Under Companies Act, 2013 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.
Appointment of Auditor Under Companies Act 2013
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.
An individual can be appointed as an auditor for more than 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.
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.
Qualifications and Disqualifications of Auditors (Section 141 of Companies Act 2013)
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 will be disqualified from being appointed as an auditor if he is falling under the following:
- An officer or employee of the company;
- If the director is relative to that person or is in the employment of the company’s a director;
- A person who is a partner, or who is in employment, of an officer or an employee of a Company.
- A person who has been convicted by a court of an offense involving fraud and a period of ten years has not elapsed from the date of such conviction;
- A person who is in full-time employment elsewhere or a person or a partner of the firm holding an appointment as its auditor, if such a partner is holding an appointment as auditor of more than 20 companies as on such date of appointment.
- 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. etc
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 has the right to access to the records of all subsidiaries so far it relates to consolidation of its financial statements with that of its subsidiaries.
Duties of Auditors (Section 143 of Companies Act 2013)
They are as follows
- 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:
- The loans and advances made on the basis of security have been properly secured and are not prejudicial to the interest of the company or its members,
- Whether transactions of the company which are embodied merely by book entries are in conflict with the interests of the company;
- Whether deposits are correctly shown if loans and advances made by the company;
- Whether personal expenses have been charged to revenue account;
- He should also check whether the position as stated in the account books and the balance sheet is correct, regular and not misleading.
- 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.
The auditor’s report shall also mention
- Whether entire the information is to the best of his knowledge and belief that he possesses and are also essential for his audit;
- Whether proper books of account in his opinion are kept by the company as required by law;
- Whether the company’s balance sheet and profit and loss account dealt with in the report display true and fair view;
- Whether, while preparing financial statements, the company has followed all accounting standard as required;
- Whether the company has satisfactory internal financial control system;
- Any other matters as may be prescribed.
- Matters required to be incorporated in the audit report is answered in the negative or with a qualification, and the reasons thereof.
- 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.
- 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.
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