Section 143 of the Companies Act, 2013 (“the Act”) defines the auditor's reporting duty. The auditor must report on the accounts examined, the financial statements, and the compliance with the statutory provisions. The report is the auditor's opinion on the truth and fairness of the financial statements, and it is the basis for the shareholders' informed decision.
The Contents of the Report
Section 143(3) prescribes the matters that the auditor must state in the report, including whether the auditor has obtained all the information and explanations necessary, whether the accounts are in agreement with the books, whether the financial statements comply with the accounting standards, and whether the auditor has received the required returns from the branches.
The auditor must also report on the adequacy of the internal financial controls over financial reporting and the operating effectiveness of those controls. The reporting on IFC is a separate opinion, and it is included in the audit report as an annexure.
The Types of Opinion
The auditor's opinion may be unmodified (clean), qualified, adverse, or a disclaimer. A qualified opinion is expressed where the auditor disagrees with the management on a specific matter, or where the auditor is unable to obtain sufficient evidence, but the effect is not pervasive. An adverse opinion is expressed where the misstatement is material and pervasive. A disclaimer is expressed where the auditor is unable to obtain sufficient evidence and the possible effects are material and pervasive.
The board's report must explain any qualification, reservation, or adverse remark. The explanation must be specific and must address the auditor's concern.
CARO 2020
The Companies (Auditor's Report) Order, 2020 (“CARO”) requires the auditor to report on a wide range of matters, including the maintenance of proper records of fixed assets, the physical verification of inventory, the loans given to related parties, the deposits accepted, the internal audit system, and the compliance with the provisions relating to the acceptance of deposits. CARO applies to every company except a banking company, an insurance company, a Section 8 company, a one person company, a small company, and a dormant company.
CARO is a critical tool for the regulator, and the auditor's report under CARO must be specific and evidence-based. A generic CARO report that does not address the company's specific circumstances is a report that does not meet the statutory purpose.
Call to Action
Anuj Desai & Associates advises companies and auditors on the Section 143 audit report—from the reporting requirements and the types of opinion to the CARO 2020 compliance and the response to a qualification. If your audit report contains a qualification or a reservation, we can help you address it.
📧 office@anujdesaiassociates.com
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🌐 https://anujdesaiassociates.com
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