Under section 227(2) of the Companies Act, 1956, the auditor is required to make a report to the members of the company on the accounts examined by him and on every Balance Sheet and Profit and Loss Account and on every other document declared by the Act to be annexed to the Balance Sheet or Profit and Loss Account which are laid before the company in General Meeting during his tenure of office. Such a report is known as the Auditor’s Report.
As stated earlier, an auditor is the agent of the shareholders who have virtually no knowledge of the material facts about the affairs of the company. The chief value of the Auditor’s Report lies in its check on the accuracy of the figures presented, though, of course, it does not add anything to the information disclosed.
The auditor is required to conduct a sufficient examination of the books and other records including the Balance Sheet and Profit and Loss Account. On the basis of the scrutiny, he makes a report to the members of the company and thus, acquaints them with true and fair state of the company’s affairs. Hence, the auditor is appointed for their benefit and not for the benefit of the Directors.
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An auditor is, therefore, not expected to guarantee the accuracy of every detail of the company’s books. He cannot bring all the errors and fraud to light and act against those who are found guilty of some fraudulent manipulation.
He is a watchdog and not a blood-hound. His duty is simply to make a report to the members that the company’s financial position is truly exhibited by the Balance Sheet and Profit and Loss Account.
The Companies Act has specifically mentioned the duties of an auditor. They are in no case subject to anything which the members of the company may agree or the Articles may prescribe.