Auditor’s Appointment, Re-appointment, Removal, Rights & Duties 1.

Auditor’s Appointment, Auditor’s Appointment, Re-appointment, Re-appointment,

Removal, Rights & DutiesRemoval, Rights & Duties

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Company AuditCompany Audit

Table of ContentTable of Content Basic Provisions relating to authentication, Basic Provisions relating to authentication,

circulation, Adoption and filing of annual circulation, Adoption and filing of annual Accounts Accounts

Appointment of AuditorAppointment of Auditor Re-Appointment of AuditorRe-Appointment of Auditor Ceiling on Number of AuditCeiling on Number of Audit Qualifications and Disqualifications of AuditorQualifications and Disqualifications of Auditor Removal Of AuditorRemoval Of Auditor Rights of AuditorRights of Auditor Duties of AuditorDuties of Auditor

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Basic Provisions relating to Basic Provisions relating to authentication, circulation, authentication, circulation,

Adoption and filing of annual Adoption and filing of annual Accounts of CompanyAccounts of Company

Authentication of Annual Accounts :-Authentication of Annual Accounts :-The Balance Sheet (BS) The Balance Sheet (BS) and Profit & Loss account (P &L A/c) duly considered, approved and Profit & Loss account (P &L A/c) duly considered, approved and signed should be handed over to the Company’s Auditors for and signed should be handed over to the Company’s Auditors for their report thereon {Sec 215(3)}their report thereon {Sec 215(3)}

Profit & Loss A/c must be annexed to the Balance Sheet and the Profit & Loss A/c must be annexed to the Balance Sheet and the Auditor’s report must be attached thereto {Sec 216}Auditor’s report must be attached thereto {Sec 216}

Circulation of Annual accounts:- Circulation of Annual accounts:- A copy of BS, P& L A/c, A copy of BS, P& L A/c, Director Report & every other documents required to be annexed Director Report & every other documents required to be annexed or attached there to shall be sent to every member of the or attached there to shall be sent to every member of the company , not less than 21 days before the meeting. {Sec 219}company , not less than 21 days before the meeting. {Sec 219}

Adoption of Account (including Balance Sheet, Profit & Loss A/c Adoption of Account (including Balance Sheet, Profit & Loss A/c and directors report thereon) in AGM {Sec 210}and directors report thereon) in AGM {Sec 210}

BS & P &L A/c shall be filed with the Registrar of the Companies BS & P &L A/c shall be filed with the Registrar of the Companies together with all documents which are required by the Companies together with all documents which are required by the Companies to be attached/annexed thereto within 30 days of AGM. {Sec 220}to be attached/annexed thereto within 30 days of AGM. {Sec 220}

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Appointment of AuditorAppointment of Auditor

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Appointment of AuditorAppointment of Auditor

First Auditor

Subsequent Auditor

Section 224(1)

Section 224(5)

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First Auditor is appointed First Auditor is appointed by BODby BOD

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Sec. 224(5) Appointment & Sec. 224(5) Appointment & Removal of First AuditorRemoval of First Auditor

Appointed by BOD within 1 month of registration of the company. Appointed by BOD within 1 month of registration of the company. `̀ Sec 224(5)Sec 224(5)

If BOD fails to appoint, the company may appoint at a General If BOD fails to appoint, the company may appoint at a General Meeting.Meeting.

Holds office until the conclusion of first AGM. Holds office until the conclusion of first AGM. Thus, he will continue Thus, he will continue in office until the next annual general meeting is actually held and in office until the next annual general meeting is actually held and concluded.concluded.

Members at any GM may remove such auditor and appoint another Members at any GM may remove such auditor and appoint another one in his place, of whose nomination special notice has been given one in his place, of whose nomination special notice has been given to the members of the company not less than fourteen days before to the members of the company not less than fourteen days before the date of the meetingthe date of the meeting..

Proviso to section 224(5Proviso to section 224(5))

Appointment of first auditors through the MOA & AOA -not a valid Appointment of first auditors through the MOA & AOA -not a valid appointment.appointment.

The first auditors are under no obligation to inform the Registrar.The first auditors are under no obligation to inform the Registrar.7

Subsequent Auditor –in Subsequent Auditor –in AGMAGM

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S. 224(1)Appt. of S. 224(1)Appt. of Subsequent AuditorSubsequent Auditor

Appointed at each AGM to hold office until the conclusion of next AGM. Appointed at each AGM to hold office until the conclusion of next AGM. Sec 224(1) Sec 224(1)

Intimation to the auditor within 7 days.Intimation to the auditor within 7 days.

Auditor to file form 23B to ROC within 30 days, Auditor to file form 23B to ROC within 30 days, whether he has accepted or whether he has accepted or refused to accept the appointmentrefused to accept the appointment. . Sec 224(1A)Sec 224(1A)

Appointment of auditor is mandatory in the AGM for the ensuing year.Appointment of auditor is mandatory in the AGM for the ensuing year.

Before any appointment or re-appointment of auditor or auditors written Before any appointment or re-appointment of auditor or auditors written certificate shall be obtained by the company from the auditor or auditors certificate shall be obtained by the company from the auditor or auditors proposed to be so appointed to the effect that the appointment or re-proposed to be so appointed to the effect that the appointment or re-appointment, if made, will be in accordance with the limits specified in sub-appointment, if made, will be in accordance with the limits specified in sub-section (1B).] section (1B).]

Requirement of a valid peer review certificate for appointment of Requirement of a valid peer review certificate for appointment of statutory auditors- Clause 41(1) (h) of Listing Agreement statutory auditors- Clause 41(1) (h) of Listing Agreement CIR/CFD/DIL/1/2010CIR/CFD/DIL/1/2010

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What if Company Fails to What if Company Fails to appoint Auditor in AGM?appoint Auditor in AGM?

Where at an annual general meeting no auditors are Where at an annual general meeting no auditors are appointed or re-appointed, the Central Government may appointed or re-appointed, the Central Government may appoint a person to fill the vacancy. appoint a person to fill the vacancy.

Sec 224(3)Sec 224(3)

Company to give notice to Central Govt within 7 days after Company to give notice to Central Govt within 7 days after AGM that no auditor has been appointed.AGM that no auditor has been appointed.

Sec 224(4)Sec 224(4)

Delay in giving such notice does not affect the jurisdiction of Delay in giving such notice does not affect the jurisdiction of

the Central Govt. the Central Govt.

Powers of Central Govt. - Delegated to Regional Director.Powers of Central Govt. - Delegated to Regional Director.

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Casual Vacancy in the office Casual Vacancy in the office of the Auditorof the Auditor

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Section 224(6) Casual Section 224(6) Casual VacancyVacancy

BOD may fill any casual vacancy. BOD may fill any casual vacancy. Sec 224(6)(a)Sec 224(6)(a)

Vacancy caused by resignation - filled by the company in GM.Vacancy caused by resignation - filled by the company in GM.

Such Auditor holds office till conclusion of next AGM. Such Auditor holds office till conclusion of next AGM. Sec 224(6)(b)Sec 224(6)(b) Where an auditor refuses to accept appointment or re-Where an auditor refuses to accept appointment or re-appointment- Deemed to be no appointment - CGappointment- Deemed to be no appointment - CG

If one of the two joint Auditors resigns before the If one of the two joint Auditors resigns before the completion of the tenure - Casual Vacancy by resignation - completion of the tenure - Casual Vacancy by resignation - GM GM

If there is a complete change in the constitution of the firm If there is a complete change in the constitution of the firm of Auditors i.e. all the earlier partners retire and new of Auditors i.e. all the earlier partners retire and new partners joins - Casual Vacancy.- By Boardpartners joins - Casual Vacancy.- By Board

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Appointment by Special Appointment by Special ResolutionResolution

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Section 224ASection 224A Where not less than 25% of Where not less than 25% of subscribed share capital subscribed share capital is is

held byheld by-Public Financial Institution/ Govt.Company/ Central Govt./ -Public Financial Institution/ Govt.Company/ Central Govt./ State Govt.State Govt.-any institution established under State/ Provincial Act in -any institution established under State/ Provincial Act in

which State Govt.holds not less than 51% of subscribed which State Govt.holds not less than 51% of subscribed share capital.share capital.

-Nationalised bank/ Insurance company-Nationalised bank/ Insurance company

DCA through its circular has clarified that the above DCA through its circular has clarified that the above three clauses are not mutually exclusive. It would apply three clauses are not mutually exclusive. It would apply to all cases of shareholding in any combinationto all cases of shareholding in any combination.. DCA-Circular No.14 of 2001 dated 16-07-2001DCA-Circular No.14 of 2001 dated 16-07-2001

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Section 224ASection 224A Material date for 25% holding of subscribed share capital - Material date for 25% holding of subscribed share capital -

date of AGM at which Special Resolution is to be passed date of AGM at which Special Resolution is to be passed and not the date of notice of meeting.and not the date of notice of meeting.

DCA-Circular No.2/76[1/1/76-CL-V] dated 5-6-1976DCA-Circular No.2/76[1/1/76-CL-V] dated 5-6-1976

Irrespective of the circumstances in which a nationalized Irrespective of the circumstances in which a nationalized bank is holding shares, if the name of the bank is entered in bank is holding shares, if the name of the bank is entered in the register of members of the company, such holding of the register of members of the company, such holding of shares will have to be taken into account for the purposes shares will have to be taken into account for the purposes of sec 224A.of sec 224A.

DCA-Circular No.18/74 dated 12-12-DCA-Circular No.18/74 dated 12-12-19741974

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Section 224ASection 224A Certified copy of the special resolution so passed shall be filed Certified copy of the special resolution so passed shall be filed

with the Registrar within 30 days of passing, in Form No. 23.with the Registrar within 30 days of passing, in Form No. 23.

If, after notice of the annual general meeting is issued in the If, after notice of the annual general meeting is issued in the usual course and before the holding of meeting, it happens usual course and before the holding of meeting, it happens that the holdings of the public financial institutions have that the holdings of the public financial institutions have reached 25% of the total subscribed share capital, then the reached 25% of the total subscribed share capital, then the meeting has to be adjourned and after issuing notice under meeting has to be adjourned and after issuing notice under this section, necessary special resolution is to be passed for this section, necessary special resolution is to be passed for appointing the auditor(s).appointing the auditor(s).

If Company omits or fails to pass special resolution- it shall be If Company omits or fails to pass special resolution- it shall be deemed that no auditor or auditors had been appointed by the deemed that no auditor or auditors had been appointed by the company at its annual general meeting and Central Govt. will company at its annual general meeting and Central Govt. will appoint auditors to fill the vacancy in term of Section 224(3)appoint auditors to fill the vacancy in term of Section 224(3)

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ICAI RecommendationsICAI Recommendations It would not be sufficient for the incoming Auditor to accept a certificate It would not be sufficient for the incoming Auditor to accept a certificate

from the management of the Company that provisions of Companies Act from the management of the Company that provisions of Companies Act with respect to Appointment has been complied with. If the Company is with respect to Appointment has been complied with. If the Company is unwilling to allow the incoming Auditor to verify the relevant records, unwilling to allow the incoming Auditor to verify the relevant records, Auditors should not accept the Audit AssignmentAuditors should not accept the Audit Assignment

Incoming Auditor Should verify the following:-Incoming Auditor Should verify the following:- (i) Whether a member of the Company has given special notice of the (i) Whether a member of the Company has given special notice of the

resolution as required u/s 225(1) at least 14 days before the date of the resolution as required u/s 225(1) at least 14 days before the date of the GM. A True copy of the Certificate should be obtained GM. A True copy of the Certificate should be obtained

(ii) Whether this special notice has been sent to the members of the (ii) Whether this special notice has been sent to the members of the company as required u/s 190(2) at least 7 days before the date of GMcompany as required u/s 190(2) at least 7 days before the date of GM

(iii) Whether this special notice has been sent to the retiring auditors (iii) Whether this special notice has been sent to the retiring auditors forthwith as u/s 225(2)forthwith as u/s 225(2)

(iv) Whether representation received from the retiring Auditors, if any has (iv) Whether representation received from the retiring Auditors, if any has been sent to the members of the company as required u/s 225(3)been sent to the members of the company as required u/s 225(3)

(v) Whether the representation received from the retiring Auditor has been (v) Whether the representation received from the retiring Auditor has been considered at the GM and the resolution, proposed by the special notice, considered at the GM and the resolution, proposed by the special notice, has been properly passed at the GM.has been properly passed at the GM.

Incoming Auditors should also communicate with the outgoing Incoming Auditors should also communicate with the outgoing Auditor in writing before accepting the audit assignmentAuditor in writing before accepting the audit assignment ..

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Appointment of Auditor of Appointment of Auditor of Govt. Companies (sec 619)Govt. Companies (sec 619)

Appointed or re-appointed by the C&AG Appointed or re-appointed by the C&AG Submits a copy of report to C&AG who have the right to Submits a copy of report to C&AG who have the right to

comment on upon, or supplement the audit report in comment on upon, or supplement the audit report in such manner as he may think fit.such manner as he may think fit.

Any such comments or supplement to the audit report Any such comments or supplement to the audit report shall be placed before the AGM as audit report.shall be placed before the AGM as audit report.

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Lets Lets SummarizeSummarize

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Branch Auditor- Section Branch Auditor- Section 228228

Where a company, whether a public or a private limited, has Where a company, whether a public or a private limited, has a branch office, its accounts should also be audited.a branch office, its accounts should also be audited.

Auditor may be the Company’s Auditor or some other Auditor may be the Company’s Auditor or some other person qualified to be appointed as Auditor.person qualified to be appointed as Auditor.

If the branch is situated in a country outside India, a person If the branch is situated in a country outside India, a person who is duly qualified to act as auditor of the branch in who is duly qualified to act as auditor of the branch in accordance with the laws of that country.accordance with the laws of that country.

Where Branch Auditor is different from Company’s Auditor, Where Branch Auditor is different from Company’s Auditor, he is appointed by the Company in GM or BOD are he is appointed by the Company in GM or BOD are authorised to appoint him in consultation with Company’s authorised to appoint him in consultation with Company’s Auditor.Auditor.

Same powers as Company’s Auditor.Same powers as Company’s Auditor.

Central Government may make rules providing for the Central Government may make rules providing for the

exemption of any branch office from the provisions of this exemption of any branch office from the provisions of this

section to the extent specified in the rules. section to the extent specified in the rules. 20

Central Govt. may either Appoint C.A. or Company’s Auditor

Same powers as Company’s Auditor

Makes his report to Central Govt.

Special Auditor(Sec 233A)

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Qualifications of an Auditor Qualifications of an Auditor Sec 226Sec 226

A Chartered Accountant who is a member of ICAI and A Chartered Accountant who is a member of ICAI and holding certificate of practice and Should practice in holding certificate of practice and Should practice in India (“Practicing C.A.”)India (“Practicing C.A.”)

A Partnership firm of Practicing C.A.’sA Partnership firm of Practicing C.A.’s

Holder of Certificate under part ‘B’ States Act, 1956 Holder of Certificate under part ‘B’ States Act, 1956 Sec Sec 226(2)226(2)

It is to be noted that The Auditor's Certificate Rules were It is to be noted that The Auditor's Certificate Rules were published in 1932 whereby government authorities sought published in 1932 whereby government authorities sought to regulate the accountancy profession.to regulate the accountancy profession.

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Who can not be appointed as Who can not be appointed as Auditor?Auditor?

Section 226(3)Section 226(3) A Body CorporateA Body Corporate

An Officer or Employee of the CompanyAn Officer or Employee of the Company

A Person who is a Partner, or in the employment, of an A Person who is a Partner, or in the employment, of an Officer or Employee of the Company.Officer or Employee of the Company.

A Person who is indebtedA Person who is indebted / Guarantor to the Company for / Guarantor to the Company for an amount exceeding Rs.1000.an amount exceeding Rs.1000.

A Person holding any security of that Company after a A Person holding any security of that Company after a period of one year from the date of commencement of the period of one year from the date of commencement of the Companies Amendment Act 2000. Companies Amendment Act 2000. (security means (security means instrument carries voting right)instrument carries voting right)

Disqualified by subsidiary company, then disqualified by Disqualified by subsidiary company, then disqualified by holding company also and vice versa holding company also and vice versa

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Who can not be appointed as Who can not be appointed as Auditor?Auditor?

Section 226(3)Section 226(3) If an auditor, after his appointment, becomes If an auditor, after his appointment, becomes

subject to any disqualification mentioned abovesubject to any disqualification mentioned above, , he shall be deemed to have vacated as such.he shall be deemed to have vacated as such.

Statutory auditor can not be internal auditor.Statutory auditor can not be internal auditor. DCA-Circular No.5/77[1/1/76-CL-V]dated DCA-Circular No.5/77[1/1/76-CL-V]dated

8-4-19778-4-1977

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Ceiling on Number of AuditCeiling on Number of Audit Section 224(IB) Section 224(IB)

Should not be in ‘FULL TIME EMPLOYMENT’Should not be in ‘FULL TIME EMPLOYMENT’

Auditor of max 20 Companies – only 10 can be Large Auditor of max 20 Companies – only 10 can be Large CompaniesCompanies

Large Companies - paid up capital of or exceeding 25 lacsLarge Companies - paid up capital of or exceeding 25 lacs

In a Firm of Auditors, the limit of 20 Companies is per Partner.In a Firm of Auditors, the limit of 20 Companies is per Partner.

As per Companies(Amendment)Act,2000, Private Companies As per Companies(Amendment)Act,2000, Private Companies will not be taken into account for counting the limit of 20 will not be taken into account for counting the limit of 20 Companies.Companies.

However, as per ICAI notification, a person can carry out the However, as per ICAI notification, a person can carry out the audit of Max 30 companies including Private Companies.audit of Max 30 companies including Private Companies.

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Ceiling on Number of AuditCeiling on Number of Audit

Joint audit assignments - to be counted as one company.Joint audit assignments - to be counted as one company.

Branch Audits – not includedBranch Audits – not included

DCA-Circular No.21 of 75 dated 24-9-1975DCA-Circular No.21 of 75 dated 24-9-1975

Guarantee companies having no share capital – also Guarantee companies having no share capital – also

excludedexcluded

DCA-Letter No.8/12/(224)/74-CL-V dated28-9-DCA-Letter No.8/12/(224)/74-CL-V dated28-9-

19741974

Foreign companies audit - not included Foreign companies audit - not included

DCA-Circular No.21 of 75 dated 24-9-DCA-Circular No.21 of 75 dated 24-9-

19751975

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Removal of AuditorRemoval of Auditor

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Removal of AuditorRemoval of Auditor Special notice required from any member atleast14 days Special notice required from any member atleast14 days

before the date of the GM - Section 225(1)before the date of the GM - Section 225(1)

Ordinary resolution at AGM required but notice would be Ordinary resolution at AGM required but notice would be special special

Days would be exclusive of the day on which the notice is Days would be exclusive of the day on which the notice is served or deemed to be served and the day of the meeting. served or deemed to be served and the day of the meeting.

Auditor can be removed before expiry of his term by Auditor can be removed before expiry of his term by Company in GM after previous approval of Central Govt Company in GM after previous approval of Central Govt (powers delegated to Regional Director).(powers delegated to Regional Director).

Section 224(5)Section 224(5)

Prior approval of Central govt. require before actually Prior approval of Central govt. require before actually removing an Auditor. Though resolution for removal can be removing an Auditor. Though resolution for removal can be passed before.passed before.

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Removal After Expiry of the Removal After Expiry of the term Section 224(1)term Section 224(1)

Subject to the provisions of sub-section (1B) and section 224A at Subject to the provisions of sub-section (1B) and section 224A at any annual general meeting,] a retiring auditor, by whatsoever any annual general meeting,] a retiring auditor, by whatsoever authority appointed, shall be re-appointed, unless-authority appointed, shall be re-appointed, unless-

(a) he is not qualified for re-appointment; (a) he is not qualified for re-appointment;

(b) he has given the company notice in writing of his unwillingness (b) he has given the company notice in writing of his unwillingness to be re-appointed; to be re-appointed;

(c) a resolution has been passed at that meeting appointing (c) a resolution has been passed at that meeting appointing somebody instead of him or providing expressly that he shall not somebody instead of him or providing expressly that he shall not be re-appointed; orbe re-appointed; or

(d) where notice has been given of an intended resolution to (d) where notice has been given of an intended resolution to appoint some person or persons in the place of a retiring auditor, appoint some person or persons in the place of a retiring auditor, and by reason of the death, incapacity or disqualification of that and by reason of the death, incapacity or disqualification of that person or of all those persons, as the case may be, the resolution person or of all those persons, as the case may be, the resolution cannot be proceeded with. cannot be proceeded with.

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Rights of an Auditor Rights of an Auditor Sec 227Sec 227

To access books of accounts of the company.[227(1)] To access books of accounts of the company.[227(1)]

To seek information and explanation from the officers of the company To seek information and explanation from the officers of the company

To visit branches where he is not satisfied with the details given by the To visit branches where he is not satisfied with the details given by the branch auditor[228] branch auditor[228]

To receive notice of AGM[231] To receive notice of AGM[231]

To make any representation which the co. can send to all its To make any representation which the co. can send to all its shareholders or read out at the GM.shareholders or read out at the GM.

To take advice from experts.To take advice from experts.

To receive Branch Audit Report.To receive Branch Audit Report.

To sign the audit report.To sign the audit report.

To receive remuneration.To receive remuneration.

To attend AGM.To attend AGM.

To speak at AGM.To speak at AGM.

To be indemnified.To be indemnified.

Right of lien.Right of lien.30

Duties of an AuditorDuties of an Auditor

Report to the shareholders on:-Report to the shareholders on:-• Whether proper Books of Accounts were kept and proper returns Whether proper Books of Accounts were kept and proper returns

received from the Branches not visited by him.received from the Branches not visited by him.• Whether necessary information was received during the course of Whether necessary information was received during the course of

audit .audit .• Whether BS & P& L A/c are in agreement with the Books of Whether BS & P& L A/c are in agreement with the Books of

Accounts.Accounts.• Whether BS & P& L A/c are as per Co.’s Act.Whether BS & P& L A/c are as per Co.’s Act.• Whether the BS & P& L A/c complied with Accounting Standards Whether the BS & P& L A/c complied with Accounting Standards

referred in Sec 211(3C)referred in Sec 211(3C)• Whether Accounts show True & Fair View.Whether Accounts show True & Fair View.• Report on CARO (if applicable)Report on CARO (if applicable)• Qualifications in report.Qualifications in report.• Directors disqualifications if any.Directors disqualifications if any.

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Duty to inquire into Certain Matters Sec 227(IA)Duty to inquire into Certain Matters Sec 227(IA) Loan and advances made by the company.Loan and advances made by the company. Book entries.Book entries. Sale of investment below cost.Sale of investment below cost. Loan and Advances shown as depositLoan and Advances shown as deposit Personal expenses.Personal expenses. Shares issued during the year.Shares issued during the year.

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Sign & submit the Audit Report.Sign & submit the Audit Report. Certify the Prospectus regarding :Certify the Prospectus regarding :

• Rate of Dividend paid for the last 5 yearsRate of Dividend paid for the last 5 years• Profits & Losses for the last 5 yearsProfits & Losses for the last 5 years• Assets & Liabilities of the companyAssets & Liabilities of the company

Certify Statutory report regarding :Certify Statutory report regarding :• Numbers of shares allotted Numbers of shares allotted • Cash received on such allotment Cash received on such allotment • Receipt and Payment Account Receipt and Payment Account

Comply with the Directives of the ICAI and that of Central Govt.Comply with the Directives of the ICAI and that of Central Govt.

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THANK YOUTHANK YOU

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Auditor’s Appointment, Re-appointment, Removal, Rights & Duties 1.

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Transcript of Auditor’s Appointment, Re-appointment, Removal, Rights & Duties 1.