Page 251 - CA Inter Audit PARAM

CA Ravi Taori
orderly and efficient conduct of its business, including adherence to company’s policies, the
safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and
completeness of the accounting records, and the timely preparation of reliable financial
information.”

➢ From the above definition, it is clear that internal financial controls are the policies and
procedures adopted by the company for:
1. ensuring the orderly and efficient conduct of its business, including adherence to company’s
policies,
2. the safeguarding of its assets,
3. the prevention and detection of frauds and errors,
4. the accuracy and completeness of the accounting records, and
5. the timely preparation of reliable financial information.”

➢ Section 143(3)(i) of the Act requires an auditor to report whether the company has adequate
internal financial controls with reference to financial statements in place and the operating
effectiveness of such controls.
However, it may be noted that the reporting requirement on adequacy of internal financial
controls (IFCs) with reference to financial statements shall not be applicable to a private
company which is a–
(i) One person company; or
(ii) Small company; or
(iii) Company having turnover less than ` 50 crore as per latest audited financial statement and
having aggregate borrowings from banks or financial institutions or anybody corporate at any
point of time during the financial year less than ` 25 crore.

QNO— Sec 143(3) - Rule 11 - Accounting Software Old Course – (N23M/N23E)
CoAud.72.50 Bhaskar CNO - CA.300
CA E was appointed statutory auditor of XYZ Private Limited in AGM held in the month of August,
2023 for the first time for audit of financial statements of the company from year 2023-24 onwards.
Since he is new to the company, he wants to be sure about integrity of accounting records. In this
regard, he wants to ensure that software used by company for maintenance of its books of accounts
is capable of tracking user activities and changes made to entries in books of accounts, if any, during
the course of year.

What CA E is looking for in the given situation? Discuss the reporting requirements for CA E in this
matter to be included in audit report to be issued under the Companies Act, 2013.
Answer In the given situation, the auditor is looking for a feature of “audit trail” in software used by company
for maintenance of books of accounts. Under section 143(3) of Companies Act, 2013, it has to be
reported by the auditor as under: -

Whether the company has used such accounting software for maintaining its books of account which
has a feature of recording audit trail (edit log) facility and the same has been operated throughout the
year for all transactions recorded in the software and the audit trail feature has not been tampered
with and the audit trail has been preserved by the company as per the statutory requirements for
record retention.

QNO Sec 143(3) -- Applicability of IFCR on Interim Financial Statements Old Course -- (M21M)
CoAud.73.50 Bhaskar CNO - CA.300

The auditor's reporting on internal financial control will be applicable with respect to interim financial

statements. Discuss
Answer Clause (i) of Sub-section 3 of Section 143 of the Act requires the auditors’ report to state whether
the company has adequate internal financial controls system in place and the operating
effectiveness of such controls.

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