Public enterprises are required to maintain commercial accounts and are generally classified under three categories :—
- departmental enterprises engaged in commercial and trading operations, which are subject to the same laws, financial and other regulations as other government departments and agencies;
- statutory bodies, corporations, created specific statutes mostly financed government in the form of loans, grants, etc. and
- government companies set up under the Companies Act, 1956.
The audit of departmental concerns is undertaken in the same manner as any department of government where commercial accounts are kept. Audit of statutory bodies or corporations depends on the nature and type of the statute governing the bodies or corporations. Both financial and accounts audit are conducted the C&AG, and where compilation of accounts is vested with the C&AG, functions, norms and standards of works usually followed the professional auditors are adopted mutatis mutandis. Government companies have their own auditors under the statute appointed C&AG. In addition, the C&AG conducts a supplementary test audit of the accounts, as well as periodical financial audit and appraisal of performance. The C&AG also issues direction to the company auditors for reporting on specific aspects of their audit work. These are reviewed, and condensed in the audit reports to the government/legislatures. C&AG has adopted the mechanism of an Audit Boardcomprising of representatives of the audit and nominees of government including functional specialists to process reviews or appraisals on performance. In the case of a Government company, the auditor of a Government company shall be appointed or reappointed the Comptroller and Auditor General of India. The Comptroller and Auditor-General of India shall have power under section 619(3) of the Companies Act, 1956 as follows :
- to direct the manner in which the company’s accounts shall be audited the auditor and to give such auditor instructions in regard to any matter relating to the performance of his functions as such ;
- to conduct a supplementary or test audit of the company’s accounts such person or persons as he may authorise in this behalf; and for the purposes of such audit, to require information or additional information to be furnished to person or persons so authorised, on such matters, such person or persons, and in such form, as the Comptroller and Auditor-General may general or special order, direct.
The auditor aforesaid shall submit a copy of his audit report to the Comptroller and Auditor-General of India who shall have the right to comment upon, or supplement, the audit report in such manner as he may think fit. As stated above, in the case of a government company, audit is conducted professional auditors appointed on the advice of the C&AG and the latter is authorised under section 619(4) of the Companies Act, 1956 to conduct supplementary or test audit. The C & AG shall direct the manner in which the company’s accounts shall be audited the statutory auditors and give such auditors instructions in regard to any matter relating to the performance of his functions as such. The directions under section 619(3)(a) broadly covers the system of book-keeping and accounts, internal control etc. The C & AG has power to conduct a supplementary or test audit of the company’s accounts such
person as he may authorise in this behalf and for the purposes of such audit require information or additional information to be furnished to any person or persons so authorised on such matters such person or persons and in such form as the C & AG may be general or special order, direct. The statutory auditors shall submit a copy of their audit report to the C & AG who shall have a right to comment upon or supplement the audit report submitted the statutory auditors in such manner as he may think fit. Section 217(3) of the Companies Act, 1956 impose a duty on the board of directors of a company to give to fullest information and explanations in the Directors’ report regarding every reservation, qualification or adverse remarks contained in the auditors’ report. The Board’s remarks on the auditors’ report are to be given as an addendum to the report and are to form part of the main body of the report as per section 217(3). In the absence of similar provisions requiring the company to give reply on the reservation made the C & AG, the board of directors of such a company is not bound to give information or explanation in respect of such comments. The general standards, principles, techniques and procedures for audit adopted the C&AG are a mixture of government audit and commercial audit as known and practiced professional auditors. The concepts of autonomy and accountability of the institution / bodies / corporations / companies have influenced the nature and scope of audit in applying the conventional audit from the angle of economy, efficiency and effectiveness.