Identify the branch and the auditor before planning the handoff
Section 143(8) of the Companies Act, 2013 requires audit of a company branch’s accounts. In India, this may be done by the company’s auditor or another eligible person appointed under section 139. For a branch outside India, the company auditor or a person qualified under the law of the country concerned may audit the branch accounts. A foreign subsidiary is a separate legal entity and should not be added to the branch population on location alone.
Read the applicable text: Companies Act, 2013, section 143, including the reference to section 139 Companies (Audit and Auditors) Rules, 2014, rule 12.
Do not confuse local qualification with internal review
For an overseas branch, retain evidence that the proposed auditor is qualified to audit those accounts under the relevant local law where the company auditor is not doing the work. Internal checking, a local bookkeeping certificate or a reviewed package does not by its label establish the statutory audit. Rule 12 of the Companies (Audit and Auditors) Rules, 2014 refers to the duties and powers in section 143(1) to (4) and requires the branch auditor to submit the report to the company auditor.
Reconcile branch reporting to the company accounts
Obtain the report, audited branch accounts and final adjustment list. Compare the reporting date, currency and ledger version with the amounts in the company’s trial balance. Reconcile inter-office entries, late journals and any unposted differences. Section 143(3)(b) and (c) distinguish adequate returns from branches not visited and the reporting treatment of a branch report from another auditor. The company auditor determines how to deal with the branch report under section 143(8), applying the relevant auditing standards.
Escalate exceptions before the company report is signed
Track modified opinions, missing evidence, unresolved differences and version mismatches. Explain each item’s potential effect rather than assuming a branch conclusion transfers unchanged to the company report. Rule 12(3) extends section 143(12) fraud reporting to the branch auditor to the extent it relates to the concerned branch. Apply the applicable procedure if a matter arises. The numerical controls below illustrate reconciliation and completeness; they do not decide materiality or audit opinion.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Complete branch population
A company has five Indian branches and two overseas branches. The company auditor audits four Indian branches directly and receives separate reports for one Indian and one overseas branch. Six of seven are accounted for in the audit tracker; one overseas branch remains unresolved.
Illustrative example 2: A subsidiary is not a branch
A location inventory contains three Indian branches, two overseas branches and two foreign subsidiaries. The branch population is five, not seven. Review subsidiary work under its applicable framework.
Illustrative example 3: Late inventory adjustment
An audited branch balance for inventory is ₹1,480,000 after a ₹70,000 downward adjustment. The company ledger still shows ₹1,550,000. The bridge needs a ₹70,000 reduction or an evidence-based explanation.
Illustrative example 4: Inter-office variance
The branch reports ₹550,000 due to head office, while head office shows ₹520,000 due from the branch. The unreconciled difference is ₹30,000; investigate timing and postings before eliminating matched balances.
Illustrative example 5: Bridge currency differences
An overseas branch receivable is 20,000 foreign currency units. At an assumed applicable rate of ₹85 per unit, the bridge gives ₹1,700,000. A mapped amount of ₹1,680,000 leaves ₹20,000 to reconcile.
Illustrative example 6: Close only supported items
Six issues were logged. Three were resolved by posting, two by documented explanations, and one has neither. The open count is one, irrespective of any preliminary audit conclusion.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Inventory branches and separate entities | Entity chart and site records. |
| 2 | Identify domestic and foreign branches | Registered particulars and location evidence. |
| 3 | Verify appointment or local eligibility | Engagement and qualification documents. |
| 4 | Confirm covered accounting periods | Scope and reporting instructions. |
| 5 | Obtain audited accounts and report | Signed report and account package. |
| 6 | Tie trial-balance versions | Version and currency reconciliation. |
| 7 | Reconcile inter-office accounts | Mirror ledger and cut-off support. |
| 8 | Review changes and audit exceptions | Adjustment and issue log. |
| 9 | Assess effect on the company report | Relevant law, standards and auditor analysis. |
| 10 | Preserve the completed handoff | Dated receipt, reviewed bridge and closure evidence. |
Sixteen practitioner FAQs
1. Can the company auditor audit a domestic branch?
Yes.
2. Can another auditor audit a domestic branch?
Yes, subject to eligibility and appointment under section 139.
3. Who may audit an overseas branch?
The company auditor or a person duly qualified under the relevant local law.
4. Does every overseas operation count as a branch?
No. Distinguish branches from separate entities.
5. Can an internal review replace the statutory audit?
Do not assume so; verify the actual statutory audit and eligibility.
6. Who receives the branch report?
The company auditor.
7. Does the branch auditor issue the company’s report?
The company auditor is responsible for the company report.
8. Must the two ledgers use the same version?
Tie the package to the version actually incorporated, reconciling changes.
9. Does a branch report eliminate the need to check inter-office balances?
No. Reconcile both sides.
10. What if branch and company periods differ?
Identify the actual period covered and obtain support for the required reporting period.
11. Do different currencies create automatic errors?
No. Reconcile using the appropriate accounting basis.
12. Does a branch qualification automatically become a company qualification?
Assess the matter and its impact under applicable standards.
13. What if a branch report is missing?
Escalate the scope gap before sign-off.
14. Can a branch audit identify statutory fraud reporting issues?
Yes. Check the applicable responsibilities for the concerned branch.
15. What should the company audit file retain?
The report, audited accounts and evidence of how they were used.
16. What is the closing control?
Every branch is accounted for and each open difference is resolved or evaluated.
Official sources
Companies Act, 2013, section 143, including the reference to section 139 Companies (Audit and Auditors) Rules, 2014, rule 12