Under Section 143(1), the auditor has a duty to inquire into specific matters. The auditor reports to members only if the answer is adverse.
## The Six Inquiry Matters
#
Matter to Inquire
(a)
Whether loans & advances made by the company are properly secured, and terms are not prejudicial to interests of company/members
(b)
Whether transactions represented merely by book entries are prejudicial to the company's interests
(c)
For companies other than investment or banking companies — whether shares, debentures and other securities have been sold at a price less than purchase price
(d)
Whether loans & advances by the company are shown as deposits
(e)
Whether personal expenses are charged to revenue account
(f)
Where books state that shares were allotted for cash — whether cash was actually received; if not, whether books are correct & not misleading
## Key Reporting Principle
The auditor should report only adverse findings to members — not all inquiries.
Adverse matters disclosed in the auditor's report must be read at the general meeting and are open to inspection by any member.
## Memory Hook: "LBSDPC"
Loans secured · Book entries · Securities sold cheap · loans as Deposits · Personal expenses · Cash for shares
Worked example
### Example 1
Example — 143(1)(c):
Manufacturing Co. M sold its investment in equity shares (held as investment, not stock) at ₹80/share when purchase cost was ₹120/share. M is not an investment or banking company.
Auditor's duty: Inquire whether sale price < cost is prejudicial. If yes (e.g., sold to related party at lower price), report to members.
### Example 2
Example — 143(1)(e):
Director's personal travel expenses of ₹3 lakhs (family holiday) were debited to 'Business Promotion Expense' in P/L.
Reporting: Personal expenses charged to revenue — adverse finding to be reported to members under Sec 143(1)(e).
⚠️ Common exam mistakes
Reporting on all six inquiry matters even when findings are clean — only adverse findings need reporting
Applying clause (c) to investment/banking companies — it is specifically excluded for them
Confusing Sec 143(1) (inquiry — adverse-only reporting) with Sec 143(3) (mandatory positive reporting on every item)
Bare-Act text 143(1) · Companies Act, 2013 · click to expand
Section 143(1) — The auditor shall make inquiry into the following matters, namely: (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.