Disqualification Of Auditors

INTRODUCTION

According to the provision under Section 141 (1) of the Companies Act, 2013 “a person shall be eligible for appointment as an auditor of a company only if he is a chartered accountant within the meaning of Chartered Accountants Act, 1949 and holds a valid Certificate of Practice”.[1] It should be further the noted that the firm can also consider an appointment of auditor under which the majority of partners practicing in India should be qualified for the appointment of auditor of a company.[2]

It has been stated under Section 141 (2) of the Companies Act, 2013, a firm must include limited liability partnership who are the chartered accountants and must be authorised to act as the auditor and sign on the behalf of limited liability partnership or the firm.[3]

 

MEANING OF AUDITOR

A person can only be appointed as an auditor in the conditions under Chartered Accountants Act, 1949 are fulfilled and there should be a valid certificate of practice as-

  • a) Individual
  • b) Partnership Firm
  • c) Limited Liability partnership

DISQUALIFICATION OF AUDITOR

As I stated above that a person can only become an Auditor if that person is qualified chartered accountant in practice. Under the provision of Companies Act, 1956 for becoming a company auditor all the partners must be qualified as Chartered Accountants but under the new Companies Act 2013 only majority of partners has to be chartered accountant.

Under the provisions of Section 141 (3) of the Companies Act 2013 following people would not be eligible as an auditor of the company-

  1. a) “A body corporate other than LLP registered under the LLP Act, 2008
  2. b) An officer or employee of the company. 
  3. c) A person who is partner or who in the employment, of an officer or employee of the company.
  4. d) A person who or his relative or partner”.[4]
  1. Who is holding any security or interest in the company or the subsidiary or the holding. Anyway latest can hold security or interest in the company of the face value which should not exceed Rupees 1 lakh.[5]
  2. Who has indebted to the company or a subsidiary to hold and Associate Company is subsidiary or such holding company.
  3. Who has provided the guarantee for any security in the connection with if the indebtness of any third person of the company arises.
  1. e) “A person or a firm who (whether directly or indirectly) has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company”.[6]

Under the above provision the business relationship can be constructed under any kind of transaction which are entered into for a commercial purpose-

  1. The commercial transactions which process is the nature of professional services and are permitted to be rendered by auditor ok and even be rendered by audit from under the professional body is regulated such members.
  2. “The commercial transactions which are ordinary course of business of the companies at arm’s length price as a customer”.[7]f) “A person whose relative is a director or is in the employment of the company as a director or key managerial personnel”.[8]
  1. g) “A person-

(i) Who is in full time employment elsewhere or

(ii) A person or a partner holding appointment as its auditor is at the date of such appointment or reappointment holding appointment as auditor for more than 20 companies”.[9]

A person who has been convicted by a court under any offence which involves fraud under period of this has not elapsed from the date of such conviction. “Any person whose subsidiary or associate company or any other form of entity is engaged as on the date of appointment in consulting or specialised services in reference to provision of Section 144 of the Companies Act, 2013”. It should be further notice that according to the Section 141 (4)[10] of the Companies Act, 2013, a person can only be appointed as an auditor of the company if he incures any of the disqualification which has been mentioned under the section 141 (3)[11] of the Companies Act 2013 and after his appointment is made you can work at his office as an auditor and such vacancy will be deemed as a casual vacancy in the officer of auditor.[12] It must be noted all these provisions are applicable to all the types of auditors which includes i.e. cost auditors, statutory auditors and secretarial auditors.

[1] Section 141 (1) of the Companies Act, 2013.

[2] Qualifications and disqualifications of Auditors., , http://www.advocatekhoj.com/library/bareacts/companies/226.php?%20Title=Companies%20Act,%201956&STitle=Qualifications%20and%20disqualifications%20of%20auditors (last visited Apr 20, 2017).

[3] Qualification-or-disqualification-of-company-auditor-section 141 of Companies Act 2013, (2015), http://yourfinancebook.com/qualification-or-disqualification-of-company-auditor-section-141-of-companies-act-2013/ (last visited Apr 20, 2017).

[4] Qualification and Disqualification of Auditors, , http://voiceofca.in/siteadmin/document/QualificationandDisqualificationofAuditors.pdf (last visited Apr 20, 2017).

[5] Section 141 of the Companies Act, 2013 on Eligibility, qualifications and disqualification of auditors , , http://www.caclubindia.com/articles/section-141-of-the-companies-act-2013-on-eligibility-qualifications-and-disqualification-of-auditors–27939.asp (last visited Apr 20, 2017).

[6] LIABILITY AND DISQUALIFICATION OF AUDITOR, (2014), https://aishmghrana.me/2014/08/07/liability-and-disqualification-of-auditor/ (last visited Apr 20, 2017).

[7] Id.

[8] Supra Note 3.

[9] Supra Note 5.

[10] Section 141 (4) of the Companies Act, 2013 states that where a person appointed as an auditor of a company incurs any of the disqualifications mentioned in sub-section,

[11] Section 141 (3) of the Companies Act, 2013 states that the following persons shall not be eligible for appointment as an auditor of a company, namely:–

(a) a body corporate other than a limited liability partnership registered under the Limited Liability Partnership Act, 2008 (6 of 2009);

(b) an officer or employee of the company;

(c) a person who is a partner, or who is in the employment, of an officer or employee of the company;

(d) a person who, or his relative or partner–

(i) is holding any security of or interest in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company:

Provided that the relative may hold security or interest in the company of face value not exceeding one thousand rupees or such sum as may be prescribed;

(ii) is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of such amount as may be prescribed; or

(iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, for such amount as may be prescribed(…………)

[12] greenwolf, QUALIFICATION DISQUALIFICATION OF AUDITORS UNDER COMPANIES ACT 2013 (2016), http://www.greenwolfadvisors.com/qualification-disqualification-auditors-companies-act-2013/ (last visited Apr 20, 2017).

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