Disqualification Of Auditors

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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 if he is a qualified chartered accountant within the meaning of Chartered Accountants Act, 1949 and holds a valid Certificate of Practice”. It should be further 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.

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 authorized to act as the auditor and sign on the behalf of limited liability partnership or the firm.

WHO IS AN AUDITOR ?

The term “Auditor” refers to a person who is responsible for the audit works of the company. In other words, the primary role of an Auditor is to carefully and critically inspect the accounts of the company. In order to successfully qualify to be appointed as an Auditor in a company, a person has to mandatorily fulfill certain conditions prescribed under the Chartered Accountants Act, 1949 and the person should also possess a valid certificate of practice as-

  • An individual, or
  • In a partnership firm, or
  • In a limited liability partnership

APPOINTMENT OF AUDITORS

Every company at its very first Annual General Meeting (AGM) , carries the responsibility to appoint a person or an independent body such as a firm as an auditor. The person or the firm, as the case may be, will be eligible to hold office from the conclusion of the first AGM to the conclusion of its sixth AGM and afterwards till the conclusion of every sixth AGM.[1] The manner and procedure of selection of auditors by the members of the company has to be according to what may be prescribed. The company has to place the matter relating to the appointment for acceptance or ratification by the members of the company on every annual general meeting. It is necessary that written consent of the said auditor needs to be taken before he is appointed as an auditor.

A certificate has also to be taken from him that his appointment is in accordance with the prescribed rules. The certificate also needs to indicate as to whether the auditor satisfies the criteria provided in Section 141 which mentions about the qualifications and disqualifications of auditors. The company has to inform the individual or the firm, as the case may be, of the said appointment. The notice of such appointment also needs to be sent to the Registrar of Companies within 15 days of the meeting in the prescribed manner.

DISQUALIFICATION OF AUDITORS

As stated above, a person can only be appointed as an Auditor if he is a qualified chartered accountant in practice with a valid certificate of experience. Under the provision of Companies Act, 195, in order to be successfully be appointed as a company auditor, all the partners must be qualified as Chartered Accountants but under the new Companies Act 2013 only majority of partners need to be qualified chartered accountants.

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

  1. “A body corporate other than LLP registered under the LLP Act, 2008
  2. An officer or employee of the company. 
  3. A person who is partner or who in the employment, of an officer or employee of the company.
  4. A person who or his relative or partner”.–
    a) 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.
    b) Who has indebted to the company or a subsidiary to hold and Associate Company is subsidiary or such holding company.
    c) Who has provided the guarantee for any security in the connection with if the indebtness of any third person of the company arises.
  5. “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. A person whose relative is a director or is in the employment of the company as a director or any other key managerial post.
  7. A person who is in full time employment elsewhere or a person or a partner of a firm holding employment as its auditor, if such person or partner is at the date of such appointment, holding appointment as auditor of more than 20 companies.
  8. A person who has been convicted by the court of an offence involving fraud and a period of 10 years has not elapsed from the date of such conviction.
  9. 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 as provided in Section 144 (auditors not to render certain services).

( Edited by – Chiranjeeb Prateek Mohanty )

Reference

[1] Section 139, The Companies Act 2013

[2] Sec 226     –    Qualifications and disqualifications of Auditors; http://www.advocatekhoj.com/library/bareacts/companies/226.php?%20Title=Companies%20Act,%201956&STitle=Qualifications%20and%20disqualifications%20of%20auditors

[3] Qualification or disqualification of company auditor-section 141 of Companies Act 2013; http://yourfinancebook.com/qualification-or-disqualification-of-company-auditor-section-141-of-companies-act-2013/

[4] Qualification and Disqualification of Auditors; http://voiceofca.in/siteadmin/document/QualificationandDisqualificationofAuditors.pdf

[5] Liability and Disqualification of Auditor; https://aishmghrana.me/2014/08/07/liability-and-disqualification-of-auditor/

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Chiranjeeb Prateek Mohanty
I am Chiranjeeb Prateek Mohanty from National Law University Odisha pursing BA.LLB. (Hons.). The sphere of Criminal Law, Intellectual Property law and Media Law attract me the most. If at all I get any free time, I like reading books mostly of the Fiction genre, more specifically, the Crime-fiction. Apart from that I like watching shows and movies, again, mostly crime-thrillers. I am an enthusiastic debater who loves taking part in any debates, moots or conferences that have a theme of any contemporary legal or socio-political issues. I am a good listener and the kind of person one would want in a team because I believe in team-work. I like being the leader and working with the team while keeping in mind the various responsibilities that a leader has to undertake and deliver. I also like hitting the gym and working out.