers which facilitate audit of the branch accounts, for instance, right of access at all times to the books and accounts and vouchers of the branch and a right to require from the officers of the branch such information and explanations as the auditor may think necessary for the performance of his audit (S.227).

2.The Committee also considered Section [215(3)] of the Companies Act which states as below:

“The balance-sheet and profit and loss account shall be approved by the Board of Directors before they are signed on behalf of the Board in accordance with the provisions of this Section before they are submitted to the auditors for their report thereon.”

The Committee noted that the main objective of Section 215(3) is to signify that “the responsibility for the preparation of the accounts of a company belongs to the directors, and they must recognise this responsibility by considering the accounts and approving of them before they hand them over to the statutory auditor of the company”1. The Committee is of the view that this objective would be served in respect of the branch audit if an authorised official approves the accounts of a branch, particularly because the report of the branch auditor is only for the consideration of the statutory auditor and is not a report to the members of the company. This appears to be the prevailing practice in the country, particularly, in companies having large number of geographically dispersed branches.

3.On the basis of the above considerations, the point wise opinion of the Committee is as below:

         (i)A branch auditor cannot insist approval of the balance sheet and the profit and loss account by the board of directors                   before submitting his report.

         (ii)        Since the Banking Regulation Act, 1949 does not have any specific provision in this regard, the (i) above will apply in          the case of bank audits also.

1 Recommendation of the Company Law Committee as quoted at page 480 of ‘Guide to the Companies Act,’ (1980) by A. Ramaiya.