Audit primer

Last Updated: Thu, Oct 25, 2012 20:40 hrs

The petroleum ministry has agreed to exempt Reliance Industries from a performance audit, and gave pending approvals for the country’s largest private sector petroleum company’s KG-D6 block. But the ministry has said an audit under section 1.9 of accounting procedure in the production sharing contract (PSC) would be conducted

  • WHY AUDIT OF PRIVATE COMPANIES: Comptroller and Auditor General of India (CAG) audits projects and blocks allotted to private companies since these have implications for govt revenues


  • WHAT ARE THE TYPES OF AUDIT: Audits can be broadly classified into compliance, financial attest and performance audits


  • PERFORMANCE AUDIT establishes at what cost and to what degree govt’s policies, programmes and projects are working. In addition to the financial audit checks, it assesses if a scheme or activity deploys sound means to achieve intended socio economic objectives


  • ARTICLE 1.9 OF PSC establishes audit and inspection rights of the govt, which can conduct audit through its representatives or through chartered accountants. The scope of such auditing is fairly large and includes everything serving the petroleum operations. The practice had been that the companies engaged auditors to finalise costs and other estimates before putting these up to the govt, which got it vetted through CAs


  • ONGC, CAIRN INDIA, RIL AND OTHERS have gone through the performance audit that goes into appraisal and drilling programmes for oilfields


  • WHAT WAS RIL’S OBJECTION? Nothing in PSC permits an audit of operational, commercial and technical decisions of the operator. RIL gave CAG access to all information for 2006-07 and 2007-08, after protesting, based on which a report was tabled in Parliament last year


  • CAG SAYS its scrutiny was consistent with the PSC and not “merely limited to an arithmetical totaling of charges”


  • RIL-BP EXPRESSED FEARS in July this year when it warned the government that the KG-D6 field might shut down in 2015 if the govt did not approve long-pending investment proposals and revised capital expenditures. In the case of KG-D6, budgets and work programmes for 2010-11, 2011-12 and 2012-13 had not been approved. The petroleum ministry said CAG had recommended withholding of sanction to the work programme if it was denied access to RIL and BP accounts


  • THE EXEMPTION came on Oct 23 when the govt asked CAG to skip performance audit on the KG-D6 block, the largest gas producing field in the country and operated by Reliance Industries Ltd, and instead conduct an audit under article 1.9

More from Sify: