Company Audit 4th Class Sub Chapter 1 | CMA Inter Syllabus 2022 | CA Isha Agarwal

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Isha Agarwal welcomes Tejas to class and congratulates students on completing the first week, emphasizing the importance of feedback and revising auditor duties under the Companies Act, with a focus on fraud reporting and penalties for false information in prospectuses. Civil liability, branch audits, and joint audits are crucial aspects discussed, including penalties under Section 447 of the Companies Act and responsibilities of auditors in reporting fraud and preparing audit reports.

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The class delves into the detailed responsibilities of auditors under the Companies Act, emphasizing the importance of accurate reporting, fraud detection, and the severe penalties for providing false information, showcasing the critical role auditors play in maintaining financial integrity and transparency within companies.
Understanding the nuances of branch audits and joint audits is crucial, highlighting the need for effective coordination among auditors, clear division of work, and communication to ensure comprehensive and accurate financial reporting, with joint audits presenting challenges such as shared responsibilities, coordination issues, and potential disparities in contributions between large and small audit firms.

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Summary

00:00

"Company Act: Auditors, Fraud, and Consequences"

The speaker, Isha Agarwal, welcomes Tejas to the class and discusses the delay due to heavy rain and traffic.
Isha congratulates the students for their dedication to attending all classes and announces the completion of the first week of the batch.
Students are requested to provide feedback on teaching techniques and understanding of the content through a feedback form.
The class focuses on provisions under the Companies Act, Sub Chapter One, and the importance of feedback for self-improvement.
The class revises the duties of an auditor, including reporting on financial statements, proper bookkeeping, and observations affecting business operations.
Specific details are provided on reporting fraud, including the threshold amount for reporting to the audit committee or the Central Government.
Penalties for errors in reporting fraud are outlined, with distinctions for listed and unlisted companies.
The rotation of auditors in companies, especially listed and unlisted public companies, is discussed, emphasizing the prevention of familiarity.
Additional provisions are highlighted, such as restrictions on common partners and the process of removal by rotation or before the term ends.
The consequences of fraudulent actions by auditors, including immediate removal, bans, and penalties, are explained, with a focus on NCLT involvement and quick decision-making.

18:51

"Corporate Civil Liability: Auditors, Penalties, and Fraud"

Civil liability is discussed in the text, where damages need to be paid for offenses committed, such as damage to a cart by a puchka wala.
The first case of civil liability involves launching an IPO, where the company must provide a prospectus detailing why people should invest in their shares.
If an expert statement in the prospectus turns out to be false, the auditor will be held responsible and must compensate those who suffered losses.
The second civil liability case pertains to the liquidation of a company, where assets must be distributed proportionally to creditors and other parties.
The auditor's role in authorizing the prospectus is crucial, as they take responsibility for its accuracy; any false information can lead to punishment under section 447 of the Companies Act.
Punishments under section 447 include fines ranging from Rs 25,000 to Rs 5 lakh, imprisonment for up to one year, and refunding damages caused by false information in the prospectus.
If an auditor knowingly provides false information, the penalty is doubled, with fines up to Rs 25 lakh and imprisonment for up to one year.
In cases where an inspector requests documents or information and is denied, penalties include fines and possible imprisonment for up to six months.
Committing fraud during the winding up of a company can lead to fines of Rs 1 to 3 lakh and imprisonment for three to five years.
Providing false documents or information to regulatory authorities can result in imprisonment for three to six years and fines up to Rs 10 lakh under section 447 of the Companies Act.

36:36

"Section 447: Big and Small Offenses"

Section 447 signifies a significant offense, divided into big and small categories.
For a fraud amount under Rs 10 lakh and turnover less than Rs 10 lakh, Section 447 applies.
If fraud is under Rs 5 lakh, it falls under small Section 447.
For fraud over Rs 10 lakh and affecting public interest, big Section 447 applies.
Penalties for big Section 447 include jail time from 6 months to 10 years and fines up to Rs 150 crore.
Branch audit can be conducted by the company's statutory auditor or any qualified person in India.
For branches outside India, the company's auditor or any qualified person from that country can conduct the audit.
Statutory auditor's rights and duties extend to branch audits as well.
Timely receipt of branch audit reports is crucial to ensure accurate financial information.
Understanding the rights and duties of auditors is essential for effective branch audits.

56:02

"Branch Audit: Joint Auditors' Responsibilities and Division"

The auditor will provide a statement of the AO Plus branch based on financial statements submitted.
The audit report of the branch will be reviewed for any qualifications or negative findings.
The audit report must be submitted to the statutory auditor for compilation and presentation to shareholders.
The books of the branch should be maintained at the branch location for seven days, with a report sent to the ROC.
The health report of the branch should be sent to the AO for timely information.
Branch auditors are responsible for auditing the branches of big companies like ITC, FOS, and HUL.
Joint audits are conducted in large companies to divide work among multiple auditors for better quality and timely completion.
Joint auditors divide work based on assets, liabilities, income, expenses, units, periods, branches, products, or segments.
An agreement defining the division of work should be made and signed by all joint auditors.
Joint auditors share equal responsibility for undivided work, ensuring proper coordination and communication among them.

01:11:22

Effective Communication Among Joint Auditors

Joint auditors need to communicate and share information about their respective areas of audit.
Each auditor is responsible for specific sections of the financial statements.
Separate reports are given by auditors for assets, liabilities, income, and expenses.
Shareholders do not receive separate reports but a single joint audit report.
The joint audit report includes all financial statements.
Disagreements among auditors can lead to separate audit reports.
The statutory auditor compiles and presents all audit reports.
Branch auditors prepare reports on branch accounts and send them to the company's auditor.
The company's auditor includes any qualifications from the branch audit report in their own report.
Branch auditors are responsible for reporting fraud and other duties applicable to the company's auditor.

01:34:47

Challenges and Responsibilities in Joint Audits

In joint audits, each auditor is responsible for a specific area of work that has been assigned to them.
Joint auditors must coordinate and plan together to ensure all tasks are completed collectively.
Limitations of joint audits include shared fees, coordination challenges, and the risk of neglecting common tasks.
Small firms may feel overshadowed by larger entities in joint audits, leading to motivation issues and uncertainties.

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