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Qualifications of a Company Auditor [Sec.141 (1) & (2)]

Section 141 (1) & (2) of the Companies Act, 2013 prescribed the following eligibility and qualifications of auditor which are as follows:

1. A person, who is a chartered accountant and holds a certificate of practice, shall be qualified to be appointed as an auditor of a company.

2. The partners who are chartered accountants of a firm alone shall be authorized to act and sign on behalf of the firm.

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Disqualifications of a Company Auditor [Sec.141 (3)]

The following persons shall not be eligible for appointment as an auditor of a company.

1. A body corporate, except Limited Liability Partnership.

2. An officer or employee of the company;

3. A person who is a partner of an officier or employee of the company.

4. A person who is a relative or his partner of a company or holding or subsidiary company or associate company is disqualified in the following circumstances:

a. When he is holding any security, or

b. When he is indebted in excess of Rs.5,00,000, or

c. When he is given a guarantee or provided any security in connection with indebtedness in excess of Rs.1,00,000.

5. A person or a firm has business relationship of such nature with a company or holding or subsidiary company or associate company.

6. A person whose relative is a director or is in employment of the company as director or key managerial personnel.

7. A person holding more than 20 company audit (20 company audit shall exclude one person company, small company, dormant company, private company with paid up capital less than Rs.100 Crore).

8. A person who has been convicted by a court of an offence involving fraud and a period of 10 years has not elapsed from the date of such conviction.

9. Any person who is engaged in consulting and specialized services.

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Auditor Remuneration

Where appointment by the Board of Directors: When an auditor is appointed by the Board of Directors, remuneration is also fixed by them. The resolution appointing the auditor should also prescribe the remuneration.��
Where appointed by Shareholders: In this case, the remuneration is determined by the shareholders at the AGM. Sometimes, shareholders may delegate the power of fixing remunerations to the Board of Directors or the Chairman.��
Where appointed by the Comptroller & Auditor General of India: The remuneration shall be fixed by the company in general meeting or in such manner as the company in general meeting may determine.��
Remuneration other than audit fees: Where an auditor renders services other than those as an auditor, he is entitled to get extra remuneration. Such remuneration may not be fixed in advance by the appointing authority while appointing him as an auditor & while fixing his remuneration.
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��Removal of auditor �

1.Removal of auditor before the expiry of his term

2.Resignation by Auditor

3.Requirement of Special Notice

1.Removal of auditor before the expiry of his term

Previous approval of Central Government must be obtained within 30 days of passing of the Board resolution.
The company shall hold the general meeting within 60 days of receipt of approval of CG for passing the special resolution.
Before taking any action for removal, the auditor shall be given a reasonable opportunity of being heard.

2.Resignation by Auditor

When an auditor resigns, he is required to file a statement in the prescribe form. The statement shall indicate the reasons & other facts as may be relevant with regard to his resignation. The statement shall be filed with

the company

the Registrar

CAG in case of a Government Company.

The statement shall be filed within 30 days from the date of resignation.

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3.Requirement of Special Notice

At an AGM, special notice shall be required for

Appointing as auditor a person other than the retiring auditor, or
Providing expressly that the retiring auditor shall not be reappointed.��

On the receipt of notice of such a resolution, the company shall forthwith send a copy thereof to the retiring auditor.��
Retiring auditor is entitled to make a representation against his removal. The representation shall be in writing & shall be sent to the company.��
He may request the company to circulate the representation to the members of the company.��
If copy of the representation is not sent because it was received too late or because of the company’s default, then the auditor may require that the representation shall be read out at the meeting. A copy of representation shall be filed with the registrar.

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Rights of an Auditor Sec 227�

To access books of accounts of the company.[227(1)]
To seek information and explanation from the officers of the company
To visit branches where he is not satisfied with the details given by the branch auditor[228]
To receive notice of AGM[231]
To make any representation which the co. can send to all its shareholders or read out at the GM.
To take advice from experts.
To receive Branch Audit Report.
To sign the audit report.
To receive remuneration.
To attend AGM.
To speak at AGM.
To be indemnified. Right of lien.

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I.Duties of an Auditor Report to the shareholders on:-�

Whether proper Books of Accounts were kept and proper returns received from the Branches not visited by him.
Whether necessary information was received during the course of audit.
Whether BS & P& L A/c are in agreement with the Books of Accounts.
Whether BS & P& L A/c are as per Co.’s Act.
Whether the BS & P& L A/c complied with Accounting Standards referred in Sec 211(3C)
Whether Accounts show True & Fair View.
Report on CARO (if applicable)
Qualifications in report.
Directors disqualifications if any.
Proper books of account shall not be deemed to be kept with respect to the matters specified therein,- (a) if there are not kept such books as are necessary to give a true and fair view of the state of the affairs of the company or branch office, as the case may be, and to explain its transactions; and (b) If such books are not kept on accrual basis and according to the double entry system of accounting.]�

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II. Duties of an Auditor Duty to inquire into Certain Matters Sec 227(IA)�

Loan and advances made by the company.
Book entries.
Sale of investment below cost.
Loan and Advances shown as deposit
Personal expenses.
Shares issued during the year.�

III.Duties of an Auditor Sign & submit the Audit Report.�

Certify the Prospectus regarding :

Rate of Dividend paid for the last 5 years
Profits & Losses for the last 5 years
Assets & Liabilities of the company

Certify Statutory report regarding :

Numbers of shares allotted
Cash received on such allotment
Receipt and Payment Account
Comply with the Directives of the ICAI and that of Central Govt.�

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Auditors’ Liabilities�

1.Civil Liabilities (arising from law suits / Liability for negligence)

Under law of contract (initiated by the audit client)
Under law of unlawful act

2. Criminal Liabilities

Against charges of fake documents (evidence created etc.)
Against false statement (regarding opinion in report)�

Civil Liabilities

Civil liabilities mean the disputes over losses caused to one party by acts of another. The civil liabilities of an auditor can be for:-

Negligence ii) Misfeasance

Liability for Negligence (under law of agency):

Auditor being agent of the Shareholders is required to carry out his duties with reasonable care and skill. If he fails to do so, he is liable to make good any loss caused to the third party.

Major legal decision

1) Arthur E. Green & Company Vs Central Advance & Discount Corporation Ltd. (1920). It was held that auditor is guilty of negligence. Auditor accepted the schedule of bad debts furnished by the client, though it was apparent that debts were not recoverable.

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