Auditing and Accounting Standards
Nature and objectives of audit
An audit is an independent examination of financial information to express an opinion on whether it gives a true and fair view. Detection of material fraud and error is part of the work, but the primary objective is expression of opinion, not investigation. Types include statutory, internal, government, cost and tax audit.
Company audit under the Companies Act, 2013
Section 139: the auditor is appointed by members for five years; the first auditor is appointed by the Board within 30 days. Section 139(2): mandatory rotation for listed companies and prescribed classes - an individual for one term of five years, a firm for two terms of five years, with a five-year cooling-off. Section 141 lists disqualifications, such as indebtedness above ₹5 lakh, business relationships, and relatives holding securities. Section 143 gives powers and duties, including reporting on accounts and fraud.
Standards and audit opinions
ICAI issues SAs: SA 200 (overall objectives), SA 320 (materiality), SA 570 (going concern) and SA 700 (forming an opinion). Accounting Standards include AS 1 (disclosure of accounting policies), AS 2 (inventories at lower of cost and net realisable value) and AS 10 (property, plant and equipment). An unmodified opinion is clean; a qualified opinion is material but not pervasive; an adverse opinion is material and pervasive; a disclaimer arises when evidence is insufficient.
Worked example
An individual auditor of a listed company has audited for five consecutive years. Rotation under Section 139(2) applies; the auditor must retire and cannot be reappointed for five years.
Traps
Internal audit vs internal control; audit vs investigation; AS vs Ind AS applicability; confusing adverse opinion with disclaimer.