Expert Advisory Committee

1.13 Query

Conduct of audit where supporting vouchers and other

records are seized by Income Tax authorities

1. The premises of two private limited companies- one dealing in solvent extraction and the other in wholesale wine trade-were raided by the income-tax authorities in December,1983. All the accounting and statistical records were seized by the department which still are in their possession.

2.The companies have managed to obtain the photo-copies of cash book and ledger book but not of other records including supporting vouchers. The records of the remaining period after the raid upto the date of closing of accounts i.e., 31^st March, 1984, are complete.

3.In the above context, the querists have raised the following points for the opinion of the Expert Advisory Committee:

(i) Whether audit can be conducted on the basis of the available records.

(ii) In the absence of all relevant records requires for the purpose of audit for the major part of the year can the truth and fairness of the balance sheet etc., be certified?

(iii) If not, what is the extent of qualification of the audit report? Please suggest the model qualification.

(iv) If audit cannot be conducted in satisfactory manner how will the relevant provisions of the Income-tax Act, 1961, and of the Companies Act, 1956, be complied with, e.g., with regard to

(a) conducting of Annual General Meeting and filling of relevant documents thereof with the Registrar of Companies;

(b) preparation and filing of Annual Return;

(v) As the records seized by the authorities may not be released for some years to come, what will be the position in such subsequent years with regard to matters stated in (i), (ii), (iii) and (iv) above.

Opinion September 20,1984

1.The Committee notes that according to Section 227(3) of the Companies Act, 1956, a statutory auditor is required to state in his report:

“(a) Whether he has obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purposes of his audit;

(b) Whether in his opinion, proper books of account as required by law have been kept by the company so as far as appears from his examination of those books, and proper returns adequate for the purposes of his audit have been received from branches not visited by them”.

2.The Committee is of the view that from the facts of the query, the auditor may not be in a position to report affirmatively on the foregoing requirements. If this is so, the opinion of the Committee, with regard to the points raised by the querist in para 3 of the query is as below:

(a) In respect of queries at (i), (ii) and (v), the auditor should report, after stating the facts of the case, his inability to form an opinion whether the final accounts give a true and fair view for the reasons stated.

(b) With regard to query at (iii) the querist may refer to the ‘Statement on Qualifications in Auditor’s Report’ issued by the Research Committee of the Institute.

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