Para 2.5.17 — MSO (Audit)
Original Rule Text
2.5.17 It should be specifically examined in the course of audit of government companies whether:
(i) the provisions of the Companies’ Act, 1956 or the relevant statutes governing the company concerned have been complied with;
(ii) there has been any material deviation from the objectives listed in the company’s Memorandum of Association and Articles of Association;
(iii) instructions of the Government of India, State Governments, Reserve Bank of India, etc. have been followed in conducting financial transactions;
(iv) pronouncements of the Institute of Chartered Accountants of India (ICAI) relating to Accounting Standards AS 1 to AS 15 (which are mandatory) and standard auditing practices have been complied with, and its guidance notes and opinions in regard to accrual accounting, reserves created during revaluation of fixed assets, expenditure incurred during construction, treatment of excise duty, debtors, loans and advances, investments, etc. have been adhered to;
What This Means
During audit of government companies, auditors must specifically examine whether the Companies Act and relevant statutes have been complied with, the company has not deviated from its Memorandum and Articles of Association, government and RBI instructions for financial transactions have been followed, ICAI accounting standards and guidance notes have been adhered to, and internal controls for safeguarding assets and ensuring accuracy of records are functioning properly.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Compliance with Companies Act and relevant statutes must be verified
- 2Any material deviation from the Memorandum and Articles of Association must be flagged
- 3Government of India, state government, and RBI instructions for financial transactions must be followed
- 4ICAI Accounting Standards AS 1 to AS 15 (mandatory) and guidance notes must be adhered to
- 5Internal control mechanisms for asset safeguarding and accounting accuracy must be examined
Practical Example
Auditors examining a state-owned electronics company find that it has diversified into real estate development, which is not listed in its Memorandum of Association objectives. They also discover that the company has not followed AS-2 (Valuation of Inventories) for its finished goods stock, and that bad debts of Rs 12 crore have been outstanding for over five years without any provision or write-off action. All three issues are documented in the audit report.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
What is a Memorandum of Association and why is it relevant to audit?▼
Which ICAI Accounting Standards are mandatory for government companies?▼
What internal controls do auditors look for?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.