The companies act, 2013
has come into existence on 29.08.2013 that replaces a nearly six decade-old
legislation and overhauls the way corporate function and are regulated in the
country.
This article contains the description of some provisions
related to audit and auditors which have been modified in companies Act, 2013.
1). Appointment of first
auditor in case of every company except govt. company or company owned/
controlled by CG/SG/CG and SG [139(6)]:-
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Appointment of
first auditor shall be made by board within 30 days of registration of
company. If Board fails to appoint the first auditor within given time then
it shall inform to members and members shall make the appointment of first
auditor within 90 days of information at an EGM. The First Auditor shall hold
office till the conclusion of first AGM.
NOTE:
No time period is mentioned for Board to inform the members about the Non
appointment of first auditor.
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2). Appointment of first
auditor in case of govt. company or company owned/ controlled by CG/SG/CG and
SG139(7):-
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Appointment of
first auditor shall be made by CAG within 60 days of registration of the
company. If CAG fails to appoint the first auditor within given time then
Board of such company shall appoint first auditor within 30 days. If Board
fails to appoint the first auditor within given time then it shall inform to
members and members shall make the appointment of first auditor within 60
days of information at an EGM. The First Auditor shall hold office till the
conclusion of first AGM.
NOTE: No time
period is mentioned for Board to inform the members about the Non appointment
of first auditor.
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3). Appointment of
Subsequent Auditor in case of every company except Govt. Company or company
owned/ controlled by CG/SG/CG and SG[139(1)]:-
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Appointment of
auditor shall be made by members at First
Note: The Auditor shall
hold office for a period of 5 Years.
Note: Company can
ratify such appointment at any AGM falling between 5 years from such
appointment.
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4). Conditions for
appointment of Subsequent Auditor in case of Listed Companies or companies of
such class [139(2)]:-
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If an individual
is appointed as an auditor for 1 term i.e. for 5 consecutive years then that
individual will not be eligible for reappointment for next 5 years from the
expiry of his term as an auditor of company.
Whereas, if an
audit firm is appointed as auditor for 2 term i.e. for 10 consecutive years
then that audit firm will not be eligible for reappointment for next 5 years
from the expiry of its term as an auditor of company
Note: Audit firm
having common partner to the old audit firm of the company will not be
eligible for appointment.
Note: Any existing
listed company is required to comply with the above mentioned provisions
within 3 years from the commencement of this act.
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6). Appointment of
Subsequent Auditor in case of Govt. Company or company owned/ controlled by
CG/SG/CG and SG [139(5)]:-
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Appointment of
auditor shall be made by CAG within 180 days from the commencement of
financial year. The Auditor shall hold
office for a till the conclusion of
AGM.
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7). Appointment of auditor
in Casual Vacancy in every company except Govt. Company or company owned/
controlled by CG/SG/CG and SG [Section 139(8)(i)]:-
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If casual vacancy
is arising by resignation then vacancy shall be filled by the Company in its
meeting within 3 months from the date of recommendation of the Board.
Whereas casual
vacancy is arising by other than resignation then vacancy shall be filled the
Board within 30 days.
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8). Appointment of auditor
in Casual Vacancy in case of Govt. Company or company owned/ controlled by
CG/SG/CG and SG [Section 139(8)(ii)]:-
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Casual vacancy
shall be filled by CAG within 30 days. If CAG fails to fill the vacancy
within given time then BOD shall fill the vacancy within 30 days.
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9). Rotation of Auditors [ 139(3)]:-
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·
Member can rotate
auditing partner and his team for any interval
·
Audit can be
conducted by 1 or more auditor
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10). Audit Committee [177]
and Role Audit Committee in appointment of auditors[139(11)]:-
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Every Listed
Company shall form Audit Committee consisting of minimum 3 directors.Whereas,Majority of directors should be
independent and ability to read & understand financial statement
Role: Appointment,
remuneration and term of appointment of auditor shall be made after
considering the recommendations of the Audit Committee
Note: Committee
existing before commencement of this act shall be reconstitute within 1 year
of commencement in accordance of above mentioned provisions
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11). Duty
of auditor when he or itresign [140(2)]:-
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Auditor is
required to file a statement specifying the reasons and fact of resignation
within 30 days of resignation with ROC and company or CAG in case of Govt.
Companies. If auditor fails to comply with above mentioned provisions then he
shall be punishable with fee of Rs. 50,000- Rs. 500,000.
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12). Duty
of Company in case of representation received from auditor [140(4)]:-
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Company is
required to send a copy of the representation to every member and if copy of
representation is not sent then a copy shall be filed with registrar.
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13). Role
of Tribunal in case auditor found guilty of fraud [140(5)]:
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Tribunal may by
itself or on application by CG/any concerned person order to change the
auditor. And if the application is made by CG then tribunal shall pass an
order within 15 days of application. In case of final order is passed then
the auditor shall not be appointed for a period of five years in any other
company and be further liable for monetary as well as penal punishment.
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14). Eligibility
LLP’s as auditors [141(2):
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LLP’s can be
appointed as auditors of company but only chartered accountant partners are
authorized to act and sign on behalf of firm.
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15). Disqualifications
of Auditors [141(3)]:
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I.
If any partner of the person holding
interest or security
in the company
or its subsidiary, or
of its holding
or associate company
or a subsidiary
of such holding company
II.
If any relative of the person holding interest
or security whose face value exceeds Rs. 1000 or such
sum as may be prescribed in
the company or
its subsidiary, or of
its holding or
associate company or
a subsidiary of
such holding company. Note:
Relative means member of HUF, Husband and wife or related with person as may
be prescribed
III.
If any relative of the person is a director or employee of director or key
managerial personnel
Note: Director means a
director appointed to board of the company.
Note:
Key managerial personnelmeans CEO/MD/Manager, CS, WTD, CFO and such other officer
as may be prescribed
IV.
Limit of indebt or guarantee is not mentioned and specified that any amount which may be
prescribed
V.
If person or
firm has business relationship
with in the company
or its subsidiary, or
of its holding
or associate company
or a subsidiary
of such holding company or associate company
VI.
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
Note: consulting
and specialized services means-
a)
accounting and
book keeping services;
b)
internal audit;
c)
design and
implementation of any financial information system;
d)
actuarial
services;
e)
investment advisory services;
f)
investment
banking services;
g)
rendering of
outsourced financial services;
h)
management
services; and
i)
any other kind
of services as may be prescribed
VII.
Any person convicted by court of offence involving fraudand 10 years
has not elapsed from the
date of such conviction
VIII.
Person holding
appointment as auditor of more than
20 companies.
IX.
Person in full time employment
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16). Remuneration
of Auditors [142(1)]:-
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Remuneration shall be decided by
members at a general meeting except for the remuneration of first auditor
which shall be decided by board.
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17). Power
of Auditor [143(1) Proviso]:-
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Auditor of holding
company has the right of access to the records of all subsidiaries in so far
as it relates to the consolidation of its financial statements with that of
its subsidiaries.
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18). Duties of Auditor [143(9),(12),(13),(15)
and 146]:-
i.
Every
auditor need to comply with auditing standard [143(9)].
ii.
Auditor
shall report the fraud to the CG within prescribed time and manner and the same
shall not be construed as breach of duty[143(12) & (13)]
iii.
If
auditor fails to comply with above mentioned provisions then he shall be
punishable with fee of Rs. 100,000 Rs. 500,000 [143(15)].
iv.
Auditor
has to attend general meeting unless exempted by the company [146].
19). Auditor not to render certain services [144]:-
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Auditor cannot provide following services to the
company, its holding company or its subsidiaries, or associate company:
i.
Accounting and
book keeping service; Internal audit;
ii.
Design and
implementation of any financial information system;
iii.
Actuarial services;
iv.
Investment
advisory services;
v.
Investment
banking services;
vi.
Rendering of
outsourced financial services;
vii.
Management
services; and
viii.
Any other kind
of consultancy services.
Note: If auditor is providing such services before
the commencement of this act then he has to comply with the above mentioned
provision before the closure of the first financial year after the date of
such commencement.
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