Blog Details

An auditor garners a clean chit for companies as it protects them from financial misstatements, painting a reliable and healthy picture of the organization in the market.

In 2013, with the President’s assent the 1956 Act underwent a mutation to become the Companies Act 2013. Chapter X of the act is dedicated to audits and auditors and encompasses their roles and responsibilities, appointment and removal among other things.

Roles and responsibilities

The new act bestowed some additional responsibilities onto the auditor (Section 143) which in turn led to increase in liabilities.

The auditor has the right to access books of accounts and seek information from the company on matters he or she thinks is necessary. Also, he or she can have certified copies of the desired information. In addition to this, the auditor also has to-

• Ensure the legality of advances made by the company and that they are not colored by prejudice to the interest of the company or its members.
• Verify the entries made in accounts book; whether the transactions have actually taken place or not.
• Inquire whether the assets (shares, debentures etc) are sold at a price lower than that at which they were bought.
• Make sure that loans and advances are not shown as deposits.
• Ensure no personal expenses are included in revenue records.

If (s)he finds something peculiar it is the duty of the auditor to report the same. In case of aberration the auditor also falls under the radar of questioning. If the auditor fails to bring into notice any anomalies in the company records within 30 days of learning it with substantial evidence, then he or she can be fined up to Rs. 25 lakhs for error in judgment.

Appointment of auditors

1. Time of appointment
Appointment of the auditor has to take place within 30 days after the registration of the company in a General body Meeting (GBM) or within 90 days in an Emergency GBM.

2. Documents required
The appointed auditor is required to submit a certificate verifying the individual/ firm’s eligibility for the appointment under the Chartered Accountants Act 1949. The certificate should also mention whether the auditor fulfills the criterion mentioned in Section 141 of the Companies Act 2013.

3. Eligibility
As prescribed in Section 141 (1 and 2), a Chartered Accountant (CA) or a firm where a majority of its partners are Chartered Accountants practicing in India is eligible to be appointed as an auditor. Point 3 of the same section defines who are not eligible for the post- a partner, an officer or, employee of the officer or the company; a person who himself, his relative or partner or a company which is an associate is not eligible to be appointed as the auditor. Also, an individual who is auditor of more than 20 companies cannot be appointed.

4. Tenure
An auditor is who is appointed in the first General Body Meeting serves the company till the sixth annual general meeting and therefore has tenure of 5 years.
At any annual general meeting, an auditor can be reappointed except under the following circumstance:
If the individual or firm is not eligible for reappointment;
If the individual or firm has given a written notice expressing their unwillingness to be reappointed;
If a resolution is passed in the General body Meeting that the auditor shall not continue to hold the post.

5. Removal
An appointed auditor can be removed, as per Section 140, by the company before the completion of his or her tenure by filling the ADT-2 application form and obtaining the approval of the Central Government. The application has to be filled within 30 days of passing a resolution in the general meeting regarding the same. Once approved, the company shall hold another general meeting where the auditor will be given an opportunity of being heard.