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Companies Act, 2013 from sections 138 to 148 deals with accounts, audit, and auditors. An auditor is an independent professional person qualified to perform a review. An auditor is someone who is responsible for examining the accounts and financial statements which are required by the company, after which it becomes reliable. We are looking at their roles and responsibilities in this article.
As per Section 139, it is a prime requirement for every company that it shall at the first Annual General Meeting appoint an auditor who is either an individual or a firm.
It is important to note that the term Appointment includes reappointment.
The manner and procedure of selection of auditors by the members of the company will be such as prescribed. It is compulsory that before such appointment of the auditor is made, the written consent from him to such appointment, and also a certificate from him stating that the appointment, if made, shall be on par with the conditions/norms as may be prescribed, shall be obtained.
Tenure/Period
An individual can be appointed as an auditor for a term of 5 consecutive years and if an audit firm is appointed as auditor then for more than two terms of 5 consecutive years.
Government Company
In a Government company, within a period of 180 days from the commencement of the financial year, the auditor shall be appointed who shall hold office until the conclusion of the annual general meeting.
Qualification-
A qualified Chartered Accountant is appointed as Auditor of the Company. Where a firm is appointed as an auditor of a company, only the partners who are chartered accountants shall be authorized to act and sign on behalf of the firm. A person shall be eligible for appointment as an auditor only if he is a CA and a member of Institute of Chartered Accountant of India.
Disqualification-
A person will be disqualified from being appointed as an auditor if he falls under the following:
Remuneration of Auditor
The compensation of the Auditor shall be decided by the members at a general meeting except for the compensation of the first auditor whose remuneration shall be determined by the Board.
The Power of Auditor
Holding Companies Auditors[1] has the right to access the records of all subsidiaries so far it relates to consolidation of its financial statements with that of its subsidiaries.
The duties are as follows:
1. Every Auditor of a Company shall have a right of access at all times to the books of account and vouchers of the Company, which are kept at the registered office of the company and he shall be entitled to obtain such information and explanation as he may consider necessary for the performance of his duties into the following matters, namely:
2. A report had to be made by auditor to the members of the company on the accounts examined by him and is to be laid before the company in general meeting, He shall also state if the financial statements give a true and fair view of the state of the company’s affairs as at the end of its financial year.
It may be noted that the auditor’s report shall also mention:
Matters required to be incorporated in the audit report is answered in the negative or with a qualification, and the reasons thereof.
3. In the case of a Government company, the Comptroller and Auditor-General of India shall appoint the auditor and give him direction as to in which way the accounts are required to be audited and shall submit a copy of the audit report to the Comptroller and Auditor-General of India.
4. If an auditor of a company, in the course of the performance of his duties as auditor, has reason to believe that an offense involving fraud is being committed against the company by officers or employees of the company, shall immediately report to the Central Government within a time prescribed.
It may be noted that the company shall be punished with fine that will not be less than 25 thousand rupees and may extend to 5 lakh rupees. Every officer who is in default will be punished with imprisonment for a term that can extend to one year or fine that will not be less than 10000 rupees and may extend to 1 lakh rupees, or both.
An auditor has a very special role to play in the affairs of Company. Their role can never be undermined in the context of a Company. Their roles and responsibilities are clearly laid down and they are required to comply with the roles assigned to them.
Read our article: Managerial Remuneration of Managing and Whole-time Directors
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