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Q.3 ( C ) Explain “statutory” & “non statutory audit”.

Ans : STATUTORY AUDIT When audit is compulsory for an enterprise by law it is called as “Statutory Audit”. Such audit is carried out by a third party or person who is duly competent for this purpose. Hence, it is also called as External Audit. Only a person who possess the prescribed qualifications and who is wholly independent of the client is deemed to be competent. Statutory audit is of great value to the person associated with the enterprise. In case of a joint stock company, it is impossible for shareholders to verify the representations made by the management in the financial statements i.e. in case of statutory audit the external auditor is responsible and he has to report to the shareholders. They can only depend on the auditor for his expert opinion. Statutory audit is conducted by a competent person and hence it is also beneficial for the creditors, bankers, government departments and investors. In case of public sector a compulsory audit is necessary to safeguard the interests of the public against frauds and scams. The object of Statutory Audit, as laid down in the statute, is to examine the books of accounts and report whether or not the financial statements show a ‘true and fair view’ if the state of the company at the end of the financial year ended on that date. NON STATUTORY AUDIT When audit is compulsory for an enterprise by law it is called as “Non Statutory Audit”. It is also called as Internal Audit. No specific qualification is prescribed as such to carry out the non statutory audit or internal audit. It is carried out by the employees of the company. Non - Statutory Audit provide consulting service for improving the effectiveness of risk management, control and governance process. Therefore Non -Statutory Audit as a consultancy service, is expected to provide inputs to the formulation and implementation of strategies. As an assurance service it conduct strategy audit and review management decisions. In case of the Non - Statutory Audit the internal auditor is responsible and he has to report to the management. The techniques and methods of auditing are the same as in external auditing. But the main aim of conducting Non - Statutory Audit is to just ensure that there is proper compliance with policies, rules and regulations and procedures of the enterprise such as good business practices, GAAP, laws of the land and government regulations.

any money or property of the company.3 (D) What are the special liability has been imposed by the Companies Act. pursuant to the definition of officer given in Section 2(3) of the Act.1000 for willful default in complying with the requirements of Sections 227 and 229 of the companies act in regard to making of the auditors report or signing or authentication of any document of the company.1956 an auditor may be subjected to Civil & Criminal liabilities. Criminal Liabilities in the Companies Act : . Civil Liabilities in the Companies Act : The civil liability arises when it is proved that the company has suffered losses as a result of the failure of the auditor to conduct his audit with due care and skill. Violation of the requirements of Section 227 and 229 – Under Section 223 of the act and auditor is liable to penalty of Rs. III.1956 on the company auditor. The charge of misfeasance which simply means breach of trust or negligence in the performance of duties can be framed against the auditor. if it appears that he has misapplied.OR Q. I. Misstatement in Prospectus – The auditor is liable to such person who may have prescribed to the shares or debentures of the company on the faith of his report incorporated in the prospectus issued by a company and have suffered loss due to existence of untrue statement in the report. II. An auditor is covered within the scope of the liability as an officer of the company. or has been guilty of any misfeasance or breach of trust in relation to the company. Misfeasance ( Section 543) – It is simple procedure under the act for bringing an action against persons associated with promoter or management of a company under winding up. or retained or become liable or accountable for. Ans : Under the Companies Act.

altered.I. etc. prospectus. books or account or document belonging to the company. has been guilty of offence in relation to the company. II. is punishable with imprisonment for a term which may extend to two years and also with a fine. . certificate. Fraud and Deception – Section 539 of the act prescribes severe criminal penalties in fraudulent falsification of books is carried out by the auditor. knowing it to be material. False Statement . An auditor may be held liable if he has destroyed. secreted any books. Offence in relation to the company – An auditor as an officer. balance sheet. the auditor is liable to criminal prosecution if he. – Section 638 of the Act. statement or other document makes a statement which is false in any material particular. is liable to be prosecuted under Section 545 of the Act if he as a past pr present auditor. falsified. III. in any return. mutilated. acts or fraudulent entry in any register.