Company Audit — Section 143(2) and 143(3) Audit Report Contents
## Section 143(2) and 143(3): Contents of the Audit Report
### Section 143(2) — Core Reporting Obligation
The auditor must report to the members (not management) on:
Accounts examined
Every financial statement required to be laid before the company in general meeting
Whether accounts give a true and fair view of state of affairs, profit/loss, and cash flows
### Section 143(3) — Specific Statements in the Report
The audit report must state:
Clause
Requirement
(a)
Whether all information and explanations necessary for audit were sought and obtained; if not, details and effect
(b)
Whether proper books of account are kept AND adequate returns received from unvisited branches
(c)
Whether branch auditor's report was received and how it was dealt with
(d)
Whether Balance Sheet and P&L agree with books of account and returns
(e)
Whether financial statements comply with accounting standards
(f)
Observations on financial transactions with adverse effect on company functioning
(g)
Whether any director is disqualified under Section 164(2)
(h)
Any qualification, reservation, or adverse remark on accounts maintenance
(i)
Whether company has adequate Internal Financial Controls (IFC) with reference to financial statements and their operating effectiveness
### IFC Reporting — Exemptions
IFC reporting under 143(3)(i) is NOT applicable to a private company that is:
One Person Company (OPC), OR
Small Company, OR
Company with turnover < ₹50 crore (as per latest audited FS) AND aggregate borrowings < ₹25 crore at any point during the year
### Section 143(3)(j) — Rule 11 Matters
Additional matters prescribed under Rule 11 of Companies (Audit and Auditors) Rules, 2014:
Rule 11 Point
Requirement
(a)
Disclosure of impact of pending litigations on financial position
(b)
Provision for material foreseeable losses on long-term contracts (including derivatives)
(c)
Delay in transferring amounts to IEPF (Investor Education and Protection Fund)
(d)(i)
Management representation: no funds advanced/loaned/invested through intermediaries to ultimate beneficiaries
(d)(ii)
Management representation: no funds received from funding parties for onward lending/investing
(d)(iii)
Auditor's conclusion: nothing noticed to contradict the above representations
(e)
Whether dividend declared/paid complies with Section 123
(f)
Whether accounting software has audit trail (edit log) feature — operational throughout the year, not tampered with, preserved per statutory retention requirements
### Negative/Qualified Findings
Where any matter in the audit report is answered negatively or with a qualification, the report must state reasons therefor — Section 143(4).
Worked example
### Example 1
Example — Clause 143(3)(i): IFC Reporting
MNO Pvt Ltd has turnover of ₹30 crore and borrowings of ₹20 crore. Since both conditions are met (turnover < ₹50 cr AND borrowings < ₹25 cr), the auditor is not required to report on Internal Financial Controls. However, if borrowings were ₹28 crore, IFC reporting would become mandatory despite the low turnover.
### Example 2
Example — Rule 11(f): Audit Trail
PQR Ltd uses a legacy accounting software that has no audit trail (edit log) feature. The auditor must report this under Rule 11(f) as a negative finding, with reasons — 'The accounting software used by the company does not have the feature of recording audit trail throughout the year.'
### Example 3
Example — Rule 11(d): Layering of Funds
ABC Ltd's management represents that no funds were advanced to intermediaries for onward investment in undisclosed ultimate beneficiaries. The auditor applies procedures (reviewing related party transactions, bank statements, board minutes) and confirms nothing contradicts this representation — reports accordingly under Rule 11(d)(iii).
⚠️ Common exam mistakes
Confusing Section 143(1) (inquiries) with Section 143(3) (reporting) — inquiries need not be reported unless adverse; 143(3) items must always be addressed in the report
Forgetting the dual condition for IFC exemption — BOTH turnover < ₹50 crore AND borrowings < ₹25 crore must be satisfied simultaneously
Missing that Rule 11(f) on audit trail requires the feature to be operational 'throughout the year' — partial operation still requires reporting
Overlooking that the audit report is made to members, not management — this determines who the auditor is accountable to
Confusing 143(3)(b): 'proper books of account' (at HO) AND 'adequate returns from unvisited branches' are two separate sub-requirements
Bare-Act text Section 143(2) and Section 143(3) · Companies Act, 2013 · click to expand
Section 143(3): The auditor's report shall also state — (a) whether he has sought and obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit and if not, the details thereof and the effect of such information on the financial statements; (b) whether, in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books and proper returns adequate for the purposes of his audit have been received from branches not visited by him; (c) whether the report on the accounts of any branch office of the company audited under sub-section (8) by a person other than the company's auditors has been sent to him under the proviso to that sub-section and the manner in which he has dealt with it in preparing his report; (d) whether the company's balance sheet and profit and loss account dealt with in the report are in agreement with the books of account and returns; (e) whether, in his opinion, the financial statements comply with the accounting standards; (f) the observations or comments of the auditors on financial transactions or matters which have any adverse effect on the functioning of the company; (g) whether any director is disqualified from being appointed as a director under sub-section (2) of the section 164; (h) any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith; (i) whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls.