Audit of Public Sector Undertaking
n PSU, there is involvement of public fund.
These funds should be utilized considering public interest.
Normally, these funds are lavishly used by management.
While auditing, auditor has to check whether these funds have been used in a manner so as to hurt the basic objectives behind creation of PSU. (Public Welfare)
Thus the main objective of auditor in such case is to check the substance of transaction entered into by the PSU.
Auditor has to check whether transactions mainly expenses confirmed to propriety norms.
PROPRIETY AUDIT
“Propriety Audit stands for verification of transactions on the test of public interest, commonly accepted customs & standards of conduct”.
Propriety is that which meets the tests of public interest, commonly accepted customs and standards of conduct and particularly as applied to professional performance, requirement of law, Government regulations and professional codes” – E.L. Kohler.
It shifts the emphasis to substance of transaction.
It requires transactions (mainly expenses) to conform to certain general principles :
a) Expense is not prima facie more than the occasion demands and same degree of vigilance is exercised as should be exercised in respect of his own money.
b) Authority exercises its power of sanctioning expenses to pass an order which will not accrue to its own advantage.
c) Funds not utilized for benefit of a particular person/group.
d) Apart from agreed remuneration, no other avenue is kept open to benefit management personnel, employees and others.
PROPRIETY ELMENT u/s. 227 (1A) :
a) Whether terms on which secured loans and secured advances have been made are not prejudicial to the interests of the company or its members.
conditions like security, interest, repayment period and other business considerations.
b) Whether transactions of company which are represented merely by book entries are not prejudicial to the interest of company, i.e. effects of book-entries, unsupported by transactions, etc.
c) Whether investment of company (other than Banking/Investment company) in form of share, debenture and other securities have been sold at a price lower than its cost, i.e. to see reasonableness of decision to sell at loss.
d) Whether personal expenses have been charged to revenue.
PROPRIETY ELEMENT UNDER COST AUDIT REPORT :
b) Matters appearing clearly wrong in principle or apparently wrong.
c) Cases where company’s funds have been used in negligent/inefficient manner.
d) Factors which could have been controlled but haven’t been, thus, resulting in increase in cost of production.
PROPERTY ELEMENTS IN CARO, 2003
a) If the company has given or taken loans, secured or unsecured, to/from companies, firms or other parties listed in the register maintained under section 301 of the Companies Act, whether the rate of interest and other terms and conditions of such loans are prima-facie prejudicial to the interest of the company. In this case, the auditor will have to look into the reasonableness of the rate of interest and the terms and conditions of such loans. In other words, he will have to see whether the terms and conditions, including the rate of interest are apparently adverse to the interests of the company, having regard to the circumstances of the company at the time of taking the loans and the terms normally available. He is to exercise his judgment based on commercial considerations like urgency, security offered etc.
b) If the overdue amount of the loan given to or taken from companies, firms or other parties listed in the register maintained under section 301 of the Companies Act is more than rupees one lakh, what reasonable steps have been taken by the company for recovery/payment of the principal and interest. In making this examination, the auditor would have to consider the facts and circumstances of each case, including the amounts involved. It is not necessary that steps to be taken must necessarily be legal steps. Depending upon the circumstances, period of delay and other similar factors, issue of reminders or sending of advocate’s or solicitor’s notice may amount to reasonable steps. The auditor should ask the management to give in writing the steps which have been taken. The auditor should arrive at his opinion only after consideration of the management’s representations.
c) Whether the transactions needed to be entered in a register in pursuance of section 301 of Companies Act have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time. Section 301 requires that every company shall keep one or more registers in which shall be entered separately the particulars of all contracts or arrangements to which sections 297 and 299 of the Companies Act apply. As regards the reasonability of prices, the auditor is not expected to make a roving market inquiry but to examine price lists, quotations, prices for other parties etc. he should also taken into account the factors such as delivery period, quality, quantity involved, credit terms etc.
d) Is the company regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employee State Insurance, Income-Tax, Sales Tax, Wealth Tax, Custom Duty, Excise Duty, cess and any other statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as at the last day of the financial year concerned for a period of more than six months from the dat they became payable, shall be indicated by the auditor.
e) Whether the company has made any preferential allotment of shares to parties and companies covered in the register maintained under section 301 of the Companies Act and if so whether the price at which shares have been issued is prejudicial to the interest of the company.
Bookmark this post: | 
|
Save And Share :
0 comments:
Post a Comment