# Audit of Government Companies

## Who Audits?

Government companies (and companies controlled by Government) are audited by an auditor appointed by the C&AG (Comptroller & Auditor General of India) — this we know from Section 139(5)/(7).

This lesson is about how that audit is conducted and the special powers of C&AG over the audit.

## Step-by-Step Flow

### Step 1 — CAG Directs the Manner of Audit

CAG shall direct the auditor the manner in which accounts of the company shall be audited.

### Step 2 — Auditor Submits Report to CAG

The auditor shall submit a copy of the audit report to CAG. The report must include:

Directions issued by CAG
Actions taken thereon
Impact of those actions on the accounts and FS

### Step 3 — CAG's Rights Within 60 Days

Within 60 days of receipt of the audit report, CAG has the right to:

(a) Conduct Supplementary Audit

Through a person authorized by it
CAG may require any person to furnish information for this purpose

(b) Comment Upon or Supplement the audit report

The comments/supplement shall be laid before the AGM at the same time and manner as the audit report
They shall be sent to every person entitled to a copy of the audited FS

### Step 4 — Test Audit (Optional)

CAG may order a test audit of the accounts of the company at any time.

## Key Insight

The statutory auditor's report is not the final word for a government company. CAG can layer on supplementary audit and comments — these comments are then placed before shareholders with the original audit report.

Worked example

### Example 1

Q. Govco Ltd., a government company, received its audit report from its appointed auditor on 1st June. By when must CAG conduct supplementary audit or supplement the audit report?

A. Within 60 days from 1st June, i.e., by 30th July. CAG's comments/supplement must then be laid before the AGM at the same time and manner as the original audit report, and sent to every member entitled to receive the FS.

⚠️ Common exam mistakes

Confusing the supplementary audit (CAG's power) with the original statutory audit (the appointed auditor's job).
Forgetting that CAG's comments must be circulated to shareholders along with the audit report.
Believing CAG has unlimited time — the 60-day window is critical.

Bare-Act text Section 143(5), (6) & (7) · Companies Act, 2013 · click to expand

In the case of a Government company or any other company owned or controlled, directly or indirectly, by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, the Comptroller and Auditor-General of India shall appoint the auditor under sub-section (5) or sub-section (7) of section 139 and direct such auditor the manner in which the accounts of the company are required to be audited and thereupon the auditor so appointed shall submit a copy of the audit report to the Comptroller and Auditor-General of India which, among other things, include the directions, if any, issued by the Comptroller and Auditor-General of India, the action taken thereon and its impact on the accounts and financial statement of the company.

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Audit of Government Companies [Section 143(5)-(7)]

Worked example

⚠️ Common exam mistakes