## Section 143(1): Mandatory Inquiries by the Auditor
Under Section 143(1) of the Companies Act, 2013, the auditor is required to make specific inquiries during the course of audit. These are inquiries, not reporting requirements — the auditor investigates these matters but reports only if the findings are adverse.
### The Six Mandatory Inquiries
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Matter of Inquiry
(a)
Whether loans and advances on security are properly secured and terms are not prejudicial to the company or its members
(b)
Whether book-entry transactions (with no real substance) are prejudicial to the company
(c)
Whether shares, debentures or securities (held by non-investment/non-banking companies) have been sold at less than cost
(d)
Whether loans and advances have been shown as deposits (masking their true nature)
(e)
Whether personal expenses have been charged to revenue account
(f)
Where shares are stated to be allotted for cash — whether cash was actually received, and if not, whether the accounts correctly reflect this
### Key Points
Inquiry (c) applies only to companies that are not investment companies or banking companies.
These are proactive inquiries — the auditor must investigate regardless of whether management flags a concern.
Inquiry (f) targets fictitious share allotments used to siphon funds.
Worked example
### Example 1
Example — Inquiry (d): Loans shown as Deposits
During audit of XYZ Ltd, the auditor notices that ₹5 crore received from directors is classified under 'Deposits' in the balance sheet. On inquiry, he finds these are actually unsecured loans. Since deposits attract different regulatory treatment (Companies (Acceptance of Deposits) Rules), misclassification misleads stakeholders. The auditor flags this under Sec 143(1)(d).
### Example 2
Example — Inquiry (e): Personal Expenses
The auditor reviews revenue expenses and finds that the managing director's personal holiday travel expenses of ₹8 lakh have been booked under 'Business Travel'. This personal expense charged to revenue reduces taxable profit improperly and must be reported.
⚠️ Common exam mistakes
Treating Section 143(1) inquiries as 'reporting' duties — they are inquiry duties; reporting happens only if the inquiry reveals a problem
Ignoring inquiry (c) for manufacturing companies — students assume it applies only to investment companies, but it actually applies to all companies EXCEPT investment/banking companies
Confusing inquiry (f): the duty is to check whether cash was ACTUALLY received, not just whether the records say so
Missing that 'prejudicial to interests of members' is covered in (a) — terms of loans can be unfair even if the loan is secured
Bare-Act text Section 143(1) · Companies Act, 2013 · click to expand
Under section 143(1), auditor shall inquire into the following matters: (a) whether loans and advances made by the company on the basis of security have been properly secured and whether the terms on which they have been made are prejudicial to the interests of the company or its members; (b) whether transactions of the company which are represented merely by book entries are prejudicial to the interests of the company; (c) where the company not being an investment company or a banking company, whether so much of the assets of the company as consist of shares, debentures and other securities have been sold at a price less than that at which they were purchased by the company; (d) whether loans and advances made by the company have been shown as deposits; (e) whether personal expenses have been charged to revenue account; (f) where it is stated in the books and documents of the company that any shares have been allotted for cash, whether cash has actually been received in respect of such allotment, and if no cash has actually been so received, whether the position as stated in the account books and the balance sheet is correct, regular and not misleading.