Companies Act states that auditor is required to make an enquiry and report if he is not satisfied in respet of following matters.

(a) whether loans and advances made by the company on the basis of security have been properly secured.

(b) whether transactions of the company which are represented merely by book entries are prejudicial to the interests of the company;

(c) where the company not being an investment company or a banking company, whether so much of the assets of the company as consist of shares, debentures and other securities have been sold at a price less than that at which they were purchased by the company;

(d) whether loans and advances made by the company have been shown as deposits;

(e) whether personal expenses have been charged to revenue account;

(f) where it is stated in the books and documents of the company that any shares have been allotted for cash, whether cash has actually been received in respect of such allotment.

Thus auditor make an enquiry on the matters to ensure the true and fair presentation of the financial statement of the company.