Branch Audit

Branch: Branch office, in relation to a company, means any office described as a branch by the company. In short, it is on the company to describe an establishment as their branch office. There is no such hard and fast condition; it’s a company’s discretion.

Eligibility to be appointed as an Auditor?

When a company has a branch office, the accounts of that office shall be audited by either of the following:

  • The auditor appointed by the company, i.e. company auditor, or
  • Any person qualified for appointment as an auditor of the company under this Act, or
  • Where the branch office of the company is situated in a country outside India, then the accounts of the branch office shall be audited either by the company’s auditor who is already appointed and working or by an accountant or by any other person duly qualified to act as an auditor of the accounts of the branch office in accordance with the laws of that country.

Duties of branch auditor:

The duties of the branch auditor include that he shall prepare a report on the accounts of the branch examined by him and then send the report to the auditor of the company who shall deal with the report prepared and provided by him in his report in such manner as he considers necessary.

Role of the Company’s Auditor:

  • The company’s auditor is required to deal with the branch audit report received from the branch auditor, in preparing his own report. The manner in which to deal with the report is left to him. It is clear that the law has left the question of how to deal with the report to the company auditor and only requires him to state in his report how he has dealt with the same.
  • Full freedom of judgment has been given to the company’s auditor to decide the relevance and impact of the branch audit report on the total company accounts. Certain matters may appear material and important in the limited context of the operations of the branch but may be considered not much significant in the setting of the total company accounts.
  • He may incorporate the points, if any, made in the branch audit report if he considers the same relevant in making the consolidated account true and fair. He, at his discretion, may give any or all the qualifications made in the branch audit report, having regard to materiality, accounting principles, and the requirements of disclosure.
  • However, if the branch audit report contains qualifications on matters especially required to be disclosed in the company accounts, as per the requirements of Schedule III, then it is obvious that the company auditor is left with no choice but to incorporate them in his own report after confirming the accuracy of the report if he so feels.
  • It should also be understood that discretion is simultaneously a very big responsibility on the company auditor. If he omits any of the qualifications appearing in the branch audit report, without sufficient consideration, he and not the branch auditor will be responsible for the omission.

The  ICAI (Institute of Chartered Accountant of India) in their SA (Standards on Auditing)“using the work of another auditor” has reviewed the relationship between the statutory auditor and the branch auditor and has come to a conclusion that the statutory auditor would not be responsible for work and entrusted to branch auditors except in circumstances which should have aroused his suspicion, about the achievability of work performed by the branch auditor.

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