# Audit of Commercial Accounts

## Overview

Government commercial activities are conducted through three types of entities, each with a distinct audit mechanism under the C&AG framework.

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## Category (a): Departmental Enterprises

Nature: Government departments engaged in commercial and trading operations, subject to the same laws, financial regulations, and other rules as other government departments.

Audit Mechanism:

Conducted in the same manner as any other government department
Full government audit by C&AG where commercial accounts are kept
No separate/special auditor is appointed

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## Category (b): Statutory Bodies and Corporations

Nature: Created by specific statutes, mostly financed by government through loans, grants, etc.

Audit Mechanism:

Type of audit depends on nature and type of the governing statute
Financial/accounts audit is conducted by the C&AG
Where compilation of accounts is vested with C&AG, functions, norms, and standards are adopted mutatis mutandis (with necessary modifications) from those followed by professional auditors

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## Category (c): Government Companies

Nature: Companies set up under the Companies Act, 2013 in which government holds substantial ownership.

Multi-Layered Audit Mechanism:

1. Statutory Audit — Conducted by own auditors appointed by C&AG under Section 139(5)/(7) of the Companies Act, 2013

2. Supplementary Test Audit — Conducted by C&AG in addition to statutory audit

3. Periodic Financial Audit and Performance Appraisal — By C&AG

4. Directions to Company Auditors — C&AG issues directions on specific aspects; these are reviewed and condensed in audit reports to government/legislatures

Audit Board Mechanism: C&AG has adopted an Audit Board — comprising:

Representatives of audit
Nominees of government (including functional specialists)

The Audit Board processes reviews/appraisals on performance.

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## Comparison Summary

Feature	Departmental Enterprises	Statutory Bodies/Corporations	Government Companies
Governing law	Government rules/regulations	Specific statute	Companies Act, 2013
Primary auditor	C&AG (as any department)	C&AG	Own auditors appointed by C&AG
Supplementary audit	Not applicable	Not applicable	C&AG conducts supplementary/test audit
Performance audit	As part of regular audit	As per statute	C&AG with Audit Board
Audit norms	Government audit standards	Mutatis mutandis (professional norms)	Companies Act + C&AG directions

Worked example

### Example 1

Question: Distinguish between the audit of a Departmental Enterprise and a Government Company under the C&AG framework.

Answer:

Aspect	Departmental Enterprise	Government Company
Legal form	Part of government department	Separate company under Companies Act, 2013
Who audits	C&AG directly (as any department)	Own auditors appointed by C&AG under Sec. 139(5)/(7)
Additional audit	Not separately applicable	C&AG conducts supplementary test audit + performance appraisal
Audit report flow	Regular government audit report	Company auditor submits to C&AG; C&AG issues supplementary comments
Body processing performance review	C&AG directly	Audit Board (with government nominees and functional specialists)

Key takeaway: Government Companies have a two-tier primary structure — statutory audit by company auditors PLUS supplementary/test audit by C&AG.

### Example 2

Question: A corporation was created by an Act of Parliament and is financed mainly by government grants. Where does it fall in the three-category classification of commercial accounts, and how is it audited?

Answer: This is a Statutory Body/Corporation (Category b) — created by a specific statute and financed by government.

Audit mechanism:

The type and extent of audit depends on the nature and type of the governing statute
Financial/accounts audit is conducted by C&AG
Where compilation of accounts is vested with C&AG, professional auditing norms are adopted mutatis mutandis

Note: This is distinct from a Government Company (Category c), which is set up under the Companies Act with its own statutory auditor appointed by C&AG.

⚠️ Common exam mistakes

Thinking C&AG directly audits government companies — he appoints the auditors (under Section 139(5)/(7)) and conducts supplementary/test audits, but the primary statutory audit is by the appointed company auditors.
Ignoring the Audit Board mechanism for government companies — it includes government nominees and functional specialists, and processes performance reviews.
Treating all three categories identically — each has a fundamentally different audit mechanism, and exam questions often test the distinctions.
Missing that for statutory bodies, audit norms are adopted 'mutatis mutandis' from professional standards — meaning professional audit norms apply with necessary modifications, not identical government audit procedures.

Reference:

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Audit of Commercial Accounts — Departmental Enterprises, Statutory Bodies, and Government Companies

Worked example

⚠️ Common exam mistakes