AUDITING – FINAL BBA

CHAPTER V – COMPANY AUDIT

BY-
Chitra Padiyar
Asst. Professor – Management
GFGC Punjalakatte
 THE
COMPANY
AUDIT
Learning Objectives -
• Meaning of Company Auditor
• Qualifications/Disqualifications of an Auditor
• Appointment of an Auditor
• Duties
• Powers/Rights of an Auditor
• Punishments for contravention of provisions
INTRODUCTION
• A Joint stock Company is managed by a few elected representatives of
the Shareholders called individually ‘Directors’ and collectively the
‘Board’ and also by some top officials.
• The capital contributed by the shareholders is employed by these
directors and some top officials for the business of the company and
accounts are also maintained by them.
• The accounts of the company are required to be checked and
examined by independent qualified persons called auditors.
• Companies Act, 2013 is a rule-based Act.
• Section 139 to 148 of the Companies Act, 2013 (hereinafter referred
to as ‘the Act’ unless otherwise mentioned) deal with provisions
relating to audit of Companies.
MEANING OF AN AUDITOR
The Companies Act does not define the term ‘auditor’.
But the Act defines the word ‘Chartered Accountant’.
As per Section 2(17) of the Act, “chartered accountant”
means a chartered accountant as defined in clause (b)
of sub-section (1) of section 2 of the Chartered
Accountants Act, 1949 (38 of 1949) who holds a valid
certificate of practice under sub-section (1) of section 6
of that Act;
QUALIFICATIONS OF AN AUDITOR
• A person shall be eligible for appointment as an auditor of a company
only if he is a Chartered Accountant.
Note: a firm whereof majority of partners practising in India are qualified for
appointment as aforesaid may be appointed by its firm name to be auditor of a
company
• 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.
DISQUALIFICATION OF AN AUDITOR
Under section 141(3) along with Rule 10 of the Companies (Audit and
Auditors) Rules, 2014 (hereinafter referred as CAAR), the following
persons shall not be eligible for appointment as an auditor of a
company, namely-
• A body corporate other than Limited Liability Partnership registered
under the Limited Liability Partnership Act, 2008.
• An officer or employee of the company.
• A person who is a partner, or who is in the employment, of an officer
or employee of the company.
DISQUALIFICATION OF AN AUDITOR
• A person who, or his relative or partner-
➢Is holding any security of or interest in the company or its subsidiary, or of its
holding or associate company or a subsidiary of such holding company;
Relative- may hold security or interest in the company of the Face Value not
exceeding Rs.100000/-
[Relative- include members of HUF, spouses, Father and Mother (including
stepfather and mother) Son (including step-son), Son’s wife, Daughter, Daughter’s
husband, Brother (including step-brother), Sister (including step-sister).]
➢ Is indebted to the company, or its subsidiary, or its holding or associate company
or a subsidiary of such holding company, in excess of Rs.500,000; or
➢ Has given a guarantee or provided any securities 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
Rs.100,000.
DISQUALIFICATION OF AN AUDITOR
• A person or firm who, whether directly or indirectly has business
relationship with the Company, or its Subsidiary, or its Holding, or
Associate Company or Subsidiary of such holding company or associate
company, of such nature as may be prescribed.
• A person whose relative is a Director or is in the employment of the
Company as a director or Key Managerial Personnel.
• A person who is in full time employment elsewhere or a person or a
partner of a firm holding appointment as its auditor, if such person or
partner is at the date of such appointment or reappointment holding
appointment as auditor of more than twenty companies other than one
person companies, dormant companies, small companies and private
companies having paid up share capital less than Rs.100 crore.
• A person who has been convicted by a Court of an offence involving fraud
and a period of ten years has not elapsed from the date of such conviction.
DISQUALIFICATION OF AN AUDITOR
Any person whose subsidiary or associate company or any other form
of entity, is engaged as on the date of appointment in consulting and
specialized services as provided in Section 144.
• Where a person appointed as an auditor of a company incurs any of
the disqualifications mentioned in section 141(3) after his
appointment, he shall vacate his office as such auditor and such
vacation shall be deemed to be casual vacancy in the office of the
auditor.
APPOINTMENT OF AUDITOR
• Section 139 of the Companies Act, 2013 contains provisions regarding
Appointment of Auditors. Appointment of Auditor

First Auditors Subsequent Auditors

Other than Government Government Company u/s Other than Government

Company [Section 139(6)] 2(45) [Section 139(7)] Government Company u/s 2(45)
Company [Section [Section 139(5)]
139(1)]
Appointment by BOD- Appointment by C&AG within 60days Appointment by
within 30days from DOR from the DOR C&AG within
Appointment by
In case of Failure: In case of Failure: BOD within 30days Members in GM 180days from the
Members in EGM within In case of Failure: Members in EGM commencement of
90days within 60days year
Hold the office from
1st AGM to 6th AGM
Hold the office till the subjection to Hold the office till
Hold the office till the fulfillment of certain the conclusion of
conclusion of the first AGM conclusion of the first
AGM conditions. the AGM
POWERS / RIGHTS OF AUDITORS
• Right of access to books and vouchers
• Right to obtain information and explanations
• Right to visit branches, and access branch accounts
• Right to remuneration
• Right to have qualifications, etc. read out at general meeting
• Right to receive Notices and to attend General Meeting
Duties of an auditor
• Inquiry into specified areas [Section 143(1)]
• Reporting as to True and Fair [Section 143(2)]
• Reporting requirements [Section 143(3)]
• Reasons for negative remark or qualification [Section 143(4)]
• Duties wrt audit of Government Companies [Section 143(5),(6),(7)]
• Compliance with Auditing Standards [Section 143(9),(10)]
• Additional matters reporting as per NAFRA [Section 143(11)]
• Reporting of Frauds [Section 143(12),(13),(15)]
• Signing Audit Report [Section 145]
Punishment for Contravention [Section 147]
Contravention

Of Section 139 to 146 Of Section 139,143,144,145

Company Every Officer in Default Auditor

(a) Normal: Fine of Min Rs.25,000, Max

Fine of
Imprisonment of Maximum Rs.5Lakh
Minimum - Rs.25,000 1year, or (b) If done knowingly or wilfully, with
Maximum – Rs.5Lakhs Fine of Min Rs.10,000, Max Rs.1 intention to deceive the Company or its
Lakh, or Shareholders or Creditors or Tax Authorities:
Both of the above Imprisonment of Maximum 1year, or
Fine of Min Rs.1Lakh, Max Rs.25Lakh, or
Both of the above.