Management Notes

Reference Notes for Management

Who among the following can be appointed as special auditor by the Central Government?

Who among the following can be appointed as special auditor by the Central Government?


a) The statutory auditor
b) chartered accountant in practice
c) Any chartered accounted who is not in practice
d) Both (a) and (b)

The Correct Answer Is:

b) chartered accountant in practice

The Central Government has the authority to appoint a special auditor under certain circumstances to conduct an audit of a company’s financial statements. Among the options provided, the correct choice is:

b) Chartered accountant in practice

Now, let’s delve into the detailed explanation of why this option is correct, and why the other options are not applicable.

Correct Answer (b): Chartered Accountant in Practice

A chartered accountant in practice refers to a professional accountant who holds a valid certificate of practice and is authorized to offer audit and accounting services independently.

When the Central Government deems it necessary to appoint a special auditor, it is crucial to choose an experienced and qualified professional who is actively engaged in the field. This ensures that the appointed auditor possesses the necessary expertise and competence to carry out the audit effectively.

Chartered accountants in practice are well-versed in auditing standards, accounting principles, and possess the requisite skills to conduct a thorough and unbiased examination of a company’s financial records.

This choice is therefore appropriate as it guarantees that the special auditor has the requisite knowledge and experience to perform the task effectively.

Why Other Options are Incorrect:

Let’s provide more detailed explanations for why each of the incorrect options is not the appropriate choice for appointment as a special auditor by the Central Government:

a): The Statutory Auditor

The statutory auditor is an independent auditor appointed by the shareholders of a company during the Annual General Meeting (AGM). Their primary responsibility is to review and express an opinion on the financial statements of the company for the fiscal year.

While statutory auditors are qualified professionals, appointing them as special auditors may not be ideal in all cases.

i. Lack of Independence:

Statutory auditors are typically appointed by the company’s shareholders based on a recommendation from the board of directors. This existing relationship with the company’s management and board may compromise their independence when conducting a special audit.

Independence is crucial to ensure an unbiased examination of the financial records.

ii. Potential Conflicts of Interest:

Since the statutory auditor already has a working relationship with the company, they may be hesitant to raise concerns about financial irregularities or discrepancies that could reflect negatively on the company.

This potential conflict of interest may hinder their ability to perform an impartial and thorough audit.

iii. Limited Scope of Expertise:

Statutory auditors are primarily focused on providing an opinion on the annual financial statements.

While they have expertise in financial reporting and auditing standards, they may not have specialized skills or experience in conducting more in-depth investigations or forensic audits, which may be necessary for a special audit.

c): Any Chartered Accountant Who is Not in Practice

A chartered accountant who is not in practice may be employed in various capacities within an organization, such as in a financial management or advisory role.

While they possess accounting knowledge, their lack of current, hands-on experience in auditing could be a significant limitation when it comes to performing a special audit.

i. Limited Audit Experience:

Chartered accountants not in practice may not have recent experience in conducting audits. This lack of practical audit experience may hinder their ability to effectively review and assess the company’s financial records for potential irregularities or discrepancies.

ii. Potential Knowledge Gap:

Since they are not actively engaged in audit work, they may not be up-to-date with the latest auditing standards, regulatory requirements, and best practices. This could lead to a potential knowledge gap when it comes to conducting a specialized audit.

iii. Possible Conflict of Interest:

If the chartered accountant not in practice has any prior affiliation with the company, it could raise concerns about their independence and objectivity, similar to the issues with the statutory auditor.

d): Both (a) and (b)

This option suggests that either the statutory auditor or a chartered accountant in practice could be appointed as a special auditor.

However, as explained earlier, this could lead to conflicts of interest and potential issues with independence and objectivity, especially if the statutory auditor already has a working relationship with the company.

In conclusion, while both statutory auditors and chartered accountants not in practice are highly qualified professionals, they may not always be the most suitable choices for the role of a special auditor.

Practical audit experience, independence, and objectivity are crucial factors to consider when appointing a special auditor for a more in-depth examination of a company’s financial records. This is why a chartered accountant in practice is the most appropriate choice for this role.

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