COMPANY AUDITOR

Appointment of Auditor
(Sec 139)
(ii) Before such appointment is made, the
written consent of the auditor to such
appointment, and a certificate shall be
obtained from the auditor.
(iii) The certifi cate shall also indicate whether
the auditor satisfies the criteria provided in
section 141.
(iv) The company shall inform the auditor
concerned of his or its appointment, and also
file a notice of such appointment with the
Registrar within 15 days of the meeting in
which the auditor is appointed.
(v) A retiring auditor may be re-appointed at an
annual general meeting, if-
(a) he is not disqualified for re-appointment;
(b) he has not given the company a notice in writing
of his unwillingness to be re-appointed;
(c) a special resolution has not been passed at that
meeting appointing some other auditor or providing
expressly that he shall not be re-appointed.
(vi) Where at any annual general meeting, no auditor
is appointed or re-appointed, the existing auditor
shall continue to be the auditor of the company.
Rotation of Auditors - 139(2)
As per section 139(2), no listed company or a company
belonging to such class or classes of companies as
mentioned above, shall appoint or re-appoint-
(a) an individual as auditor for more than one term of five
consecutive years; and
(b) an audit firm as auditor for more than two terms of five
consecutive years.
Provided that -
(i) an individual auditor who has completed his term under
clause (a) shall not be eligible for re-appointment as auditor
in the same company for five years from the completion of
his term;
(ii) an audit fi rm which has completed its term under clause
(b), shall not be eligible for re-appointment as auditor in the
same company for five years from the completion of such
term.
QUALIFICATIONS OF
AUDITORS (Sec 141)
(1) A person shall be eligible for
appointment as an auditor of a company
only if he is a chartered accountant
(2) Where a firm including a limited
liability partnership is appointed as an
auditor of a company, only the partners
who are chartered accountants shall be
authorised to act and sign on behalf of the
firm.
DISQUALIFICATIONS OF
AUDITOR Sec 141
1. A body corporate
2. An officer or employee of the company
3. A person whose partner or relative holds shares
with facevalue ₹ 1 lakh or more in the company
4. A person who holds any shares in the company.
5. is indebted to the company, or its subsidiary, or
its holding or associate company or a subsidiary
of such holding company, in excess of ₹ 5,00,000;
6) has given a guarantee or provided any
security in connection with the
indebtedness of any third person to the
Company or its Subsidiary, or its Holding
or Associate Company or a Subsidiary of
such Holding Company, in excess of ₹1
lac.
7)a person or a firm who, whether
directly or indirectly has business
relationship with the Company
8)a person whose relative is a Director or
key Managerial Personnel.
9)a person who is in full time
employment elsewhere
10) a person who has been convicted by
a Court of an off ence involving fraud and
a period of ten years has not elapsed
from the date of such conviction.
11) a person who is disqualified by
maximum audit appointments rule.
CASE STUDIES
1. ABD Ltd wants to appoint CHGT Ltd
as auditor. Is this possible?
2. Jal Jal Ltd wants to appoint CA.
Ganesh, its CFO as auditor. Is it
possible?
3. MATUNGA Ltd wants to appoint CA.
Tang who is a partner in Pulse and
brothers in which the CXO of
Matunga Ltd is partner. Permitted?
4) M/s RM & Co. is an audit firm having
partners CA. R and CA. M. The firm has
been offered the appointment as an
auditor of Enn Ltd. for the Financial Year
2016-17. Mr. Bee, the relative of CA. R, is
holding 5000 shares (face value of ₹10
each) in Enn Ltd. having market value of
₹1,50,000. Whether M/s RM & Co. is
disqualified to be appointed as auditors
of Enn Ltd.?
5) Mr. A, a practicing Chartered
Accountant, is holding 3 equity
shares of XYZ Ltd. having face value
of ₹ 30. Whether Mr. A is qualified
for appointment as an auditor of XYZ
Ltd.?
6) CA Nirltesh has been given a loan
of ₹ 2 Lakhs by Mahalingam Ltd. Can
he be appointed auditor of the
company?
8) Jingle is a LLP which is a audit firm also
providing consultancy services to Print Ltd.
Print wants to appoint Jingle as its auditor.
Possible?
REMOVAL OF AUDITORS
Sec 140(1)
The auditor appointed under section
139 may be removed from his offi ce
before the expiry of his term only by
a special resolution of the company,
after obtaining the previous approval
of the Central Government.
Step 1: BOD resolution
Step 2: Appln to Central govt within
30 days
Step 3: hold the general meeting
within 60 days of receipt of approval
of the Central Government for
passing the special resolution.
MAXIMUM AUDIT
APPOINTMENTS
20 companies, excluding
one person companies,
dormant companies
small companies and
private companies having paidup
share capital less than ₹100 crore
12) SEC 144 disqualification - prescribes certain
services not to be rendered by the auditor
(i) accounting and book keeping services;
(ii) internal audit;
(iii) design and implementation of any financial
information system;
(iv) actuarial services;
(v) investment advisory services;
(vi) investment banking services;
(vii) rendering of outsourced financial services;
(viii) management services;
Rights of Auditors
1. Right of access to books: Books means all
documents needed for audit
2. Right to obtain information and
explanation from officers
3. Right to receive notices and to attend
general meeting
4. Right to report to the members of the
company on the accounts examined by him
5) Right to lien: auditor can exercise lien on
books and documents placed at his possession
by the client for non payment of fees, for work
done on the books and documents.
(i) Documents retained must belong to the
client who owes the money.
(ii) Documents must have come into
possession of the auditor on the authority of
the client. They must not have been received
through irregular or illegal means. In case of a
company client, they must be received on the
authority of the Board of Directors.
(iii) The auditor can retain the documents
only if he has done work on the
documents assigned to him.
(iv) Such of the documents can be
retained which are connected with the
work on which fees have not been paid.
DUTIES OF AUDITORS
1. Duty to prepare audit report Sec
143(3)
2. Duty to Sign the Audit Report: section
145
3. Duty to comply with Auditing
Standards: section 143(9)
4. Duty of Auditor to Inquire, Sec 143
a. Loans given by the company are
properly secured
b. Transactions of the company which
are represented merely by book
entries are not prejudicial to the
interests of the company;
c. personal expenses have not been
charged to revenue account;
d. if any shares have been allotted for
cash, whether cash has actually
been received
5) Duty in relation to Fraud: If in the course of
audit work the auditor suspects any fraud by
employees of the company -
• Must report to Central government if
amount of fraud is equal or greater than
₹ 1 crore
• Must report to audit committee is
amount of fraud less than ₹ 1 crore
6) Duty to state the reason for qualification or
negative report as per section 143(4)