Key Notes, Advanced audit – Nov 2019

Audit Key Notes Final (Old) Exam: November, 2019

11(a). Dealing with company undergoing IBC procedures - SA 570 Going Concern

Check material uncertainty in relation to entity’s ability to continue as a going concern and for this, Request management to make assessment of entity’s ability to continue -- Evaluate the plan for future actions in relation to going concern assessment with angle whether the outcome of plans is going to improve situation or not -- If cash flow forecast is done, then check the adequacy of underlying assumption -- Consider any additional facts available after assessment -- Request written representation from Management about future action plan. -- Auditor shall evaluate whether, in view of financial reporting framework (FRF), the financial statements (F.St.) provide adequate disclosures about these events or conditions.

Resolution plan under IBC is a significant mitigating factor to counter the going concern issues of entity has submitted a detailed plan and commitments to clear all outstanding debts, thus the events and conditions are mitigated effectively and there is no material uncertainty in relation to the ability of the company to continue as a going concern.

11(b). Inventory under the Custody and Control of a Third Party -- SA 501 

When inventory under the custody and control of a third party is material to the financial statements, the auditor shall obtain sufficient appropriate audit evidence regarding the existence and condition of that inventory:

(i) Request confirmation from the third party

(ii) Perform inspection or other audit procedures examples

a. Attending, physical counting of inventory of 3rd party.

b. Obtaining another auditor’s report, or a service auditor’s report, on the adequacy of the third party’s internal control.

c. Inspecting documentation regarding inventory held by third parties, for example, warehouse receipts.

12. Preconditions by Company that they will not provide internal audit report and will imposed limitation on scope -- SA 210 

If there are preconditions, then auditor shall:

a. FRF applied in F.St. is acceptable; and

b. Obtain the agreement of management that it acknowledges and understands its responsibility  for preparation of the F.St. and internal control on its preparation, provide the auditor with: 

-- Access to all relevant information 

-- Additional information that the auditor may request

-- Unrestricted access to persons within the entity 

Further, if management or TCWG impose a limitation on the scope of and auditor believes it will result in the auditor disclaiming an opinion on the F.St., then the auditor shall not accept such a limited engagement as an audit engagement, unless required by law or regulation to do so.

13.(a) General conditions pertaining to Internal Check System: 
(i) Maker Checker rule -- No single person should have complete control over any important aspect of the business operation

(ii) Rotate Staff duties periodically.

(iii) Encourage staff to go on leave at least once a year.

(iv) Persons having physical custody of assets should not have access to the books of accounts.

(v) Budgetary control and deviations observed should be reconciled.

(vi) The Administrative powers should be distributed very judiciously among officers & should be reviewed periodically.

14. Audit under CIS Environment in absence of clear audit trial.

Transactions cannot be easily traced or co-related from the individual supporting documents,  and if management do not want to have print outs of all reports will led to extensive dependence byupon the "exception reporting" principle and thus these 'query-based reports' for most of his verification work. 

The problem which it raises is that he cannot simply assume that the programmes which produce the exception reports are reliable in respect of the following factors:

(i) operating accurately;

(ii) printing out all the exceptions which exist; and

(iii) bound by programmed control parameters which meet the company's genuine internal control requirements.

Auditor needs to test the invisible processes includes tests through the machine where he starts by proving the accuracy of the input data, and then thoroughly examines (by applying tests) the processing procedures with a view to establishing that all input is actually entered, neither the computer nor the operators can cause undetected irregularities and all operator intervention during processing is logged and scrutinised by the DP manager.

Evaluate the existing controls by doing following:

(i) Evaluate the internal control system for recording the transactions, i.e., he has to verify at what level transactions can be entered into the system and what checks are available to prevent any unauthorised data entry.

(ii) Evaluate at what level there is authority given for modification of transactions already entered.

(iii) Whether there is a provision in the software for carrying out an online audit of transactions,

(iv) Whether there are proper procedures for backup of data on a regular basis and followed,

(v) In case of any loss of data whether there is a clear defined recovery procedure

(vi) The auditor may introduce some dummy data into the system and see the results obtained.

Prepare an audit plan depending on the results obtained from his earlier evaluation - Data is verified directly on the computer from the vouchers/invoices, etc. The audit plan will also require a lot of analytical procedures to be performed, obtain various reports from the system depending on various queries that he would have to identify. Some illustrative reports can be:

(i) To check whether proper classification is done for revenue/capital

(ii) To check whether all freight outward bills are accounted for a report containing a month-wise co-relation between goods dispatched and freight amount paid. The same can be further co-related with the freight rates obtained from the bills.

Once the auditor has performed the above procedures, he would be able to form an opinion whether reliance can be placed on the accounting systems and the data recorded.

If the auditor finds that reliance cannot be placed on the systems he can inform the management about the fact and also that the daybooks, etc., will need to printed to allow him to conduct the audit.

15.(a) Ceiling limit of audits by a Firm under companies act - 

As per section 141(3)(g) of the Companies Act, 2013, a person shall not be eligible for appointment as an auditor if is holding appointment as auditor of more than 20 companies. (This limit of 20 company audits is per person.)

Other than

-- One person companies,

-- Dormant companies,

-- Small companies and

-- Private companies having paid-up share capital less than Rs. 100 crore (and not committed a default in filing its F.St. or annual return).

If 3 partners in firm, then the overall ceiling will be 3 × 20 = 60 company audits.

15 (b) Appointment of Branch Auditor without consent of principal auditor is valid: 

Section 143(8) prescribes the duties and powers of the company’s auditor with reference to the audit of the branch and the branch auditor.

Where a company has a branch office, accounts of that office shall be audited either

-- by the auditor appointed for the company (Principal auditor); or

-- by any other person qualified for appointment as an auditor of the company under 139

No requirement of taking consent of Principal auditor.

Subsequent appointment of auditor, every company shall at AGM appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth AGM.

16. (a) (i) Non-cash Transactions with Relative of Director:

3(xv) of CARO, 2016, the auditor is required to report “whether the company has entered into any non-cash transactions with directors or persons connected with him and if so, whether the provisions of section 192 of Companies Act, 2013 have been complied with”.

Section 192 of the said Act deals with restriction on non-cash transactions involving directors or persons connected with them.

The section prohibits the company from entering into such types of arrangements unless it is an arrangement by which the company acquires or is to acquire assets for consideration other than cash, from such director or person so connected.

Reporting requirement to be fulfilled in two parts.

16. (a) (i)  (ii) Title deeds of Immovable Property in the name of Director:

3(i)(c) of the CARO, 2016, the auditor is required to report on whether the title deeds of immovable properties are held in the name of the company. If not, provide the details thereof.

The auditor should verify the title deeds available and reconcile the same with the fixed assets register.

16 (b) Auditor’s Report for Audits Conducted in Accordance with Both Standards on Auditing Issued by ICAI and International Standards on Auditing or Auditing Standards of 4Any Other Jurisdiction SA 700

-- An auditor may be required to conduct an audit in accordance with the International SA (ISA) along with SA issued by ICAI (SA)

-- The auditor’s report may refer to SA in addition to the ISA, but the auditor shall do so only if:

(a) There is no conflict between the requirements in the ISAs and SA that would lead the auditor:

    (i) to form a different opinion, or

    (ii) not to include an Emphasis of Matter paragraph or Other Matter paragraph that, in the particular circumstances, is required by SAs; and

(b) The auditor’s report includes, at a minimum, each of the elements set out in Auditor’s Report Prescribed by ISA when the auditor uses the layout specified by SA.

When the auditor’s report refers to both the ISAs SA issued by ICAI, report shall clearly identify the same including the jurisdiction of origin of the other auditing standards.

17. Direction by Tribunal in case auditor acted in a fraudulent manner:

Section 140(5), Tribunal either

-- Suo motu or

-- On an application made to it by

   (a) CG or

   (b) by any person concerned,

If Tribunal is satisfied that the auditor has directly or indirectly acted in a

-- fraudulent manner or

-- Abetted or

-- Colluded in any fraud by, or

-- in relation to, the company or its directors or officers,

Tribunal may, by order, direct the company to change its auditors.

If application is made by CG and Tribunal is satisfied that any change of the auditor is required.

Tribunal shall within 15 days of receipt of such application,

-- Make an order that auditor shall not function as an auditor and

-- CG may appoint another auditor in his place.

It may be noted that an auditor, whether individual or firm, against whom final order has been passed by the Tribunal under this section shall not be eligible to be appointed as an auditor of any company for a period of 5 years from the date of passing of the order and the auditor shall also be liable for action under section 447.

In case of a firm, the liability shall be of the firm and that of every partner or partners who acted in a fraudulent manner.

18. Compliance of conditions of Corporate Governance in case of Listed Company:

LODR 2015 - Some situations may require an adverse or qualified statement or a disclosure without necessarily making it a subject matter of qualification in the Auditors’ Certificate, in respect of compliance of requirements of corporate governance for example:

(i) AC shall meet at least 4 times in year & not more than 120 days shall lapse between 2 meetings.

(ii) If Chairman is non-executive director, there should be 1/3rd of directors to be independent. Any vacancy during shortfall of independent directorship should be filled within next 3 months or before the start of next meeting, whichever is later. default would require qualification in certificate on corporate governance.

(iii) Chairman shall be present at AGM to answer shareholder queries.

(iv) AC shall mandatorily review Internal audit reports relating to internal control weaknesses.

(v) Auditor should ascertain whether, throughout the reporting period, the BOD comprises an optimum combination of executive and non-executive directors, with at least 1-woman director.

19. (a) Government Guaranteed Advance:

If a government guaranteed advance becomes NPA, then for the purpose of income recognition, interest on such advance should not be taken to income unless interest is realized.

However, for purpose of asset classification, credit facility backed by CG Guarantee, though overdue, can be treated as NPA only when the CG repudiates its guarantee, when invoked.

If the advance is guaranteed by SG because this exception is not applicable for SG Guaranteed advances, where advance is to be considered NPA if it remains overdue for more than 90 days.

In case the bank has not invoked the CG Guarantee though the amount is overdue for long, the reasoning for the same should be reported in LFAR.

19 (b) Contingent Liabilities for Banks:

The Third Schedule to the Banking Regulation Act, 1949, requires the disclosure of the following as a footnote to the balance sheet-

(A) Contingent liabilities

    (i) Claims against the bank not acknowledged as debts.

    (ii) Liability for partly paid investments.

    (iii) Liability on account of outstanding forward exchange contracts.

    (iv) Guarantees given on behalf of constituents-

           (1) In India.

           (2) Outside India.

    (v) Acceptances, endorsements and other obligations.

    (vi) Other items for which the bank is contingently liable.

20. Verification procedure to be performed in audit of NBFC - Investment and Credit Company (NBFC-ICC):

i. Physically verify all the shares and securities held by a NBFC. 

ii. Verify whether the NBFC has not advanced any loans against the security of its own shares.

iii. Verify that dividend income wherever declared by a company, has been duly received by an NBFC and interest wherever due has been duly accounted for.

iv. Test check bills/contract notes received from brokers with reference to the prices visà-vis the stock market quotations on the respective dates.

v. Verify the Board Minutes for purchase and sale of investments. 

vi . Check whether the investments have been valued in accordance with the NBFC Prudential Norms Directions.

vii . Obtain a list of subsidiary/group companies from the management and verify the investments made in subsidiary/group companies during the year.

viii . Check whether investments in unquoted debentures/bonds have not been treated as investments but as term loans or other credit facilities for the purposes of income recognition and asset classification.

ix. Verify charges received or paid in respect of securities lend/borrowed.

x. Obtain a confirmation from approved intermediary regarding securities deposited with/borrowed from it as at the year end.

(Note: The above checklist is not exhaustive. It is only illustrative. There could be various other audit procedures which may be performed for audit of an NBFC.)

21. Reporting in Tax Audit Report on unpaid Taxes : 

Any amount of GST/Tax payable on the last day of previous year (opening balance) as well as on the last day of current year has to be reported in Tax Audit Report under clause 26(A) and 26(B) in reference of section 43 B.

Clause 26 (A) dealt GST/VAT payable on the pre-existed of the first day of the previous year but was not allowed in the assessment of any preceding previous year and was either paid {clause 26(A) (a)}/ or/ and/ not paid during the previous year {clause 26(A)(b)} The details will be as under in regard to opening balances:

Liability Pre-existed on the previous year.

- Nature of Liability - VAT/GST
- O/s opening balance not allowed in previous year = Rs. 100 Lakhs (Since out of Rs. 200 Lakhs, 100 Lakhs is paid before due date of filing of return of preexisted previous year)
- Amount paid/set off during the year - Rs. 50 Lakhs
- Amount Written back to PL - Rs. 0 Lakhs.
- Amount unpaid at the end of the year - Rs. 50 lakhs

It has been assumed that 50 lakh was allowed in last year as it was paid before the due date of return.

Liability incurred during the previous year

- Nature of Liability - VAT/GST
- Amount incurred in previous year but remaining O/s of last day of previous year = Rs. 100 Lakhs
- Amount paid/set off before the due date of filing return/date upto which reported in the tax audit report, whichever is earlier - Rs. 40 Lakhs
- Amount unpaid on the due date of filing of return/date upto which reported in the tax audit report, whichever is earlier - Rs. 60 lakhs

22. (a) Why Operational Audit?: 

The need for operational auditing has arisen due to the inadequacy of traditional sources of information for an effective management of the company where the management is at a distance from actual operations due to layers of delegation of responsibility, separating it from actualities in the organisation. 

Operational audit is considered as a specialised management information tool to fill the void that conventional information sources fail to fill. 

Conventional sources of management information are 
 - Departmental managers, 
 - Routine performance report, 
 - Internal audit reports, and periodic special investigation and survey. 

These conventional sources fail to provide information for the best direction of the departments all of whose activities do not come under direct observation of managers. 

The shortcomings of these sources can be stated as under:

(i) Executives and managers are too preoccupied with implementation of plans and achieving of targets. They are left with very little time to collect information and locate problems

(ii) Managers or their aides are generally relied upon for transmitting information than for booking for information or for analysing situations.

(iii) The information that is transmitted by managers is not necessarily objective - often it may be biased for various reasons.

(iv) Conventional internal audit reports are often routine and mechanical in character.

(v) Other performance reports contained in the annual audited accounts and the routine reports prepared by the operating departments have their own limitations.

 - The annual audited accounts are good for monetary terms.
- Sales may be shown at a higher monetary value compared to the previous year and this may apparently suggest that the functioning of the sales department is satisfactory. But this may have been caused by a number of factors inspite of a really bad performance on the sales front. 

- The routine weekly production report may include production ‘that is subsequently rejected by the quality control staff, or to avoid showing a bad production performance; 

- Routine departmental report - The busy management people, may not have time to read whole reports.

(vi) Surveys and special investigations are very useful but are costly, time consuming and keep the departmental key personnel busy during the period they are on.

(b) The difference in the approach of both of these audits is illustrated below:

1. Perception - Traditionally, internal auditors have been engaged in a sort of protective function, deriving their authority from the management. They view and examine internal controls in the financial and accounting areas to ensure that possibilities of loss, wastage and fraud are not there; they check the accounting books and records to see, whether the internal checks are properly working and the resulting accounting data are reliable.

For example - when the auditor looks into the vouchers to see whether they corroborate the entries in the cash book or physically examines the cash in hand he is doing his traditional protective function. The moment be concerns himself to see whether customers’ complaints are duly attended to or whether cash balance is excessive to the need, he comes to the operational field.

Also, he will review the operational control on cash to determine whether maximum possible protection has been given to cash. Similarly, in the audit of stocks, he would be interested in such matters as reorder policy, obsolescence policy and the overall inventory management policy. In pure administrative areas on stock, he will see whether adequate security and insurance arrangements exist for protection of stocks.

2. Issues - The basic difference that exists in conceptualisation of the technique of operational auditing is in the auditor’s role in recommending corrections or in installing systems and controls. According to Lindberg and Cohn, such a situation would be in conflict with the role of operational audi tor. In this connection, the views of the Institute of Internal Auditors, in the context of internal audit are relevant. According to that Institute, “the internal auditor should be free to review and appraise policies, plans, procedures and records; but his review and appraisal does not in any way relieve other persons in the organisation of the responsibilities assigned to them. However, a further distinction should be observed between traditional internal auditing and operational auditing - this lies in the attitude and approach to the whole auditing proposition. Every aspect of operational auditing programme should be geared to management policies, management objectives and management goals.

3. Objectives - The main objective of operational auditing is to verify the fulfilment of plans and sound business requirements as also to focus on objectives and their achievement objectives; the operational auditor should not only have a proper business sense, he should also be equipped with a thorough knowledge of policies, procedures, systems and controls, he should be intimately familiar with the business, its nature and problems and prospects and its environment.

Above all, his mind should be open and active so as to be able to perceive problems and prospects and grasp technical matters. In carrying out his work probably at every step he will have to exercise judgement to evaluate evidence in connection with the situations and issues. The norms and standards should be such as are generally acceptable or developed by the company itself.

Performance yardsticks can be found in the management objectives, goals and plans, budgets, records of past performance, policies and procedures. Industry standards can be obtained from the statistics provided by industry, associations and government sources. It should be appreciated that the standards may be relative depending upon the situation and circumstances; the operational auditor may have to apply them with suitable adjustments.

For example - The standards relating to objectives for a government company are quite different from those of a private sector company. Similarly, standards of performance of a well equipped company which also adequately looks after the well-being of employees may be significantly different from a company which offers scanty welfare facilities or is ill-equipped.

Today, however, the concept of modern internal auditing suggests that there is no difference in internal and operational auditing. In fact, the scope of internal auditing is broad enough to embrace the areas covered by operational auditing as well. The modern internal auditing performs both protective as well as constructive functions.

24. (a) Delegation of Authority to the Employee: 

As per Clause (12) of Part I of the First Schedule of the Chartered Accountants Act, 1949, a Chartered Accountant in practice is deemed to be guilty of professional misconduct “if he allows a person not being a member of the Institute in practice or a member not being his partner to sign on his behalf or on behalf of his firm, any balance sheet, profit and loss account, report or financial statements”.

In this case CA. ‘A’ proprietor of M/s A & Co., went to abroad and delegated the authority to another Chartered Accountant Mr. Y, his employee, for taking care of routine matters of his office who is not a partner but a member of the Institute of Chartered Accountants

The Council has clarified that the power to sign routine documents on which a professional opinion or authentication is not required to be expressed may be delegated and such delegation will not attract provisions of this clause like issue of audit queries during the course of audit, asking for information or issue of questionnaire, attending to routing matters in tax practice, subject to provisions of Section 288 of Income Tax Act etc.

(i) In the given case, Mr. ‘Y’, a chartered accountant being employee of M/s A & Co. has issued audit queries which were raised during the course of audit. Here “Y” is right in issuing the query, since the same falls under routine work whichcan be delegated by the auditor. Therefore, there is no misconduct in this case as per Clause (12) of Part I of First schedule to the Ac t.

(ii) In this instance, Mr. “Y”, CA employee of the audit firm M/s A & Co. has attended the Income tax proceedings for a client as authorized representative before Income Tax Authorities. Since the council has allowed the delegation of such work, the chartered accountant employee can attend to routine matter in tax practice as decided by the council, subject to provisions of Section 288 of the Income Tax Act. Therefore, there is no misconduct in this case as per Clause (12) of Part I of First schedule to the Act.

(b) Money of Clients to be Deposited in Separate Bank Account: Clause (10) of Part I of Second Schedule states that a Chartered Accountant shall be deemed to be guilty of professional misconduct if “he fails to keep money of his clients in separate banking account or to use such money for the purpose for which they are intended”.

In the given case, M/s Amudhan & Co. received the money in January, 2019 which is to be paid only in July 2019, hence, it should be deposited in a separate bank account.

Since in this case M/s Amudhan & Co. has failed to keep the sum of ` 2.8 lakhs received on behalf of their client in a separate Bank Account, it amounts to professional misconduct under Clause (10) of Part I of Second Schedule.

(c) Other Misconduct: CA Raman has engaged his Articled Assistant for his own election campaigning for the Regional Council elections of ICAI.

This aspect is covered under ‘Other Misconduct’ which has been defined in Part IV of the First Schedule and Part III of the Second Schedule. These provisions empower the Council even if it does not arise out of his professional work. This is considered necessary because a Chartered Accountant is expected to maintain the highest standards of integrity even in his personal affairs and any deviation from these standards, even in his non-professional work, would expose him to disciplinary action.

Thus, when a Chartered Accountant uses the services of his Articled Assistant for purposes other than professional practice, he is found guilty under ‘Other Misconduct’.

Hence, CA Raman is guilty of 'Other Misconduct'.

(d) Not Exercising Due Diligence: According to Clause (7) of Part I of Second Schedule of Chartered Accountants Act, 1949, a Chartered Accountant in practice is deemed to be guilty of professional misconduct if he does not exercise due diligence or is grossly negligent in the conduct of his professional duties.

It is a vital clause which unusually gets attracted whenever it is necessary to judge whether the accountant has honestly and reasonably discharged his duties. The expression negligence covers a wide field and extends from the frontiers of fraud to collateral minor negligence.

Where a Chartered Accountant had not completed his work relating to the audit of the accounts a company and had not submitted his audit report in due time to enable the company to comply with the statutory requirement in this regard, he was guilty of professional misconduct under Clause (7).

Since, Mr. Anil has not completed his audit work in time and c onsequently could not submit audit report in due time and consequently, company could not comply with the statutory requirements, the auditor is guilty of professional misconduct under Clause (7) of Part I of the Second Schedule to the Chartered Accountants Act, 1949.

25. (a) The auditor's objectives in an audit of consolidated financial statements are:

(i) to satisfy himself that the consolidated financial statements have been prepared in accordance with the requirements of applicable financial reporting framework;

(ii) to enable himself to express an opinion on the true and fair view presented by the consolidated financial statements;

(iii) to enquire into the matters as specified in section 143(1) of the Companies Act, 2013; and.

(iv) to report on the matters given in the clauses (a) to (i) of section 143(3) of the Companies Act, 2013, for other matters under section 143(3)(j) read with rule 11 of the Companies (Audit and Auditors) Rules, 2014, to comment on the matters specified in sub-rule (a),(b) and (c)1 to the extent applicable;

(v) The auditor should also validate the requirement of preparation of CFS for the company as per applicable financial reporting framework.

25 (b) Areas of propriety audit under Section 143(1): 

Section 143(1) of the Companies Act, 2013 requires the auditor to make an enquiry into certain specific areas. In some of the areas, the auditor has to examine the same from propriety angle as to –

(i) whether loans and advances made by the company on the basis of security have been properly secured and whether the terms on which they have been made are prejudicial to the interests of the company or its members;

(ii) whether transactions of the company which are represented merely by book entries are prejudicial to the interests of the company. Again, considering the propriety element, rationalizing the proper disclosure of loans and advance given by company is made;

(iii) where the company not being an investment company or a banking company, whether so much of the assets of the company as consist of shares, debentures and other securities have been sold at a price less than that at which they were purchased by the company;

(iv) whether loans and advances made by the company have been shown as deposits;

(v) whether personal expenses have been charged to revenue account;

1 The auditor of the consolidated financial statements generally report on the matters pertaining to the  component, on the basis of auditors’ report of the respective component.

(vi) where it is stated in the books and documents of the company that any shares have been allotted for cash, whether cash has actually been received in respect of such allotment, and if no cash has actually been so received, whether the position as stated in the account books and the balance sheet is correct, regular and not misleading.

A control has been set up to verify the receipt of cash in case of allotment of shares for cash. Further, if cash is not received, the books of accounts and statement of affairs shows the true picture.

25 (c) Steps in Audit of Re-insurance ceded

(i) Evaluate internal control system in the area of reinsurance ceded to ensure determination of correct amount for reinsurance ceded, proper valuation of assets and liabilities arising out of reinsurance transaction and adherence to legal provisions and regulations.

(ii) Ascertain whether adequate guidelines and procedures are established with respect to obtaining reinsurance.

(iii) Reconcile reinsurance underwriting returns received from various units with the figures of premium, claims paid and outstanding claims for the company as a whole.

(iv) Examine whether commission on reinsurance ceded is as per the terms of the agreement with the re-insurers.

(v) Examine the computation of profit commission for automatic treaty arrangements in the light of the periodic accounts rendered and in relation to outstanding loss pertaining to the treaty.

(vi) Examine whether loss recoveries have been claimed and accounted on a regular basis.

(vii) Examine whether outstanding losses recoverable have been confirmed by reinsurers.

(viii) Examine whether remittances to foreign re-insurers are as per foreign exchange regulations.

(ix) Examine whether confirmations have been obtained regarding balances with reinsurers.

(x) Review individual accounts of re-insurers to evaluate whether any provision/write off or write back is required.

25 (d) Revision of Tax Audit Report:

(1) Normally, the report of the tax auditor cannot be revised later.

(2) However, when the accounts are revised in the following circumstances, the tax Auditor may have to revise his Tax audit report also.

(i) Revision of accounts of a company after its adoption in the annual general meeting.

(ii) Change in law with retrospective effect.

(iii) Change in interpretation of law (e.g.) CBDT Circular, Notifications, Judgments, etc.

The Tax Auditor should state it is a revised Report, clearly specifying the reasons for such revision with a reference to the earlier report.

25 (e) Powers and duties of an auditor of a Multi -state Cooperative Society: 

Under Section 73 of the Multi-State Cooperative Societies Act, 2002 every auditor of a multi-State Co-operative Society shall have a right of access at all times to the books, accounts and vouchers of the Multi-State Co-operative Society whether kept at the head office of the Multi-State Co-operative Society or elsewhere and shall be entitled to require from the officers or other employees of the Multi-State Co-operative Society such information and explanation as the auditor may think necessary for the performance of the duties as an auditor.

As per section 73 (2) the auditor shall make the following inquiries:

(i) Whether loans and advances made by the Multi-State Co-operative Society on the basis of security have been properly secured and whether the terms on which they have been made are not prejudicial to the interests of the Multi -State Co-operative or its members;

(ii) Whether transactions of the Multi-State Co-operative Society which are represented merely by book entries are not prejudicial to the interest of the Multi - State Co-operative Society;

(iii) Whether personal expenses have been charged to revenue account; and

(iv) Where it is stated in the books and papers of the Multi-State Co-operative Society that any shares have been allotted for cash, whether cash has actually been received in respect of such allotment, and if no cash has actually been so received, whether the position as stated in the account books and the balance sheet is correct, regular and not misleading.

PS:  NBFC Prudential Norms directions require dividend income on shares of companies and units of mutual funds to be recognised on cash basis. However, the NBFC has an option to account for dividend income on accrual basis, if the same has been declared by the body corporate in its Annual General Meeting and its right to receive the payment has been established. Income from bonds/debentures of corporate bodies is to be accounted on accrual basis only if the interest rate on these instruments is predetermined and interest is serviced regularly and not in arrears.