## Section 143(1): Mandatory Inquiries by the Auditor

Under Section 143(1) of the Companies Act, 2013, every auditor shall make inquiries on the following specific matters during the course of audit:

### The Six Mandatory Inquiries

#### (a) Loans and Advances — Security and Terms

Whether loans/advances made by the company are properly secured?
Whether terms of such loans are not prejudicial to the interests of the company or its members?

#### (b) Book Entry Transactions

Whether transactions represented only by book entries (no actual cash/asset movement) are prejudicial to the interests of the company?

#### (c) Sale of Investments / Assets

Where company holds shares, debentures, or other investments:
Were they sold at a price not prejudicial to company's interest?
Exception: Does not apply to investments made by a banking company

#### (d) Loans Incorrectly Shown as Deposits

Whether any loan or advance has been incorrectly classified and shown as a deposit in the books?

#### (e) Personal Expenses Charged as Revenue

Whether any personal expenses of directors or management have been charged to revenue account (i.e., shown as business expenses)?

#### (f) Cash Receipt for Share Allotment

Where shares allotted for cash:
Whether cash has actually been received?
If no cash received — whether the position in books is correct and not misleading?

### Critical Note on Reporting

> The auditor shall make a report to members only if the answers to any of the above inquiries are adverse. Mere inquiry without adverse finding → no separate reporting required.

Worked example

### Example 1

Company A gave an unsecured loan of ₹50 lakhs to its director at 0% interest. The auditor must inquire under Sec 143(1)(a): Is the loan properly secured? Are the terms (0% interest, no security) prejudicial to the company's interest? Since the answer to both is adverse, the auditor must report this to members.

### Example 2

Company B's books show a journal entry crediting a supplier for ₹10 lakhs with no corresponding goods received or payment made. The auditor must inquire under Sec 143(1)(b) whether this book-entry transaction is prejudicial to the company's interest.

### Example 3

Company C issued 1,00,000 shares claiming ₹10 each was received in cash, but the bank statements show no corresponding receipts. Under Sec 143(1)(f), the auditor must inquire whether cash was actually received, and if not, whether the books are correctly (not misleadingly) presented.

⚠️ Common exam mistakes

Thinking the auditor always reports all six inquiry matters to members — reporting is triggered ONLY when the inquiry findings are adverse
Forgetting the banking company exception under inquiry (c) — investment sales by banking companies are excluded
Confusing Sec 143(1) (inquiry-based) with Sec 143(3) (mandatory statement in audit report) — different obligations
Missing that 'personal expenses charged as revenue' is a specific mandatory inquiry — it is a common fraud technique to misclassify personal costs as business expenses

Bare-Act text Section 143(1) · Companies Act, 2013 · click to expand

Every auditor of a company shall have a right of access at all times to the books of account and vouchers of the company... and shall be entitled to require from the officers of the company such information and explanation as he may consider necessary for the performance of his duties as auditor and amongst other matters inquire into the following matters...

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

Section 143(1): Mandatory Auditor Inquiries

Worked example

⚠️ Common exam mistakes