Audit of Government Companies (Commercial Audit) - Types of Company Audit, Auditing & Secretarial pr | Auditing and Secretarial Practice - B Com PDF Download

Audit of Government Companies (Commercial Audit)

There is a special arrangement for the audit of companies where the equity participation by Government is 51 percent or more. The primary auditors of these companies are Chartered Accountants, appointed by the Comptroller and Auditor General of India, who gives the directions to the auditors on the manner in which the audit should be conducted by them. The Comptroller and Auditor General of India is also empowered to comment upon the audit reports of the primary auditors. In addition, the Comptroller and Auditor General of India conducts a test audit of the accounts of such companies and reports the results of his audit to Parliament and State Legislatures.

Nature of Audit

While fulfilling his Constitutional obligations, the Comptroller & Auditor General examines various aspects of Government expenditure. The audit done by C&A G is broadly classified into Regularity Audit and Performance Audit.

Regularity Audit (Compliance)

• Audit against provision of funds to ascertain whether the moneys shown as expenditure in the Accounts were authorized for the purpose for which they were spent. 
• Audit against rules and regulation to see that the expenditure incurred was in conformity with the laws, rules and regulations framed to regulate the procedure for expending public money.
• Audit of sanctions to expenditure to see that every item of expenditure was done with the approval of the competent authority in the Government for expending the public money.
• Propriety Audit which extends beyond scrutinizing the mere formality of expenditure to it wisdom and economy and to bring to light cases of improper expenditure or waste of public money.

While conducting the audit of receipts of the Central and State Governments, the Comptroller & Auditor General satisfies himself that the rules and procedures ensure that assessment, collection and allocation of revenue are done in accordance with the law and there is no leakage of revenue which legally should come to Government.

Regularity Audit (Financial) 

In regularity (financial) audit and in other types of audit when applicable, auditors analyze the financial statements to establish whether acceptable accounting    standards for financial reporting and disclosure are complied with. Analysis of financial statements is performed to such a degree that a rational basis is obtained to express an opinion on financial statements.

Performance Audit

Performance audit is done to see that Government programmes have achieved the desired objectives at lowest cost and given the intended benefits.

Action on Audit Reports

The Annual Accounts and the Audit Reports of public enterprises and government companies are scrutinized by the Parliament. Since parliament has limited time for discussion on the issue of national importance, therefore the Parliament and the State Legislatures have, constituted specialized Committees like the Public Accounts Committee (PAC) and the Committee on Public Undertakings (COPU) for review and scrutiny of audit Reports and Annual Accounts of public enterprises and government companies

Public Accounts Committee

The Committee on Public Accounts is constituted by Parliament each year for examination of accounts showing the appropriation of sums granted by Parliament for expenditure of Government of India, the annual Finance Accounts of Government of India, and such other Accounts laid before Parliament as the Committee may deem fit, such as accounts of autonomous and semi-autonomous bodies (except those of Public Undertakings and Government Companies which come under the purview of the Committee on Public Undertakings).

Constitution of the Committee

The Committee consists of not more than 22 members comprising 15 members elected by Lok Sabha every year from amongst its members according to the principle of proportional representation by means of single transferable vote and not more than 7 members of Rajya Sabha elected by that House in like manner are associated with the Committee. The Chairman is appointed by the Speaker from amongst its members of Lok Sabha. The Speaker, for the first time, appointed a member of the Opposition as the Chairman of the Committee for 1967-68. This practice has been continued since then. A Minister is not eligible to be elected as a member of the Committee. If a member, after his election to the Committee is appointed a Minister, he ceases to be a member of the Committee from the date of such appointment.

The Public Accounts Committee satisfies itself:-

(a) that the money shown in the accounts as having been disbursed were legally available for, and applicable to the service or purpose to which they have been applied or charged;

(b) that the expenditure conforms to the authority which governs it; and

(c) That every re-appropriation has been made in accordance with the provisions made in this behalf under rules framed by the competent authority.

It is also the duty of the PAC to examine the statement of accounts of autonomous and semi-autonomous bodies, the audit of which is conducted by the Comptroller & Auditor General either under the directions of the President or by a Statute of Parliament.

Committee on Public Undertakings

The Committee on Public Undertakings exercises the same financial control on the public sector undertakings as the Public Accounts Committee exercises over the functioning of the Government Departments. The functions of the Committee are:-

(a) To examine the reports and accounts of public undertakings.

(b) To examine the reports of the Comptroller & Auditor General on public undertakings.

(c) To examine the efficiency of public undertakings and to see whether they are being managed in accordance with sound business principles and prudent commercial practices. 

The examination of public enterprises by the Committee takes the form of comprehensive appraisal or evaluation of performance of the undertaking. It involves a thorough examination, including evaluation of the policies, programmes and financial working of the undertaking.

The objective of the Financial Committees, in doing so, is not to focus only on the individual irregularity, but on the defects in the system which led to such irregularity, and the need for correction of such systems and procedures.

CAG’s Role in functioning of financial committees of Parliament

The Comptroller & Auditor General of India plays a key role in the functioning of the financial committees of Parliament and the State Legislatures. He has come to be recognised as a ‘friend, philosopher and guide’ of the Committee. His Reports generally form the basis of the Committees’ working, although they are not precluded from examining issues not brought out in his Reports. He scrutinizes the notes which the Ministries submit to the Committees and helps the Committees to check the correctness submit to the Committees and helps the Committees to check the correctness of facts and figures in their draft reports.

The Financial Committees present their Report to the Parliament/ State Legislature with their observations and recommendations. The various Ministries / Department of the Government are required to inform the Committees of the action taken by them on the recommendations of the Committees (which are generally accepted) and the Committees present Action Taken Reports to Parliament / Legislature.

In respect of those cases in Audit Reports, which could not be discussed in detail by the Committees, written answers are obtained from the Department / Ministry concerned and are sometimes incorporated in the Reports presented to the Parliament / State Legislature. This ensures that the audit Reports are not taken lightly by the Government, even if the entire report is not deliberated upon by the Committee.

Where, in any financial year, the accounts of the branch office of a company have not been audited by an auditor mentioned in sub-section (1) of section 228, the auditor of the company shall expressly state in the audit report that the branch office is exempt from the requirements of section 228 by virtue of rule 3 or that an exemption has been granted under rule 4.

8. Revocation of exemption.-

The Central Government may, after giving the company reasonable opportunity to make its objections, revoke an exemption granted under these rules, if

(a) there has been a contravention of any of the terms and conditions subject to which the exemption was granted;

(b) there has been a material alteration in the circumstances relating to the scrutiny, check or audit of the accounts of the branch office on the basis of which the exemption was granted ; and

(c) for any other reason, the Central Government is satisfied that the exemption is no longer necessary or justified.