AUDITING

TOPIC: A critical study of the special features of audit to Public

Sector Undertakings.

SUBMITTED BY:-

AMIT RAJ

BCOM LLB SEM -III

ROLL NO. -07

GUIDED BY:-

MR. SUBHRASHEK DEY

ASST. PROF OF MANAGEMENT

Indian Institute of Legal Studies

Dagapur, Matigara, Siliguri, Darjeeling, West Bengal 734010

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 ACKNOWLEDGEMENT

With profound gratitude and sense of indebtedness I place on record my sincerest

thanks to MR. SUBHRASHEK DEY, Prof In Management, Indian Institute of Legal
Studies, for his invaluable guidance, sound advice and affectionate attitude during the
course of my studies.

I have no hesitation in saying that she molded raw clay into whatever I am through his
incessant efforts and keen interest shown throughout my academic pursuit. It is due to
her patient guidance that I have been able to complete the task.

I would also thank the Indian institute of Legal Studies Library for the wealth of
information therein. I also express my regards to the Library staff for cooperating and
making available the books for this project research paper.

Finally, I thank my beloved parents for supporting me morally and guiding me

throughout the project work.

________________ Amit Raj

Teacher’s Signature Student’s Signature

Date: __/__/____ Date:

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 TABLE OF CONTENT

CHAPTER CHAPTER NAME PAGE NO.

01 SYNOPSIS 4

01 INTRODUCTION 5

02 ORIGIN AND EVOLUTION OF 6

AUDITING

03 IMPORTANCE OF AUDIT IN PUBLIC 7

SECTOR ORGANIZATIONS

04 FEATURES OF AUDIT TO PUBLIC 8

SECTOR UNDERTAKINGS

05 CONCLUSION 10

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 CHAPTER :1
SYNOPSIS
1) AIMS AND OBJECTIVES

The aim and objective of this project is to study permutation as a factor which determinedly
affects the nature or outcome.

2) STATEMENT OF PROBLEM

With this project, the researcher tries to find about how permutation acts as a factor ewhich
affects he nature or outcome.

3) RESEARCH QUESTIONS

The various questions that has been researched here are-

1. What is the Origin and evolution of auditing?
2. What are the importance of audit in public sector organizations?
3. What are the Features of audit to public sector undertakings?

4) RESEARCH HYPOTHESIS

An audit is an objective examination and evaluation of the financial statements of an

organization to make sure that the records are a fair and accurate representation of the
transactions they claim to represent. The audit can be conducted internally by employees of
the organization, or externally by an outside firm.

5) RESEARCH METHODOLOGY

The research methodology used is completely doctrinal which includes books, and websites.

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 CHAPTER-1

INTRODUCTION

The public enterprises in India have been assigned a key role in the socio-economic
development of the country. These enterprises are industries supplying basic inputs to
industry and agriculture, such as coal, oil, steel, minerals and metals, cement, chemicals and
fertilizers and heavy equipment. Public utilities like the railways, postal and telecom services,
electricity generation and supply, road transport, etc. constitute another class of public
enterprises. Thus in India the public sector has achieved a dominant role in the national
economy.

Public sector enterprises are organized through any one of the following modes:

(a) Departmentally managed undertakings which form part and parcel of Government
activities, for example Indian Railways, Postal Services, Security Printing Press ,
Canteen Stores Department ;

(b) Government companies and deemed Government companies set up under the
Companies Act 1956, where Government or Government-owned and controlled
institutions own 51 percent or more of the paid up capital;

(c) Corporations set up under the specific Acts of legislature e.g., Life Insurance
Corporation, Unit Trust of India, etc.

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 CHAPTER 2:
ORIGIN AND EVOLUTION OF AUDITING
Origin of Audit comes from the word “Audire” but the evolution of Auditing as a
financial accountability field in the advent of the Industrial Revolution.
The word “AUDIT” has Latin origins (audio, audire, means listening). During the
time this word has known a lot of definitions and classifications. In general, it is a synonym
to control, check, inspect, and revise.
Auditing existed primarily as a method to maintain governmental accountancy, and
record-keeping was its mainstay. From the time of ancient Egyptians, Greeks, and Romans,
the practice of auditing the accounts of public institutions existed.
Checking clerks were appointed in those days to check the public accounts. To locate
frauds as well as to find out whether the receipts and payments are properly recor4ed by the
person responsible was the main objective of auditing of those days.
It wasn’t until the advent of the Industrial Revolution, from 1750 to 1850, that
auditing began its evolution into a field of fraud detection and financial accountability.
Businesses expanded during this period and brought in large scale production, steam
power, improved facilities and better means of communication. This resulted in the origin of
the joint stock form of organizations.
Shareholders contribute capital of these companies but do not have control over the
day to day working of the organization. Management was hired to operate businesses in the
owners’ absences, but the shareholders who have invested their money would naturally be
interested in knowing the financial position of the company. So they found an increasing
need to monitor their financial activities, both for accuracy and for fraud prevention.
This originated the need of an independent person who would check the accounts and
report the shareholders on the accuracy of the accounts and the safety of their investment.
In the early 20th century, the reporting practice of auditors, which involved
submitting reports of their duties and findings, was standardized as the “Independent
Auditor’s Report.”
The increase in demand for auditors leads to the development of the testing process.
Auditors developed a way to strategically select key cases as representative of the company’s
overall performance.

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 CHAPTER 3:

IMPORTANCE OF AUDIT IN PUBLIC SECTOR ORGANIZATIONS

In accordance with the target objective several kinds of audit can be defined in Public
Sector.

1. Financial Audit: Intended to verify financial statements, accounts and balances as

per generally accepted accounting principles. Also, to verify money expended has
been applied to the same purpose and premise for which it was obtained and within
the boundaries of acceptable vagaries.

2. Audit of Legality Concordance: Intended to verify all transactions, processes are in

full accordance with the law of the land and do not in any case harm or influence an
organization or an individual for its own means.

3. Audit of efficacy or of programs: Intends to verify the result obtained from a plan
for which money was employed is in conformance with the objective for which
program was made.

4. Audit of Economy and efficiency: Intends to verify the way resources have been
managed. Whether resources have been acquired at minimum cost and employed for
maximum benefit.

5. Audit of Systems and Procedures: It is important for every organization which

follows rules and laid down principles to verify its system and processes for
improvement and quality conformance.

Financial and Audit of Legality concordance were originally grouped together to form Audit
of Regularity and rest other audits were termed as Operational Audit.

After audit is complete it is necessary to file a report which has adequate representation of
facts and figures, adequate content, adequate preparation, adequate opinion for the target
audience to understand it better and enough publicity for the report.

Audit must be treated as an instrument for exercising control over processes, systems,
finances and individuals to make governments and governing bodies more responsible
towards the public and its resources, but it cannot be considered as an end unto itself.

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 CHAPTER 4

FEATURES OF AUDIT TO PUBLIC SECTOR UNDERTAKINGS

4.1 The essential features of auditing (as per ICWAI, India) are:

1. making a critical review of the system and procedures in an organisation;

2. making such tests and enquiries into the results as well as the operation of such systems
and procedures, as the auditor may consider necessary to form an opinion;

3. expressing that opinion in the accepted phraseology that has been developed;

4. Ensuring that the opinion covers all aspects which are required to be covered by law or
accepted professional norms.

The value of audit is in its independence and the auditor should report directly to the
managing director.

4.2 The following steps involved in the audit of government companies

(a) Appointment of Auditors Under Section 619(2) of the Companies Act, 1956 -
Statutory auditors of Government Company are appointed or re-appointed by the
Comptroller and Auditor General of India. There is thus a departure from the practice in
vogue in the case of private sector companies where appointment or re-appointment of
the auditors and their remuneration are decided by the members at the annual general
meetings.

(b) Supplementary audit under section 619(4) of the Companies Act, 1956 - In the case
of a Government company, audit is conducted by professional auditor appointed by the
C & AG and the latter is authorised under section 619(4) of the Companies Act, 1956
to conduct supplementary or test audit. He is also empowered to comment upon or
supplement the report submitted by the professional auditors. The C & AG may also
issue directives to the auditors in regard to the performance of their function.

The C & AG has power to conduct a supplementary or test audit of the company’s
accounts by 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

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 persons so authorised on such matters by such person or persons and in such form as
the C & AG may by general or special order, direct.

(c) Right to comment on Auditors’ Report - 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 by the statutory auditors in such manner as
he may think fit.

Section 217(3) of the Companies Act, 1956 imposes a duty on the Board of Directors
of a company to give the 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 their reply on the
reservations made by the C & AG, the board of directors of such a company is not
bound to give information or explanation in respect of such comments.

Even the C & AG’s comments would not have been required to be placed before the
annual general meeting of a Government company but for the express provisions
contained in Section 619(5) of the Act. Similar express provision would be
necessary in the Act if it were intended that the provisions of Section 217(3) should
also apply in the case of a Government company.

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 CHAPTER 5:

CONCLUSION

Because public sector auditing is key to good public governance, it is crucial that it
maintain the right resources for the right amount of time with an appropriately broad mandate
to achieve the organization’s governance objectives. The public sector audit activity’s
mandate should be sufficiently broad to enable it to respond to the full scope of the entity’s
activities. Although auditors may be able to add value to any segment of the organization for
which they can provide independent, objective assurance at a minimum, every public sector
entity requires some form of independent audit activity that has authority to evaluate the full
range of public sector activities.

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 BIBLIOGRAPHY

BOOKS

 Arthur E. White., "Management Auditing, The Present state of the Art",

Journal, of Accountancy, Aug-1967
 Bhattacharya A.K., "Management Auditing Commercial Banks", The Banker.
June 1989

WEBSITES

 https://www.accountingedu.org/what-is-auditing.html
 https://www.investopedia.com/terms/a/audit.asp
 https://economictimes.indiatimes.com/definition/audit
 http://asq.org/learn-about-quality/auditing/
 https://www.managementstudyguide.com/what-is-auditing-its-types-and-
purposes.html

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