Sections 143 and 144 of the Companies Act, 2013: Powers and Duties of Auditors and Prohibited Services

Section 143 - Powers and duties of auditors and auditing standards

Meaning and purpose. Section 143 gives the statutory auditor the information-access and inquiry powers needed to conduct the audit and prescribes the matters that must be addressed in the auditor's report. It also deals with Government company audits, branch audits, auditing standards, additional reporting requirements and fraud reporting.

1. Right of access and power to seek information - Section 143(1)

Every auditor has a right of access at all times to the company's books of account and vouchers, whether kept at the registered office or elsewhere. The auditor may require from the company's officers such information and explanations as the auditor considers necessary for performing audit duties.

The statutory inquiries include whether:

• loans and advances made on security are properly secured and their terms are not prejudicial to the company or its members;
• transactions represented merely by book entries are prejudicial to the company;
• in a company other than an investment or banking company, specified securities have been sold below their purchase price;
• loans and advances have been shown as deposits;
• personal expenses have been charged to revenue; and
• where shares are stated to have been allotted for cash, the cash was actually received and the books and balance sheet correctly reflect the position.

For consolidation purposes, the auditor of a holding company also has statutory access to relevant records of its subsidiaries and associate companies.

2. Auditor's report to members - Section 143(2)

The auditor must report to the members on the accounts examined and on the financial statements required to be laid before the company in general meeting. The report must take account of the Act, applicable accounting and auditing standards, prescribed matters and any additional reporting requirements imposed under Section 143(11). The central reporting objective is whether the financial statements give a true and fair view in accordance with the statutory framework.

3. Matters to be stated in the auditor's report - Section 143(3)

The report must address, among other matters, whether the auditor obtained the information and explanations necessary for the audit; whether proper books and adequate branch returns were maintained or received; how branch audit reports were dealt with; whether the financial statements agree with the books and returns; and whether the financial statements comply with accounting standards.

The auditor must also report relevant observations or comments on financial transactions or matters having an adverse effect on the functioning of the company, director disqualification under Section 164(2), qualifications or adverse remarks concerning maintenance of accounts, internal financial controls with reference to financial statements and their operating effectiveness, and other prescribed matters.

4. Negative answers and qualifications - Section 143(4)

If a matter required to be included in the audit report is answered in the negative or with a qualification, the auditor must state the reasons.

5. Government companies - Sections 143(5) to 143(7)

For Government companies and other companies covered by these provisions, the Comptroller and Auditor-General of India has specified statutory powers concerning appointment-related directions, supplementary audit, comments or supplements to the audit report, and test audit. The applicable report and comments are dealt with in the manner prescribed by the Act.

6. Branch audit - Section 143(8)

A branch office may be audited by the company's auditor or another person qualified and appointed in accordance with the Act. For a branch outside India, the audit may also be carried out by a person qualified under the law of that country. A branch auditor reports on the branch accounts to the company's auditor, who considers that report in preparing the company's audit report.

Auditing standards and additional reporting

Section 143(9) requires every auditor to comply with the auditing standards. Under Section 143(10), the Central Government may prescribe auditing standards or addenda after the statutory consultation and recommendation process. Until standards are formally notified for this purpose, the standards on auditing specified by the Institute of Chartered Accountants of India operate as the auditing standards under the statutory proviso.

Section 143(11) authorises the Central Government, in consultation with the National Financial Reporting Authority, to require specified classes of companies to include additional matters in the auditor's report. The Companies (Auditor's Report) Order, 2020, commonly called CARO 2020, is an important order made under this power for companies to which it applies.

Fraud reporting under Section 143(12)

Section 143(12) creates a statutory reporting obligation where, in the course of performing audit duties, the auditor has reason to believe that an offence involving fraud is being or has been committed against the company by its officers or employees. The reporting route depends on the amount involved and the applicable rules.

Under the Companies (Audit and Auditors) Rules, 2014, fraud involving the prescribed threshold is reported to the Central Government in the prescribed manner, while fraud below the threshold is reported to the audit committee or the Board, as applicable. The Board's report must contain prescribed disclosures for frauds reported to the audit committee or Board but not to the Central Government.

Section 143(13) protects good-faith reporting under Section 143(12). Under Section 143(14), the fraud-reporting framework applies, with necessary modifications, to a cost accountant conducting cost audit under Section 148 and a company secretary in practice conducting secretarial audit under Section 204. Section 143(15) provides monetary penalties for failure to comply with Section 143(12), with separate amounts for listed and other companies.

Section 144 - Auditor not to render certain services

Meaning and purpose. Section 144 is an auditor-independence provision. An auditor appointed under the Companies Act may provide other services only if approved by the Board of Directors or the audit committee, as applicable, and only if the service is not one of the prohibited services listed in the section.

Services prohibited by Section 144

Direct and indirect rendering of services

The restriction is not limited to services supplied in the auditor's own name. The statutory explanation extends "directly or indirectly" to specified connected persons and entities. For an individual auditor, this includes the auditor personally and specified relatives, connected or associated persons, and entities in which the auditor has significant influence or control or whose name, trade mark or brand is used. For an audit firm, the provision extends to the firm, its partners, parent, subsidiary or associate entities and other specified entities connected through significant influence, control, name, trade mark or brand.

Practical compliance points for companies and auditors

• Document the auditor's unrestricted statutory access to books, vouchers and information needed for the audit.
• Ensure the audit report covers every matter required by Section 143(3), applicable rules and any order under Section 143(11).
• Apply the current fraud-reporting procedure under Section 143(12) and the Companies (Audit and Auditors) Rules, 2014 where the auditor has the required reason to believe.
• Check whether CARO 2020 applies to the company and address the clauses applicable to the relevant financial year.
• Before engaging the statutory auditor for any additional work, test the service against Section 144 and obtain Board or audit committee approval where legally permissible.
• For entities within NFRA's jurisdiction, also consider applicable NFRA requirements, circulars and audit-quality guidance.

Official resources

For the current statutory text and regulatory material, refer to the Companies Act, 2013 published by the Ministry of Corporate Affairs, the Ministry of Corporate Affairs, and the National Financial Reporting Authority. These official sources should be checked for later amendments, notifications, rules, orders and circulars.