## Audit of Commercial Accounts — CAG's Role in Government Companies

### Classification of Public Enterprises

Public enterprises required to maintain commercial accounts fall into three categories:

Category	Examples
(A) Departmental Enterprises	Railways, Postal services
(B) Statutory Bodies/Corporations	Created by specific statute
(C) Government Companies	Incorporated under Companies Act

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### CAG's Three Roles in Government Companies

#### Role 1: Appointment of Auditors

The appointment of the statutory auditor (both first and subsequent) of a government company is made by the CAG
The appointed auditor must send a copy of the Audit Report to the CAG

#### Role 2: Supplementary Audit (within 60 days)

After receiving the statutory audit report, the CAG has the right to:

Conduct a supplementary audit of the Financial Statements of the company (through an authorised person)
Comment upon or supplement the audit report

Timeline: This must be done within 60 days from the date of receipt of the audit report.

Consequence: Any comment or supplement issued by the CAG shall be sent by the company to every person entitled to receive the audit report.

#### Role 3: Test Audit

The CAG has the right to conduct a test audit of the accounts of a government company at any time.

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> Key distinction: In statutory corporations (Category B), the CAG is typically the primary auditor. In government companies (Category C under Companies Act), a CA firm is the primary auditor appointed by the CAG, who then retains oversight through supplementary and test audit powers.

Worked example

### Example 1

BHEL is a government company. The CAG appoints a CA firm as the statutory auditor. The firm completes its audit and submits the report to the CAG. Within 60 days, the CAG's office conducts a supplementary audit and issues comments noting that certain capital work-in-progress was understated. BHEL must send these CAG comments to all shareholders alongside the original audit report.

### Example 2

The CAG conducts a test audit of ONGC's branch accounts in Assam without prior notice. This is his right under Role 3 — he does not need to wait for the completion of the statutory audit cycle.

⚠️ Common exam mistakes

Saying the Board or Shareholders appoint the auditor of a government company — it is the CAG who makes this appointment.
Confusing supplementary audit with test audit: supplementary audit is triggered by receipt of the statutory audit report (60-day window); test audit can be conducted independently at any time.
Forgetting that CAG comments from supplementary audit must be sent by the company to ALL concerned persons — this is a mandatory disclosure obligation on the company, not optional.
Missing the 60-day time limit for supplementary audit — it runs from the date the CAG receives the statutory audit report, not from signing of financial statements.

Reference: Section 143(5)–(7) of Companies Act, 2013 (CAG's powers for government company audit) — Companies Act, 2013; CAG (DPC) Act, 1971

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Audit of Commercial Accounts — Role of CAG in Government Companies

Worked example

⚠️ Common exam mistakes