Tuesday, 31 December 2019

Unit 12: Special Features of Audit


Unit 12: Special Features of Audit

The public sector undertakings differ from private sector undertakings in many ways.

These undertakings have been set up mainly in three forms, viz.

, departmental commercial undertakings, statutory corporations and government companies.

A majority of these undertakings have been set up as government companies under the Companies Act, 1956 just like any other company in the private sector.

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

Under the Act of 1971, the scope and extent of audit is determined by the Comptroller and Auditor General.

The areas covered in comprehensive audit vary from enterprise to enterprise depending on the nature of the enterprise, its objectives and operations.

Audit appraisal analyses the performance of an enterprise to bring out the extent to which the objectives for which the enterprise was set up have been served.

A basic task in audit is to carefully identify the acceptable criteria for assessing the efficiency and effectiveness of an enterprise so that the appraisal by audit is valid and meaningful.

Sub-section (1) of section 30 of the Act requires that the balance sheet and profit and loss account of a banking company should be audited by a person duly qualified under any law for the time being in force to be an auditor of companies.

The auditor of a banking company is to be appointed at the annual general meeting of the shareholders, whereas the auditor of a nationalised bank is to be appointed by the bank concerned acting through its Board of Directors.

Under section 12 of the Insurance Act, 1938, the financial statements of every insurer are required to be audited annually by an auditor.

The auditor’s primary objective in audit of investments is to satisfy himself as to their existence and valuation.

Under Rule 30 of the KCS Rules every Co-operative Society shall pay to the State Government a fee for the audit of its accounts for each Co-operative year in accordance with the scale fixed by the Director with the previous approval of the State Government in respect of the class of societies to which it belongs.

Audit: An unbiased examination and evaluation of the financial statements of an organization.

Banking: Banking means accepting for the purpose of lending or investment of deposits of money from public repayable on demand or otherwise and withdraw able by cheque, drafts order or otherwise (section 5(i)(b)).

Banking Company: Banking company means any company which transacts the business of banking (section 5(i)(c)).

Compliance Audit: Audit undertaken to confirm whether a firm is following the terms of an agreement (such as a bond indenture), or the rules and regulations applicable to an activity or practice prescribed by an external agency or authority.

Fiscal Accountability: Maintaining the documentation necessary to support the financial auditability of an item throughout its life cycle.

Insurance Premium: An insurance premium is the amount of money charged by a company for active coverage.

The sum a person pays in premiums, also referred to as the rate, is determined by several factors, including age, health, and the area a person lives in.

Insurance Regulatory & Development Authority: Insurance Regulatory & Development Authority, a body constituted under the Ministry of Finance to deal with licensing, regulating and monitoring all activities relating to the insurers, brokers, agents, corporate agents and the TPA's.

Managerial Accountability: It refers to a system of supervisory control, peer reviews and reporting requirements, the agents being accountable to principals.

Mutual Benefit Financial Company: A company structure in which the company's owners are also its clients.

Non-Performing Assets: A debt obligation where the borrower has not paid any previously agreed upon interest and principal repayments to the designated lender for an extended period of time.

Non-Banking Financial Companies: NBFCs are the heterogeneous group of institutions (other than commercial and co-operative banks) performing financial intermediation in a variety of ways, like accepting deposits, making loans and advances, leasing, hire purchase, etc.

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