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Audit & Auditors

The companies Act, 2013 has come into effect from 01.04.2014 and replaces a nearly six decade-old legislation and overhauls the way corporate functions and are regulated in the country. The note here under gives overview of the provisions of Audit and Auditor covered under Chapter X of Companies Act, 2013. 1). Appointment of first auditor in case of every company except govt. company or company owned/ controlled by CG/SG/CG and SG [139(6)]:- Appointment of first auditor shall be made by board within 30 days of registration of company. If Board fails to appoint the first auditor within given time then it shall inform to members and members shall make the appointment of first auditor within 90 days of information at an EGM. The First Auditor shall hold office till the conclusion of first AGM. 2). Appointment of first auditor in case of govt. company or company owned/ controlled by CG/SG/CG and SG139(7):- Appointment of first auditor shall be made by CAG within 60 days of registration of the company. If CAG fails to appoint the first auditor within given time then Board of such company shall appoint first auditor within 30 days. If Board fails to appoint the first auditor within given time then it shall inform to members and members shall make the appointment of first auditor within 60 days of information at an EGM. The First Auditor shall hold office till the conclusion of first AGM. 3). Appointment of Subsequent Auditor in case of every company except Govt. Company or company owned/ controlled by CG/SG/CG and SG[139(1)]:- Appointment of auditor shall be made by members at First AGM and every subsequent 6th AGM. Company shall intimate the auditor about appointment. After intimating, company shall obtain written consent and certificate (in accordance with the conditions prescribed in section 141) from auditor. Then, company is required to file a notice with the registrar about the appointment within 15 Days of the meeting. Note: The Auditor shall hold office for a period of 5 Years. 4). Conditions for appointment of Subsequent Auditor in case of Listed Companies or companies of such class [139(2)]:- If an individual is appointed as an auditor for 1 term i.e. for 5 consecutive years then that individual will not be eligible for reappointment for next 5 years from the expiry of his term as an auditor of company. Whereas, if an audit firm is appointed as auditor for 2 term i.e. for 10 consecutive years then that audit firm will not be eligible for reappointment for next 5 years from the expiry of its term as an auditor of company Note: Audit firm having common partner to the old audit firm of the company will not be eligible for appointment. Note: All companies to which this section applies are required to comply with the above mentioned provisions within 3 years from the commencement of this act. 6). Appointment of Subsequent Auditor in case of Govt. Company or company owned/ controlled by CG/SG/CG and SG [139(5)]:- Appointment of auditor shall be made by CAG within 180 days from the commencement of financial year. The Auditor shall hold office untill the conclusion of AGM. 7). Appointment of auditor in Casual Vacancy in every company except Govt. Company or company owned/ controlled by CG/SG/CG and SG [Section 139(8)(i)] :- If casual vacancy arises by resignation, then the vacancy shall be filled by the Company in its meeting within 3 months from the date of recommendation of the Board. Whereas casual vacancy arises due to reasons other than resignation, then vacancy shall be filled the Board within 30 days. 8). Appointment of auditor in Casual Vacancy in case of Govt. Company or company owned/ controlled by CG/SG/CG and SG [Section 139(8)(ii)]:- Casual vacancy shall be filled by CAG within 30 days. If CAG fails to fill the vacancy within given time then BOD shall fill the vacancy within 30 days. 9). Rotation of Auditors [ 139(3)]:-
  • Member can rotate auditing partner and his team for any interval
  • Audit can be conducted by 1 or more auditor
  10). Role Audit Committee in appointment of auditors [139(1 1)]:- Appointment, remuneration and term of appointment of auditor shall be made after considering the recommendations of the Audit Committee 11). Duty of auditor when he or it resigns [140(2)]:- Auditor is required to file a statement specifying the reasons and fact of resignation within 30 days of resignation with ROC and company or CAG in case of Govt. Companies. If auditor fails to comply with above mentioned provisions then he shall be punishable with fee of Rs. 50,000- Rs. 500,000. 12). Duty of Company in case of representation received from auditor [140(4)]: Company is required to send a copy of the representation to every member and if copy of representation is not sent then a copy shall be filed with registrar. 13). Role of Tribunal in case auditor found guilty of fraud [140(5)]: Tribunal may by itself or on application by CG/any concerned person order to change the auditor. And if the application is made by CG then tribunal shall pass an order within 15 days of application. In case of final order is passed then the auditor shall not be appointed for a period of five years in any other company and be further liable for monetary as well as penal punishment. 14). Eligibility LLP’s as auditors [141(2)]: LLP’s can be appointed as auditors of company but only chartered accountant partners are authorized to act and sign on behalf of firm. 15). Remuneration of Auditors [142(1)]:- Remuneration shall be decided by members at a general meeting except for the remuneration of first auditor which shall be decided by board. 16). Power of Auditor [143(1) Proviso]:- Auditor of holding company has the right of access to the records of all subsidiaries in so far as it relates to the consolidation of its financial statements with that of its subsidiaries. 17). Duties of Auditor [143(9),(12),(13),(15) and 146]:- i. Every auditor need to comply with auditing standard [143(9)]. ii. Auditor shall report the fraud to the CG within prescribed time and manner and the same shall not be construed as breach of duty[143(12) & (13)] iii. If auditor fails to comply with above mentioned provisions then he shall be punishable with fee of Rs. 100,000 Rs. 500,000 [143(15)]. iv. Auditor has to attend general meeting unless exempted by the company [146]. 18). Auditor not to render certain services [144]:- Auditor cannot provide following services to the company, its holding company or its subsidiaries, or associate company: i. Accounting and book keeping service; Internal audit; ii. Design and implementation of any financial information system; iii. Actuarial services; iv. Investment advisory services; v. Investment banking services; vi. Rendering of outsourced financial services; vii. Management services; and viii. Any other kind of consultancy services. Note: If auditor is providing such services before the commencement of this act then he has to comply with the above mentioned provision before the closure of the first financial year after the date of such commencement.  
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