ABC Ltd. is a government company whose statutory audit is being carried out by auditors appointed on the advice of the Comptroller and Auditor…

CA Intermediate · Auditing and Ethics · MTP · January 2026
ABC Ltd. is a government company whose statutory audit is being carried out by auditors appointed on the advice of the Comptroller and Auditor General of India (C&AG). During the audit, the C&AG considered it necessary to conduct a test audit of the company's accounts. He issued specific directions to the statutory auditors regarding the system of book-keeping and internal control. After completion of the statutory audit, the auditors submitted a copy of their report to the C&AG, who added certain comments and supplementary observations to it. The Board of Directors of ABC Ltd., however, decided not to provide any explanation or reply to the comments made by the C&AG. Based on above, explain the powers of the C&AG in relation to the test audit of a government company and whether the Board of Directors is required to provide any explanation on the C&AG's comments.

Suggested Answer and Working Notes:

Without prejudice to the provisions relating to audit and auditor, the Comptroller and Auditor- General of India may, in case of any company covered under sub-section (5) or sub-section (7) of section 139, if he considers necessary, by an order, cause test audit to be conducted of the accounts of such company and the provisions of section 19A of the Comptroller and Auditor- General’s (Duties, Powers and Conditions of Service) Act, 1971, shall apply to the report of such test audit. The C&AG shall direct the manner in which the company’s accounts shall be audited by the statutory auditors and give such auditors instructions in regard to any matter relating to the performance of his functions as such. The directions under section 143 (6) broadly cover the system of book-keeping and accounts, internal control etc. 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 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. The statutory auditors shall submit a copy of their audit report to 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 134 (3) of the Companies Act, 2013 imposes a duty on the board of directors of a company to give an explanation or comments on every reservation, or adverse remarks or disclaimer contained in the auditors’ report and secretarial audit report of the Company Secretary in practice. In the absence of similar provisions requiring the company to give reply on the reservation 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.

Topics: Special Features of Audit of Different type of Entities

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