Public Limited Company Audit
A public company is a company formed by minimum of 3 directors with no restriction on maximum number of members for incorporation under Companies Act, 2013. Public Limited Company is also covered under the definition of “Company” as covered under the Companies Act, 2013. A public limited company is a separate legal entity that offers it shares to general public. It has limited liability. Anyone can acquire the shares or stocks in public limited company by way of an initial public offerings (IPO) or through trading in the stock market. It is mandatory for a public limited company to publish it's financial statements to help its shareholders, and hence it must get its accounts and financial statements audited to maintain transparency and accountability.
It is mandatory for companies (except Government company) to appoint first Auditor of the company within 30 days from the date of incorporation of the company. Once a company is registered, the first meeting of Board of Directors is conducted for discussing various business matters and for taking overall review of the business. If a company fails to appoint an auditor in the board meeting within 30 days, then the shareholders may appoint the first auditor of the Company within 90 days from the date of incorporation of the company.
What do the Auditor do?
The auditors conduct a systematic examination of the company's accounting books, transaction records, and all other relevant documents. They also clarify whether the financial statements are fairly presented and free from any material mis-statements. The opinions which are prepared by the auditors are available to the investors and other interested parties. The main aim of this type of audit is to provide investors, capital market participants, and policymakers a reasonable assurance for investment decisions and other purposes.
THE PROCEDURE TO CONDUCT PUBLIC LIMITED AUDIT
- Examination of Minute Book: The Auditor is required to examine the minute book of the concerned company, especially of those items that have a bearing on the accounts
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Examination of the Profit & Loss Account: The Auditor in a public limited audit must examine and compare the profit and loss account with that of the previous year's accounts. By way of comparing they check the material difference between the two.
- Comparison of Expenses: The Auditor than compares the increase or decrease in the expenses between the two periods. They examine the turnover and then make a necessary adjustment regarding the allowances, sales tax, or any other variations during the period of which audit is done.
- Investigation of Variation: The Auditor should investigate the causes of any variation in the gross net profit and pay attention to the valuation of closing stock.
- Examination of Depreciation: The Auditor must see whether there has been any change that is charged in the current year and if done then what its effect in the revenue account is.
- Examination of Non-Recurring Items: The Auditor in a public limited audit should investigate items of non-recurring nature. For example, profit made or loss suffered in the sale of a fixed asset.
- Valuation of Assets: The Auditor must pay attention to any substantial change in the fixed assets as compared to the previous year, especially regarding the valuation of assets.
- Inquiry into the Variation of Assets: The Auditor needs to inquire into any variation in the current assets as compared to the previous years.
- Examination of Prepayment and Accruals: In case if there is any material alteration in the pre-payments and accruals, the Auditor should pay attention to such a variation.
- Examination of Other Items: The Auditor should pay attention to the other items of the balance sheet from any substantial change from the usual figure.
- Verification of Assets and Liabilities: The Auditor must verify the assets and liabilities that are owned by the company.
- Commitment and Losses:The Auditor must ascertain whether any capital commitment exists and if there is any item on which a subsequent loss may arise and if any provision has been made thereof.
Who is disqualifed from becoming an auditor:
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A corporate body other than an LLP that is registered under the Limited Liability Partnership Act, 2008.
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An officer or employee of the concerned company.
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Any person who is a partner with the employee of the company.
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Any person or individual who is indebted to the company for a sum exceeding Rs. 1,000 or who has guaranteed the company on behalf of another person.
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Any particular person is holding securities in the company after one year from the date of commencement of the Companies (Amendment) Act, 2000.
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Any person who has been convicted by a court for an offense involving fraud and a period of 10 years has not elapsed from the date of such conviction.
A corporate body other than an LLP that is registered under the Limited Liability Partnership Act, 2008.
An officer or employee of the concerned company.
Any person who is a partner with the employee of the company.
Any person or individual who is indebted to the company for a sum exceeding Rs. 1,000 or who has guaranteed the company on behalf of another person.
Any particular person is holding securities in the company after one year from the date of commencement of the Companies (Amendment) Act, 2000.
Any person who has been convicted by a court for an offense involving fraud and a period of 10 years has not elapsed from the date of such conviction.
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