Rights,

Duties and
Liabilities of
an Auditor
PRESENTED BY:

Shimila M & Nidha N V

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Rights and powers of an auditor
1.Right to access books of
accounts and vouchers

2. Right to visit branches

3. Right to obtain information

and explanation
4. Right to correct wrong statement

5. Right to comment on the inadequacy

of the accounting system

6. Right to receive notice and attend

general meetings
7. Right to have legal and technical
advice

8. Right to be indemnified

9. Right to receive remuneration as

the first auditor

10. Right to sign the audit report

Auditor’s Lien

An auditor has no lien on the books of accounts audited

by him. He has no right to keep the books under his
custody .He has lien only on the audit working papers
prepared by him.
Duties of an
Auditor

duties arising out of

1 statutory duties 3 professsional etiquette

duties arising out duties imposed by legal

2 4
of common law or court decisions
A. Statutory duties
1.Duty to make enquiries.
This section focuses the areas where the auditor is
Required to enquire into the following matters
➢Loans and advances made by the company on the basis of security.
➢Whether loans and advances made by the company have been
shown as deposit.
➢Whether the shares , debentures and other securities of the
company are sold at a price less than their purchase price.
➢Whether personal expenses have been charged to revenue
account
2. Duty to report on accounts audited by him
The principal duty of an auditor as defined in section 227 of
the companies act it is to make report to the members of the
company on the accounts audited by him and on every balance
sheet profit and loss account or any document annexed to the
balance sheet
Audit report should contain the following
a )weather in his opinion the profit and loss account exhibit a true and
fair view of the profit and loss of the company.
b).weather in his opinion the balance sheet is properly drawn up so as
to exhibit a true and fair view of the state of affairs of the company .
c). whether he has obtained all the information and explanations which
to the best of his knowledge and belief were necessary for the purpose
of his audit.
d). Weather, in his opinion, proper books of accounts as
required by law, have been kept by the company ,so far as
from his examination of the books and proper return
advocate for the purpose of his audit have been received
from branches not visited by him
e). whether the company's balance sheet and profit and loss
account dealt with by the report are in agreement with the
books of accounts and return.
f). whether the balance sheet and profit and loss account have
been drawn up according to the requirement of the companies
act.
3.Duty according to the direction of the central government
Under section 227 (4A), the central government may by
general or special order direct the companies to give specific
reports on certain matters of the companies . when Central
Government issue any such direction the auditor is required to
comply with them.

4. Duty to report for prospectus

under section 56 subsection 1, the prospectus issued by an existing
company shall contain a report from the auditor of the company
regarding the profit and loss and asset and liabilities of the company
and its subsidiaries and rate of dividend paid by the company for
each of the five financial year preceding the issue of prospectus
5.Duty to certify declaration of solvency.
in the case of members voluntary winding up a
declaration of solvency is made by its director under section 488
subsection 1 and the auditor is required to certify the directors
declaration about the solvency of the company under section
488

6. Duty to assist inspectors.

It is the duty of the auditor to help the inspectors to his
best while they are investigating into the affairs of the company

7. Duty to assist public prosecutor.

the auditor of the company shall be required to give to the
central government all reasonable assistance in connection with
the prosecution of of directors , managing agent or other officers
of the company
B. Duties arising out of common law

This duty arises out of contract between the

auditor and the client under common law. Important
contractual duties are:-
1.To ascertain unutilized capacities of the industry.
2.To ascertain the position of current asset.
3.To ascertain the extent of over stocking stores etc.
C. Duties arising out of professional etiquette.

The main duties arising out of professional etiquette

are:-
1.Every auditor should carry on his duties with due regard
to public interest and not his personal interest
2.He must be honest competent and independent.
3.He should disclose all material facts and information
about the working and financial position of the company
to shareholders.
4.The auditor should strictly adhere to the rules and
regulations formulated by the institute of chartered
accountants of India
D.Duties imposed by legal or court decisions.

1.It is the duty of an auditor to check the stock properly.

2.He should perform his duties with proper care and skill.
3.He should examine properly the terms of debentures trust
deed.
4.He should physically count cash in hand on the last date of the
financial year.
5.He is a watchdog but not a bloodhound ; not to adopt an
attitude of suspicion towards the client staff.
6. An auditor should correspond in writing with the retiring auditor
before accepting the appointment as an auditor in place of him.
7. A non member of the institute of the chartered accountants of
India and non holder of a certificate of practice from the council of
institute cannot practice as an auditor.
 Special audit of company
Under section 233 A the central government issue order to
appoint a chartered accountant or company auditor to conduct
special audit in the following circumstances.
1.The affairs of any company are not being managed in accordance
with sound business principles.
2.Any company is being managed in a manner likely to cause
serious injury or damage to the interest of the trade industry or
business to which it relates.
3.The financial position of any company is such as to endanger its
solvency.
The power and duties of such auditor are same as the company
auditors. The special auditor has to submit report to the central
government. The remuneration is also fixed by the central
government and is paid by the company.
 Thank you!
Have a
great day
ahead.