Statutory Audit Requirement

The Part N of the Companies Act, 1963 (Act 179) deals with the Accounts and Audit of companies. We take a brief look at the provisions very important to us as auditing students.

1. Keeping of Books of Account (Section 123)

A company is required to keep proper books of account with respect to its financial position and changes in the books of account. Particularly, the company should keep records in respect of:
a) Cash received and expended by the company;
b) Sales and purchases of goods by the company and;
c) All Assets and liabilities of the company and the interest of the members in the company.

Proper books of account should give a true and fair view of the state of the company’s affairs and are necessary for the preparation of the proper Profit and Loss accounts and Balance Sheets.

The books of accounts may be kept manually in bound volumes or in electronic format.

The books of accounts should be kept at the registered office of the company or any other place decided by the directors.

The books of accounts should be open during normal working hours to inspection by the directors, secretary and auditors of the company.

2. Mandatory Audited Accounts (Section 124)

The section 124 of the companies’ code requires the directors of a company to prepare and send financial reports to members and debenture holders at least once within every calendar year. The report should comprise:
• Signed Profit and Loss accounts and Balance Sheets;
• A report by the directors and;
• A report by the auditors.

Clause (C) of subsection 1 of this section of the code specifically included the auditor’s report in the items to be sent to members. This implies that it is mandatory for all companies to have their accounts audited by an auditor.


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