Audit of Limited Companies
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Transcript of Audit of Limited Companies
AUDIT OF LIMITED COMPANIES
Qualifications of Company Auditor
Qualifications of Company Auditor u/s 226
Qualifications
Chartered Accountant A firm of Chartered accountants A certified Auditor
Disqualifications u/s 226
Company
Body corporate
Officer/Employee
Partner/In employment of
Indebted for more than Rs. 1000
Guarantee/ Security
Director/ Member of Private Co.
Qualifications of Company Auditor u/s 226
1. A Chartered Accountant:- A person should be a Practising Chartered Accountant within the meaning of the Chartered Accountants Act, 1949
2. A Firm of Chartered Accountants:- A firm whereof all the partners are Chartered Accountants practising in India may be appointed as an auditor by its firm name. In such a case any partner so practising may act in the name of the firm
3. A Certified Auditor:- The holder of a certificate under the Restricted Auditors Certificates Rules can be appointed as an auditor of companies.
Disqualifications u/s 226
According to Section 226 (3) of the Companies Act, 1956 none of the following persons shall be qualified for appointment as an auditor of a company:
1. A body corporate,
2. An officer or employee of the company,
3. A person who is a partner, or who is in the employment, of an officer or employee of the company,
4. A person who is indebted to the company for an amount exceeding one thousand rupees,
5. A person who has given any guarantee or provided any security in connection with the indebtedness of any third persons to the company for an amount exceeding one thousand rupees
6. A person who is a director or a member of the private company,
7. A firm which already holds the specified number of company audits cannot accept any more company audits,
8. A person holding any security (i.e. an instrument with voting rights) of that company
An auditor, who after his appointment, becomes subject to any of the above disqualifications, shall be deemed to have vacated his office as an auditor.
Appointment of First Auditors The first Auditors are appointed by the Board of Directors Within 30 days of Incorporation, If Directors Fail to do so, Shareholders can appoint the first auditors in a General Meeting. Such auditors hold the office till the conclusion of the first annual general meeting.
Appointments and Reappointments by Shareholder
At each AGM an auditor appointed will hold the office until the Next AGM A retiring auditor shall be reappointed unless: he is not qualified for reappointment; he has given the company a notice in writing of his unwillingness to be reappointed; a resolution has been passed at the meeting appointing somebody else instead of him.
Appointment by Central Government
Where no Auditors appointed at an AGM or
Appointed by ordinary resolution even though a Special resolution is necessary
Within 7 days of such a meeting company shall intimate this information to the Central government which may appoint a person to fill the vacancy.
Appointment by Special ResolutionIn case of a company in which not less than 25% of the subscribed share capital is held by:
a public financial institution, or a Government company or the Central Government, or any State Government;
Any institution in which State Government holds not less than 51% of the subscribed share capital;
A nationalised bank or an insurance company carrying on general insurance business;
The appointment or reappointment shall be made by Special Resolution (which must be approved by 75% of members present.
If the company fails to pass such a Special resolution, the Central Government may appoint the auditor of the company.
Casual Vacancy
• Where a vacancy is caused by the resignation of an auditor, the vacancy shall be filled by the company in a general meeting.
• The Board of Directors may fill any other casual vacancy (e.g. arising due to death, disqualification etc.) in the office of an auditor.
• Any auditor appointed in a casual vacancy shall hold office until the conclusion of the next annual general meeting.
Appointment of Auditor
Which By Whom When & How
First Auditor
Re-appointment
Casual Vacancy
• Shareholders fail to re-appoint• Special Resolution not passed
Government Company
Board of Directors Within 30 days of incorporation
Shareholders at AGM
• Shareholders at GM
Central Government
C & AG
• Normally by Ordinary Resolution• Special Resolution if 25% of shares held
by specified entities
• If Vacancy due to Resignation
• Company to inform Central Govt. within 7 days of failure
• Board of Directors • Other vacancy e.g. by death
Removal of Auditors u/s 225
In order to provide a check against the removal of independent and honest auditors, the Companies Act prescribes strict rules in this regard.
Removal
After Expiry of the Term Before Expiry of the Term
By Members at AGM First Auditors Other Auditors
Removal of First Auditors Before Expiry of the Term
The first auditor, appointed by the board of directors, can be removed by shareholders at a general meeting before expiry of the term;
without obtaining the prior approval of the central government; provided 14 days notice is given.
Other AuditorsBy shareholders at a general meeting After obtaining prior approval.
Remuneration of Auditors
First Auditors
Casual Vacancy
Board of Directors appoint auditors
Remuneration shall be fixed by BOD
Board of Directors Fail
Casual vacancy due to
Resignation
Shareholders appoint auditors in
the general meeting
Remuneration shall be fixed by Shareholders at
the general meeting
Remuneration of Auditors
Subsequent auditors
Shareholders appoint auditors at
the AGM
Remuneration shall be fixed by shareholders at
the AGM
No Auditors are appointed
Special Resolution not
passed
Central government appoints the
auditor
Remuneration shall be fixed by central
government
Remuneration of Auditors
Government company
Comptroller & Auditor General of
India
Remuneration shall be fixed by shareholders
Retiring Auditor
Shareholders appoint the
auditors at the AGM
The amount fixed for the previous period
shall be considered as remuneration for the
current year.