Audit of Public Sector Undertaking

Sec 2(45): Government Company

means any company in which ≥51% of the paid-up share capital held by:- It includes subsidiary company of a Government Company.
- Central Government
- Any State Government/s
- Partly by CG & partly by one or more SG

Legal Frame of Auditing by CAG

Article 148 Article 149 Article 150 Article 151

• C&AG shall be appointed by President
of India
•Tenure – 6yrs (or) 65years
(whichever is earlier)
Powers & Duties under CAG Accounts of the Union and Report of CAG shall be
(duties, Powers and condition of States will be maintained as per submitted to
Service Act, 1971) description given by the President/Governor
President on advice of CAG

• Remuneration – Equivalent to that

of a SC Judge

• Removal- only on grounds of proven

misbehavior

It includes audit of

Government Department Authorities and bodies Non-commercial bodies owned Commercial enterprises i.e.
Ex- Railways, Postal Services, substantially financed by CG/SG & controlled by CG/SG. Corporation under specific Act
telecom, etc Ex-NGO Ex- IIT & IIM Ex- LIC, UTI, etc
 Committees

Public accounts committee (PAC)
Duty to satisfy itself
- Money were disbursed legally &
incurred for the applied purpose only
- Expenditure incurred was authorized
- Re-appropriation has been done in
accordance with the provision made
- Examine the statement of accounts of
autonomous & semi-Autonomous
bodies
Committee on Public Undertaking (COPU)
- Examine the reports & accounts of PSUs
- Examine reports of C&AG
- Examine autonomy & efficiency of PSUs,
whether it is in accordance with sound
business principles & commercial practice
- Exercise such other functions vested in PAC
& as may be allocated by the speaker from
time to time
Estimation Committee
It examine the estimates with a view to:
- report what economy improvements in
organization may be effected
- Suggest Alternative Policies
- Examine whether Rupees is will laid out
within limits
- Suggest the form in which the estimates
shall be presented to the Parliament

C&AG Role: Friend, Philosopher & Guide to Committees

 C&AG report form basis of committee’s working
 It scrutinizes the notes before submitted by ministries to committees
 It gives observations, recommendations & action taken report to Department/Ministries
 If Audit report can’t be discussed in detail with the government, it obtains written answers from Department/Ministries & ensure Audit report not
be taken lightly by the Govt. even if entire report is not deliberated by committees.

Objective & Scope of PSU Audit

1) Audit of PSU not constrained to Financial & compliance audit but is also do Proprietary Audit& comprehensive Audit
2) Organization decision to be taken by competent authority using all information available
3) Helping government to improve efficiency & effectiveness
4) Highlighting issues of efficient & economic operations
5) It sets accountability : Fiscal Accountability & Management Accountability

Steps involved in the Audit of Govt. Company

1) Sec 143(5): C&AG appoint the Auditor u/s 139(5) / 139(7) and direct the manner in which accounts to be audited.
The auditor so appointed shall submit a copy of the audit report to C&AG among other things.
C&AG issue directions, if any.

2) Supplementary Audit is conducted u/s 143(6): order to be issued by C&AG within 60days of receipt of Audit Report & comment on such audit report.
3) Test Audit is conducted u/s 143(7).
 Basic Elements of PSU Audit

Parties
Auditor Responsible Party
Individual/Firm who conducts the audit Responsible Party are determined by Constitutional
(or) Legislative arrangements. Generally auditable
entities & TCWG would be the responsible parties.
Intended Users
Intended users are the Individuals, organizations
for whom the Auditor prepares the Audit Report

Matters
Subject Matter Criteria Subject Matter Information
This refers to the information, activity that is These are the benchmarks used to evaluate the This refers to the outcome of
measured/evaluated against certain criteria subject matter evaluation/measurement of the subject matter
against certain criteria.

Types of Engagement
Attestation Engagements Direct Reporting Engagements
In the attestation engagements, the responsible party measures the subject In direct Reporting Engagement, it is the Auditor who measures & Evaluates the
matter against the criteria & presents the subject matter information, on which subject matter against the criteria
the Auditor then gathers SAAE to provide a reasonable basis for expressing a Ex-Performance audits & compliance audits
conclusion.
Ex- FST

Principal of PSU Audit

General Principal Principles Related to the Audit Process

Audit Team Management & Skill Establish Terms of Audit Perform the planned Prepare a Report based
audit procedures on conclusion drawn
Professional Judgment & Due care Understand Entity Evaluate Audit Follow-up on report
evidence & draw mattes which are
conclusion relevant
Audit Risk Conduct risk assessment
Quality Control Identify risk of fraud
Documentation Develop Audit Plan
Materiality
 Audit Conducted by C&AG

Financial Audit
Financial audit is primarily conducted to express an audit opinion on FST, it includes
- Examination & evaluation of financial records
- Compliance with applicable statues & regulations
- Internal control & internal audit functions

Compliance Audit
Also know as Audit of "Rule and Order”. It is an independent assessment to check whether a given subject matter is in compliance with applicable
criteria. Compliance audit is concerned with
a) Regularity: Assessment of the subject matter to the formal criteria (applicable rules, regulation & orders applicable to the entity)
b) Propriety: observance of general principles of sound financial management and the ethical conduct of public officials.

Compliance Audit is generally conducted either :-

i. with audit of FST (or)
ii. separately as Individual compliance audit
iii. in combination with performance audit

Performance Audit
It is an objective & systematic examination of evidence for the purpose of providing an independent assessment of the performance of government
organization, program, activity or function in order to provide information to improve public accountability and facilitate decision making by parties
with responsibilities to oversee or initiate corrective action.

Planning of Performance Audit :-

Step 1: Understanding the entity/programme
Step 2: Defining the objectives & the scope of audit
Step 3: Determining audit criteria
Step 4: Deciding audit approach
Step 5: Developing audit questions
Step 6: Assessing audit team skills & whether outside expertise required
Step 7: Preparing audit design matrix (ADM)
Step 8: Establishing time ta.ble & resources
Step 9: Intimation of audit proqramme to audit entities

The specimen of ADM is given as under:

Audit Objective Audit Questions Audit Criteria Evidence Data Collection & Analysis Method
XX XX XX XX XX

Elements of Performance Audit

Economy Efficiency Effectiveness

reducing the cost of inputs used for
activity i.e. best price for
appropriate quantity, quality of
goods (most economical)
Increasing input/output ratio to achieve
maximum efficiency . How??
a) Sound Procurements Practice
b) Resources are protected and maintained
c) Optimum utilization of physical, financial
& HR resources
d) Best Operating Process
e) Objectives are met cost effectively
f) Public sector programme/activities are
efficiently managed
To which extent objectives are achieved &
relation between intended & actual impact of
activity
Check:
a) Whether objective are within legal flame
& are consistent with the policy
b) To which extent result are achieved
c) Access social & economic impact due to
policy & other causes
d) Indentify factors inhibiting satisfactory
performance
e) Access compliance with laws &
regulations
f) Access effectiveness of programs

Case Study by ICAI

Ex: Performance audit of enforcement mechanism administering provisions of Minimum Wages Act (social welfare legislation)
 Auditor possess knowledge of industries (or) labour contracts where provisions applicable
 Evaluate standard of living before and after implementation of the Act
 Also evaluate EEE in welfare system to be audited
 Study shortcomings in coordination b/w different agencies like labor dept, ESI , EPF organisations
 Shall also point out gap in existing legal framework to strengthen objective of legislation
Performance Audit = Sources for Understanding the Entity
 Documents of the Entity
 Legislative documents
 Policy documents
 Academic and special research
 Special focus groups
 Past Audits
 Media coverage

Performance Audit = Methods for deciding Audit Approach

 Analysis of procedures
 Analysis of results
 Quantitative analysis
 Case Studies
 Use of existing data
 Surveys

Comprehensive Audit
Efficiency-cum-performance audit which locates the area of weakness & extravagance for managements

Issues Examined in Comprehensive Audit

 Overall cost of capital with approved planned costs?
 Accepted production?
 Planned rate of return achieved?
 System of project formulation and implementation sound?
 Are cost control measures adequate?
 Does enterprise have R&D program?
 Does enterprise have adequate system of R&M?
 Propriety Audit
Propriety Audit stands for verification of transaction on the tests of public propriety, commonly accepted customs & standards of conduct.

Principles of Propriety
 Expenditure should not be more than prima facie than what occasion demands
 Authority shall not use its powers to sanction expenditure for its own benefit
 Funds should not be utilized for personal purpose
 Apart from remuneration & reward, no other benefit directly/indirectly should be given to employee/mangers/any other persons.

Audit Report of C&AG

Report is presented to Parliament consistency of following:-
a) Introduction- Containing general review of working results of Govt Co, deemed Govt Company & Corporation
b) Results of comprehensive appraisals of selected undertaking.
c) Resume of company auditors, report submitted by them under their direction
d) Comments of C&AG
e) Significant results of audit of undertaking not taken for appraisal by the audit board