Introduction
In Kerala, particularly before the Registrar of Companies, Ernakulam, NCLT Kochi Bench, and commercial courts, a recurring question arises:
If the Companies Act, 2013 does not require auditors to sign financial statements, why do auditors often sign or initial them in practice?
The law does not impose a statutory obligation on auditors to sign financial statements and that the auditor’s legal responsibility is confined to signing the audit report.
However, corporate and audit practice in Kerala shows that auditors often sign or initial audited financial statements for well-established legal, professional, and evidentiary reasons.
Statutory Position: What the Law Requires
Section 134 – Responsibility of Management
Under Section 134 of the Companies Act, 2013, financial statements must be:
Approved by the Board of Directors; and
Signed by authorised directors and key managerial personnel.
The auditor is not included in this provision. The law thus clearly assigns:
Preparation and authentication → Management
Audit and opinion → Auditor
Unsigned financial statements by directors are invalid, but absence of auditor’s signature on the statements does not violate Section 134.
Sections 143 & 145 – Auditor’s Statutory Duty
The auditor’s legal obligation is to:
Examine the financial statements; and
Express an opinion by signing the auditor’s report.
The audit report, not the financial statements, is the document the auditor is statutorily required to sign.
Then Why Do Auditors Sign Audited Financial Statements?
Though not mandated by statute, the practice of auditors signing or initialling financial statements has evolved as a professional safeguard, particularly relevant in Kerala regulatory and litigation contexts.
1. Authentication and Document Integrity
(a) Preventing Substitution or Tampering
In Kerala, during:
- ROC inspections,
- SFIO inquiries,
- Bank audits,
- Insolvency proceedings,
authorities often demand the exact set of audited financial statements.
Auditor signatures or initials:
- Ensure version control
- Prevent substitution of pages after audit completion
- Link the audit report to a specific, immutable set of statements
This is particularly critical in disputes involving alleged manipulation of accounts.
(b) Clear Linkage between Audit Report and Accounts
While SA 700 requires identification of the financial statements audited, signing or initialling them provides a visible and indisputable linkage between:
- The auditor’s opinion, and
- The numerical data it covers
2. Legal Accountability and Evidentiary Value in Kerala
(a) Evidentiary Use before Courts and NCLT Kochi
In Kerala courts and tribunals:
- Audited financial statements are routinely relied upon to determine:
- Solvency
- Mismanagement
- Fraud
- Oppression
A set of statements bearing the auditor’s signature:
- Carries higher evidentiary weight
- Reduces challenges alleging post-audit alteration
- Enhances judicial confidence in the document
(b) Protection to the Auditor
From the auditor’s perspective:
- A signed or initialled set of statements creates a “locked record”
- It serves as crucial evidence in:
- ICAI disciplinary proceedings
- Civil liability claims
- Criminal complaints alleging negligence or collusion
Thus, signing is often adopted as a defensive professional practice, not as an assumption of management responsibility.
3. Regulatory Expectations in Kerala ROC Ernakulam & Banking Practice
While ROC Ernakulam does not legally insist on the auditor signing financial statements:
- During scrutiny, adjudication, or inspection, signed audited statements are preferred
- Banks and financial institutions in Kerala routinely insist on:
- Director-signed financials, and
- Auditor-signed / initialled audited statements
This is a commercial and compliance expectation, not a statutory mandate.
4. Sequential Signing: Preserving Role Clarity
Professional practice in Kerala generally follows this sequence:
- Management prepares and signs financial statements
- Auditor conducts audit
- Auditor signs audit report
- Auditor may sign or initial financial statements only to identify the audited version
This sequence ensures:
Management responsibility remains intact
Auditor’s independence is preserved
No confusion arises regarding authorship of accounts
Clearing the Misconception
The statement: “Auditors are not required to sign financial statements” is legally correct, but professionally incomplete.
✔ Auditor is not statutorily required to sign financial statements
✔ Auditor must sign the audit report
✔ Signing / initialling financial statements is a prudential safeguard, not a legal obligation
Conclusion
In Kerala, the law, professional standards, and practice can be harmonised as follows:
A statutory auditor is not legally required to sign financial statements under the Companies Act, 2013.
However, auditors often sign or initial audited financial statements to authenticate the audited version, protect against later disputes, and enhance evidentiary credibility—especially in regulatory and litigation contexts.
This practice does not convert the auditor into a co-author of the accounts, nor does it dilute management responsibility. Instead, it serves as a practical bridge between legal theory and regulatory reality.