Appointment of Auditors
139 . (1) Subject to
the provisions of this Chapter, every company shall, at the first annual
general meeting, appoint an individual or a firm as an auditor who shall hold
office from the conclusion of that meeting till the conclusion of its sixth
annual general meeting and thereafter till the conclusion of every sixth
meeting and the manner and procedure of selection of auditors by the members of
the company at such meeting shall be such as may be prescribed:
Provided that the company
shall place the matter relating to such appointment for ratification by members
at every annual general meeting:
Provided further that before such
appointment is made, the written consent of the auditor to such appointment,
and a certificate from him or it that the appointment, if made, shall be in
accordance with the conditions as may be prescribed, shall be obtained from the
auditor:
Provided also that the
certificate shall also indicate whether the auditor satisfies the criteria
provided in section
141:
Provided also that the company
shall inform the auditor concerned of his or its appointment, and also file a
notice of such appointment with the Registrar within fifteen days of the
meeting in which the auditor is appointed.
Explanation.—For the purposes
of this Chapter, "appointment" includes re- appointment.
(2) No listed
company or a company belonging to such class or classes of companies as may be
prescribed, shall appoint or re-appoint—
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(a)
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an individual as auditor for more than one term of five consecutive
years; and
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(b)
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an audit firm as auditor for more than two terms of five consecutive
years:
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Provided that—
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(i)
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an individual auditor who has completed his term under clause (a) shall not be eligible for
re-appointment as auditor in the same company for five years from the
completion of his term;
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(ii)
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an audit firm which has completed its term under clause (b), shall not be eligible for
re-appointment as auditor in the same company for five years from the
completion of such term:
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Provided further that as on the
date of appointment no audit firm having a common partner or partners to the
other audit firm, whose tenure has expired in a company immediately preceding
the financial year, shall be appointed as auditor of the same company for a
period of five years:
Provided also that every
company, existing on or before the commencement of this Act which is required
to comply with provisions of this sub-section, shall comply with the requirements
of this sub-section within three years from the date of commencement of this
Act:
Provided also that, nothing
contained in this sub-section shall prejudice the right of the company to
remove an auditor or the right of the auditor to resign from such office of the
company.
(3) Subject to the
provisions of this Act, members of a company may resolve to provide that—
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(a)
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in the audit firm appointed by it, the auditing partner and his team
shall be rotated at such intervals as may be resolved by members; or
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(b)
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the audit shall be conducted by more than one auditor.
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(4) The Central
Government may, by rules, prescribe the manner in which the companies shall
rotate their auditors in pursuance of sub-section (2).
Explanation.—For the purposes
of this Chapter, the word "firm" shall include a limited liability
partnership incorporated under the Limited Liability Partnership Act, 2008 (6
of 2009).
(5)
Notwithstanding anything contained in sub-section (1), in the case of a
Government company or any other company owned or controlled, directly or
indirectly, by the Central Government, or by any State Government or
Governments, or partly by the Central Government and partly by one or more
State Governments, the Comptroller and Auditor-General of India shall, in
respect of a financial year, appoint an auditor duly qualified to be appointed
as an auditor of companies under this Act, within a period of one hundred and
eighty days from the commencement of the financial year, who shall hold office
till the conclusion of the annual general meeting.
(6)
Notwithstanding anything contained in sub-section (1), the first auditor of a
company, other than a Government company, shall be appointed by the Board of
Directors within thirty days from the date of registration of the company and
in the case of failure of the Board to appoint such auditor, it shall inform
the members of the company, who shall within ninety days at an extraordinary
general meeting appoint such auditor and such auditor shall hold office till
the conclusion of the first annual general meeting.
(7)
Notwithstanding anything contained in sub-section (1) or sub-section (5), in
the case of a Government company or any other company owned or controlled,
directly or indirectly, by the Central Government, or by any State Government,
or Governments, or partly by the Central Government and partly by one or more
State Governments, the first auditor shall be appointed by the Comptroller and
Auditor-General of India within sixty days from the date of registration of the
company and in case the Comptroller and Auditor-General of India does not
appoint such auditor within the said period, the Board of Directors of the
company shall appoint such auditor within the next thirty days; and in the case
of failure of the Board to appoint such auditor within next thirty days, it
shall inform the members of the company who shall appoint such auditor within
sixty days at an extraordinary general meeting, who shall hold office till the
conclusion of the first annual general meeting.
(8) Any casual
vacancy in the office of an auditor shall—
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(i)
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in the case of a company other than a company whose accounts are
subject to audit by an auditor appointed by the Comptroller and
Auditor-General of India, be filled by the Board of Directors within thirty
days, but if such casual vacancy is as a result of the resignation of an
auditor, such appointment shall also be approved by the company at a general
meeting convened within three months of the recommendation of the Board and
he shall hold the office till the conclusion of the next annual general
meeting;
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(ii)
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in the case of a company whose accounts are subject to audit by an
auditor appointed by the Comptroller and Auditor-General of India, be filled
by the Comptroller and Auditor-General of India within thirty days:
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Provided that in case the
Comptroller and Auditor-General of India does not fill the vacancy within the
said period, the Board of Directors shall fill the vacancy within next thirty
days.
(9) Subject to the
provisions of sub-section (1) and the rules made thereunder, a retiring auditor
may be re-appointed at an annual general meeting, if—
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(a)
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he is not disqualified for re-appointment;
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(b)
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he has not given the company a notice in writing of his unwillingness
to be re-appointed; and
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(c)
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a special resolution has not been passed at that meeting appointing
some other auditor or providing expressly that he shall not be re-appointed.
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(10) Where at any
annual general meeting, no auditor is appointed or re-appointed, the existing
auditor shall continue to be the auditor of the company.
(11) Where a
company is required to constitute an Audit Committee under section
177, all appointments, including the filling of a casual vacancy of an
auditor under this section shall be made after taking into account the
recommendations of such committee.
Section 140 - Companies
Act, 2013
Removal, resignation of auditor and giving of special notice .
140 . (1) The
auditor appointed under section
139 may be removed from his office before the expiry of his term only by a
special resolution of the company, after obtaining the previous approval of the
Central Government in that behalf in the prescribed manner:
Provided that before
taking any action under this sub-section, the auditor concerned shall be given
a reasonable opportunity of being heard.
(2) The auditor
who has resigned from the company shall file within a period of thirty days
from the date of resignation, a statement in the prescribed form with the company
and the Registrar, and in case of companies referred to in sub-section (5) of section
139, the auditor shall also file such statement with the Comptroller and
Auditor-General of India, indicating the reasons and other facts as may be
relevant with regard to his resignation.
(3) If the auditor
does not comply with sub-section (2), he or it shall be punishable with fine
which shall not be less than fifty thousand rupees but which may extend to five
lakh rupees.
(4) (i) Special notice shall be required
for a resolution at an annual general meeting appointing as auditor a person
other than a retiring auditor, or providing expressly that a retiring auditor
shall not be re-appointed, except where the retiring auditor has completed a
consecutive tenure of five years or as the case may be, ten years, as provided
under sub-section (2) of section
139.
(ii) On receipt of notice of such a
resolution, the company shall forthwith send a copy thereof to the retiring
auditor.
(iii) Where notice is given of such a
resolution and the retiring auditor makes with respect thereto representation
in writing to the company (not exceeding a reasonable length) and requests its
notification to members of the company, the company shall, unless the
representation is received by it too late for it to do so,—
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(a)
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in any notice of the resolution given to members of the company,
state the fact of the representation having been made; and
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(b)
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send a copy of the representation to every member of the company to
whom notice of the meeting is sent, whether before or after the receipt of
the representation by the company,
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and if a copy of
the representation is not sent as aforesaid because it was received too late or
because of the company's default, the auditor may (without prejudice to his
right to be heard orally) require that the representation shall be read out at
the meeting:
Provided that if a copy of
representation is not sent as aforesaid, a copy thereof shall be filed with the
Registrar:
Provided further that if the
Tribunal is satisfied on an application either of the company or of any other
aggrieved person that the rights conferred by this sub-section are being abused
by the auditor, then, the copy of the representation may not be sent and the
representation need not be read out at the meeting.
(5) Without
prejudice to any action under the provisions of this Act or any other law for
the time being in force, the Tribunal either suo motu or on an application made to it by
the Central Government or by any person concerned, if it is satisfied that the
auditor of a company has, whether directly or indirectly, acted in a fraudulent
manner or abetted or colluded in any fraud by, or in relation to, the company
or its directors or officers, it may, by order, direct the company to change
its auditors:
Provided that if the
application is made by the Central Government and the Tribunal is satisfied
that any change of the auditor is required, it shall within fifteen days of
receipt of such application, make an order that he shall not function as an
auditor and the Central Government may appoint another auditor in his place:
Provided further that an auditor,
whether individual or firm, against whom final order has been passed by the
Tribunal under this section shall not be eligible to be appointed as an auditor
of any company for a period of five years from the date of passing of the order
and the auditor shall also be liable for action under section
447.
Explanation I.—It is hereby
clarified that in case of a firm, the liability shall be of the firm and that
of every partner or partners who acted in a fraudulent manner or abetted or
colluded in any fraud by, or in relation to, the company or its directors or
officers.
Explanation II.—For the purposes of this Chapter the
word "auditor" includes a firm of auditors.
Eligibility, qualifications and disqualifications of auditors.
141 . (1) A
person shall be eligible for appointment as an auditor of a company only if he
is a chartered accountant:
Provided that a firm
whereof majority of partners practising in India are qualified for appointment
as aforesaid may be appointed by its firm name to be auditor of a company.
(2) Where a firm
including a limited liability partnership is appointed as an auditor of a
company, only the partners who are chartered accountants shall be authorised to
act and sign on behalf of the firm.
(3) The following
persons shall not be eligible for appointment as an auditor of a company, namely:—
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(a)
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a body corporate other than a limited liability partnership
registered under the Limited Liability Partnership Act, 2008 (6 of 2009);
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(b)
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an officer or employee of the company;
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(c)
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a person who is a partner, or who is in the employment, of an officer
or employee of the company;
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(d)
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a person who, or his relative or partner—
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(i)
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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:
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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;
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(ii)
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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
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(iii)
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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;
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(e)
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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 of such
nature as may be prescribed;
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(f)
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a person whose relative is a director or is in the employment of the
company as a director or key managerial personnel;
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(g)
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a person who is in full time employment elsewhere or a person or a
partner of a firm holding appointment as its auditor, if such persons or
partner is at the date of such appointment or reappointment holding
appointment as auditor of more than twenty companies;
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(h)
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a person who has been convicted by a court of an offence involving
fraud and a period of ten years has not elapsed from the date of such
conviction;
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(i)
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any person whose subsidiary or associate company or any other form of
entity, is engaged as on the date of appointment in consulting and
specialised services as provided in section
144.
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(4) Where a person
appointed as an auditor of a company incurs any of the disqualifications
mentioned in sub-section (3) after his appointment, he shall vacate his office
as such auditor and such vacation shall be deemed to be a casual vacancy in the
office of the auditor.
Section Remuneration of auditors . 2013
142 . (1) The
remuneration of the auditor of a company shall be fixed in its general meeting
or in such manner as may be determined therein :
Provided that the Board may
fix remuneration of the first auditor appointed by it.
(2) The remuneration under
sub-section (1) shall, in addition to the fee payable to an auditor, include
the expenses, if any, incurred by the auditor in connection with the audit of
the company and any facility extended to him but does not include any remuneration
paid to him for any other service rendered by him at the request of the
company.
Section 143 -
Powers and duties of auditors and auditing standards
143 . (1) Every
auditor of a company shall have a right of access at all times to the books of
account and vouchers of the company, whether kept at the registered office of
the company or at any other place and shall be entitled to require from the
officers of the company such information and explanation as he may consider
necessary for the performance of his duties as auditor and amongst other
matters inquire into the following matters, namely:—
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(a)
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whether loans and advances made
by the company on the basis of security have been properly secured and
whether the terms on which they have been made are prejudicial to the
interests of the company or its members;
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(b)
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whether transactions of the
company which are represented merely by book entries are prejudicial to the
interests of the company;
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(c)
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where the company not being an
investment company or a banking company, whether so much of the assets of the
company as consist of shares, debentures and other securities have been sold
at a price less than that at which they were purchased by the company;
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(d)
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whether loans and advances made
by the company have been shown as deposits;
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(e)
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whether personal expenses have
been charged to revenue account;
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(f)
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where it is stated in the books
and documents of the company that any shares have been allotted for cash,
whether cash has actually been received in respect of such allotment, and if
no cash has actually been so received, whether the position as stated in the
account books and the balance sheet is correct, regular and not misleading:
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Provided that the auditor of
a company which is a holding company shall also have the right of access to the
records of all its subsidiaries insofar as it relates to the consolidation of
its financial statements with that of its subsidiaries.
(2) The auditor shall make a report
to the members of the company on the accounts examined by him and on every
financial statement which are required by or under this Act to be laid before
the company in general meeting and the report shall after taking into account
the provisions of this Act, the accounting and auditing standards and matters
which are required to be included in the audit report under the provisions of
this Act or any rules made thereunder or under any order made under sub-section
(11) and to the best of his information and knowledge, the said accounts,
financial statements give a true and fair view of the state of the company's
affairs as at the end of its financial year and profit or loss and cash flow
for the year and such other matters as may be prescribed.
(3) The auditor's report shall also
state—
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(a)
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whether he has sought and
obtained all the information and explanations which to the best of his
knowledge and belief were necessary for the purpose of his audit and if not,
the details thereof and the effect of such information on the financial
statements;
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(b)
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whether, in his opinion, proper
books of account as required by law have been kept by the company so far as
appears from his examination of those books and proper returns adequate for
the purposes of his audit have been received from branches not visited by
him;
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(c)
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whether the report on the
accounts of any branch office of the company audited under sub-section (8) by
a person other than the company's auditor has been sent to him under the
proviso to that sub-section and the manner in which he has dealt with it in
preparing his report;
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(d)
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whether the company's balance
sheet and profit and loss account dealt with in the report are in agreement
with the books of account and returns;
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(e)
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whether, in his opinion, the
financial statements comply with the accounting standards;
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(f)
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the observations or comments of
the auditors on financial transactions or matters which have any adverse
effect on the functioning of the company;
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(g)
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whether any director is
disqualified from being appointed as a director under sub-section (2) of section
164;
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(h)
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any qualification, reservation
or adverse remark relating to the maintenance of accounts and other matters
connected therewith;
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(i)
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whether the company has adequate
internal financial controls system in place and the operating effectiveness
of such controls;
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(j)
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such other matters as may be
prescribed.
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(4) Where any of the matters
required to be included in the audit report under this section is answered in the
negative or with a qualification, the report shall state the reasons therefor.
(5) In the case of a Government
company, the Comptroller and Auditor-General of India shall appoint the auditor
under sub-section (5) or sub-section (7) of section
139 and direct such auditor the manner in which the accounts of the
Government company are required to be audited and thereupon the auditor so
appointed shall submit a copy of the audit report to the Comptroller and
Auditor-General of India which, among other things, include the directions, if
any, issued by the Comptroller and Auditor-General of India, the action taken
thereon and its impact on the accounts and financial statement of the company.
(6) The Comptroller and
Auditor-General of India shall within sixty days from the date of receipt of
the audit report under sub-section (5) have a right to,—
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(a)
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conduct a supplementary audit
of the financial statement of the company by such person or persons as he may
authorise in this behalf; and for the purposes of such audit, require
information or additional information to be furnished to any person or
persons, so authorised, on such matters, by such person or persons, and in
such form, as the Comptroller and Auditor-General of India may direct; and
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(b)
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comment upon or supplement such
audit report:
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Provided that any
comments given by the Comptroller and Auditor-General of India upon, or
supplement to, the audit report shall be sent by the company to every person
entitled to copies of audited financial statements under sub-section (1) of section
136 and also be placed before the annual general meeting of the company
at the same time and in the same manner as the audit report.
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(7) Without prejudice to the
provisions of this Chapter, the Comptroller and Auditor-General of India may,
in case of any company covered under sub-section (5) or sub-section (7) of section
139, if he considers necessary, by an order, cause test audit to be
conducted of the accounts of such company and the provisions of section 19A64 of the Comptroller
and Auditor-General's (Duties, Powers and Conditions of Service) Act, 1971 (56
of 1971), shall apply to the report of such test audit.
(8) Where a company has a branch
office, the accounts of that office shall be audited either by the auditor
appointed for the company (herein referred to as the company's auditor) under
this Act or by any other person qualified for appointment as an auditor of the
company under this Act and appointed as such under section
139, or where the branch office is situated in a country outside
India, the accounts of the branch office shall be audited either by the
company's auditor or by an accountant or by any other person duly qualified to
act as an auditor of the accounts of the branch office in accordance with the
laws of that country and the duties and powers of the company's auditor with
reference to the audit of the branch and the branch auditor, if any, shall be
such as may be prescribed:
Provided that the branch
auditor shall prepare a report on the accounts65
of the branch examined by him and send it to the auditor of the company who
shall deal with it in his report in such manner as he considers necessary.
(9) Every auditor shall comply with
the auditing standards.
(10) The Central Government may
prescribe the standards of auditing or any addendum thereto, as recommended by
the Institute of Chartered Accountants of India, constituted under section 366 of the Chartered
Accountants Act, 1949 (38 of 1949), in consultation with and after examination
of the recommendations made by the National Financial Reporting Authority:
Provided that until any
auditing standards are notified, any standard or standards of auditing
specified by the Institute of Chartered Accountants of India shall be deemed to
be the auditing standards.
(11) The Central Government may, in
consultation with the National Financial Reporting Authority, by general or
special order, direct, in respect of such class or description of companies, as
may be specified in the order, that the auditor's report shall also include a
statement on such matters as may be specified therein.
(12) Notwithstanding anything
contained in this section, if an auditor of a company, in the course of the
performance of his duties as auditor, has reason to believe that an offence
involving fraud is being or has been committed against the company by officers
or employees of the company, he shall immediately report the matter to the
Central Government within such time and in such manner as may be prescribed.
(13) No duty to which an auditor of
a company may be subject to shall be regarded as having been contravened by
reason of his reporting the matter referred to in sub-section (12) if it is
done in good faith.
(14) The provisions of this section
shall mutatis mutandis apply to—
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(a)
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the cost accountant in practice
conducting cost audit under section
148; or
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(b)
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the company secretary in
practice conducting secretarial audit under section
204.
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(15) If any auditor, cost accountant
or company secretary in practice do not comply with the provisions of
sub-section (12), he shall be punishable with fine which shall not be less than
one lakh rupees but which may extend to twenty-five lakh rupees.
Section
14 4 - Auditor not to render certain services .
144 . An auditor appointed
under this Act shall provide to the company only such other services as are
approved by the Board of Directors or the audit committee, as the case may be,
but which shall not include any of the following services (whether such
services are rendered directly or indirectly to the company or its holding
company or subsidiary company), namely:—
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(a)
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accounting and book keeping services;
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(b)
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internal audit;
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(c)
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design and implementation of
any financial information system;
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(d)
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actuarial services;
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(e)
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investment advisory services;
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(f)
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investment banking services;
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(g)
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rendering of outsourced
financial services;
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(h)
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management services; and
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(i)
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any other kind of services as
may be prescribed :
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Provided that an auditor or
audit firm who or which has been performing any non-audit services on or before
the commencement of this Act shall comply with the provisions of this section
before the closure of the first financial year after the date of such
commencement.
Explanation.—For the purposes
of this sub-section, the term "directly or indirectly" shall include
rendering of services by the auditor,—
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(i)
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in case of auditor being an
individual, either himself or through his relative or any other person
connected or associated with such individual or through any other entity,
whatsoever, in which such individual has significant influence or control, or
whose name or trade mark or brand is used by such individual;
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(ii)
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in case of auditor being a
firm, either itself or through any of its partners or through its parent,
subsidiary or associate entity or through any other entity, whatsoever, in
which the firm or any partner of the firm has significant influence or
control, or whose name or trade mark or brand is used by the firm or any of
its partners.
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Section
145 - Auditor to sign audit reports, etc. Companies Act, 2013
145 . The person
appointed as an auditor of the company shall sign the auditor's report or sign
or certify any other document of the company in accordance with the provisions
of sub-section (2) of section
141, and the qualifications, observations or comments on financial
transactions or matters, which have any adverse effect on the functioning of
the company mentioned in the auditor's report shall be read before the company
in general meeting and shall be open to inspection by any member of the
company.
Section Auditors to attend general meeting .
146 . All notices of,
and other communications relating to, any general meeting shall be forwarded to
the auditor of the company, and the auditor shall, unless otherwise exempted by
the company, attend either by himself or through his authorised representative,
who shall also be qualified to be an auditor, any general meeting and shall
have right to be heard at such meeting on any part of the business which
concerns him as the auditor.
Punishment for contravention.
147 . (1) If any of
the provisions of sections
139 to 146
(both inclusive) is contravened, the company shall be punishable with fine
which shall not be less than twenty-five thousand rupees but which may extend
to five lakh rupees and every officer of the company who is in default shall be
punishable with imprisonment for a term which may extend to one year or with
fine which shall not be less than ten thousand rupees but which may extend to
one lakh rupees, or with both.
(2) If an auditor of a company
contravenes any of the provisions of section
139, section
143, section
144 or section
145, the auditor shall be punishable with fine which shall not be
less than twenty-five thousand rupees but which may extend to five lakh rupees:
Provided that if an auditor
has contravened such provisions knowingly or wilfully with the intention to
deceive the company or its shareholders or creditors or tax authorities, he
shall be punishable with imprisonment for a term which may extend to one year
and with fine which shall not be less than one lakh rupees but which may extend
to twenty-five lakh rupees.
(3) Where an auditor has been
convicted under sub-section (2), he shall be liable to—
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(i)
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refund the remuneration
received by him to the company; and
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(ii)
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pay for damages to the company,
statutory bodies or authorities or to any other person for loss arising out
of incorrect or misleading statements of particulars made in his audit
report.
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(4) The Central Government shall, by
notification, specify any statutory body or authority or an officer for
ensuring prompt payment of damages to the company or the persons under clause (ii)
of sub-section (3) and such body, authority or officer shall after payment of
damages to such company or persons file a report with the Central Government in
respect of making such damages in such manner as may be specified in the said
notification.
(5) Where, in case of audit of a
company being conducted by an audit firm, it is proved that the partner or
partners of the audit firm has or have acted in a fraudulent manner or abetted
or colluded in any fraud by, or in relation to or by, the company or its
directors or officers, the liability, whether civil or criminal as provided in
this Act or in any other law for the time being in force, for such act shall be
of the partner or partners concerned of the audit firm and of the firm jointly
and severally.
DRAFT RULES UNDER COMPANIES ACT, 2013
CHAPTER
–X- AUDIT AND AUDITORS
Manner and procedure of selection of auditors
10.1 For
the purpose of sub-section (1) of section 139,
(1) In the case of a
company that has constituted an Audit Committee under section 177, the audit
committee and in other case, the Board shall take into consideration, the
qualifications and experience of the person proposed to be considered for
appointment as auditor and whether these are commensurate with the size and
requirements of the
company. The audit committee or the Board, as the case may be, shall
also consider
the completed and pending proceedings against the auditor before the
Institute of Chartered Accountants of India or the National Financial Reporting
Authority or
Tribunal or any Court of law.
(2) Subject to the provisions
of sub-rule (1) above, where a company has constituted an audit committee, the
audit committee shall recommend the name of an individual or a firm as auditor to
the Board. In other cases, the Board shall consider and recommend an individual
or a firm as auditor to members in the annual general meeting for appointment
.
(3) If the Board is
satisfied with the recommendation of the audit committee, it shall consider and
recommend the appointment of an individual or a firm as auditor to the members
in the annual general meeting.
(4) If the board is not satisfied with
the recommendation of the audit committee, it may send back the recommendation
to the audit committee for reconsideration with their reasons.
(5) If the Audit
Committee, after considering the reasons given by the Board, does not agree to
reconsider its recommendation, the Board shall submit to the members its own
recommendation for consideration of members and appointment of one of them as
Auditors and shall explain the reasons for not accepting the recommendation of
the audit committee in the Board’s report.
(6) The members at
the annual general meeting shall appoint auditor of the company who shall hold
office from the conclusion of that meeting till the conclusion of the sixth annual
general meeting, counting the current meeting as the first, which shall be
subject to the ratification by members at every annual general meeting.
Conditions
for Appointment
10.2 For the purposes of the second proviso to
sub-section (1) of section 139,
the proposed
appointee shall submit a certificate that
(1) He or it is eligible for appointment and is not disqualified for
appointment under the Act, the Chartered Accountants Act, 1949 and Rules and
Regulations made therein.
(2) The proposed appointment is within the term allowed under the Act.
(3) The proposed appointment is within the limit laid down in the Act.
10.3 For the purposes of sub-section (2) of
Section 139, the class of companies
Class in which
auditor will rotated is under consideration.
Manner in which the companies to rotate their auditors on the expiry of
term
10.4 For the purpose of sub-section (4) of
Section 139:
(1) The audit committee of a company, constituted under Section 177 of the
Act shall recommend to the Board, the name of individual auditor or the audit
firm who may be rotated in the place of the present incumbent on the expiry of
his or their term.
(2) Where a company has constituted an audit committee, the Board shall
consider
The recommendation of the audit committee, and in other cases, the
Board shall itself consider the matter of rotation of auditors.
Thereafter, it shall propose to the members for consideration in
general meeting, the names of outgoing and incoming auditor or audit firm.
(3) The members at the annual general meeting shall consider the
proposal for rotation at the meeting and appoint the auditor or audit firm in
the manner specified in Rule 10.1
(4) For the purpose of the rotation of auditors
(i) In case of an auditor (whether an individual or audit firm), the
period for which he or it has been holding office as auditor prior to the
commencement of the Act shall be taken into account in calculating the period
of five consecutive years or ten consecutive years, as the case may be.
(ii) The incoming auditor or audit firm shall not be eligible if such
auditor or audit firm is associated with the outgoing auditor or audit firm
under the same network of audit firms or is operating under the same trade mark
or brand.
4 Explanation–For the purpose of rotation of auditors, break in term for
a continuous period of 5 years would only be considered as fulfilling the
requirement of eligibility.
(5) Where a company has appointed two or more persons as joint
auditors, the company shall follow the rotation of auditors in such a manner
that all of the joint auditors do not complete their term in the same year.
Removal of the auditor before expiry of his term
10.5 For the
purposes of sub-section (1) of Section 140,
(i)
The application to the Central Government shall be made in Form No.
10.1.
(ii)
The application shall be filed
within 30 days from the date on which the special resolution was passed in
general meeting.
(iii) The application shall be
accompanied by such fees as specified in Annexure C
.
RESIGNATION
OF AUDITOR
10.6. For the
purposes of sub-section (2) of section 140, when an auditor has resigned from
the company, he shall file a statement in Form No.10.2.Disqualifications of
audit.
or
10.7 (1) For the
purpose of proviso to sub-clause (i) of clause (d) of sub-section (3) of
section 141, a relative of an auditor may hold securities of face value or
interest in the company not exceeding rupees one lakh.
5(2) For the purpose of sub-clause (ii) of clause (d) of sub-section (3)
of section 141, a person who or whose relative or partner is indebted to the company
or its subsidiary or its holding or associate company or a subsidiary of such
holding company, in excess of
rupees one lakh shall not be eligible for appointment.
(3) For the purpose of sub-clause (iii) of clause (d) of sub-section
(3) of section 141,a person who or whose relative or partner 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, in excess of one lakh rupees shall not
be eligible for appointment.
(4)For the purpose of clause (e) of sub-section (3) of section 141, the
term “business relationship” shall construe any transaction entered into for a
commercial purpose except those which are in the nature of professional
services as permitted to be rendered by an auditor or audit firm under the Act
and the Chartered Accountants Act and the rules and the regulations made under
such Act.
10.8 For the purpose of clause (j) of sub-section (3) of section 143,
the Auditor’s report shall also include their views and comments on the
following matters:
(a) Whether the company has disclosed the effect, if any, of pending
litigations on its financial position in its financial statement;
(b) Whether the company has made provision for foreseeable losses, if
any, on long term contracts including derivative contracts;
(c) Whether there has been delay in depositing money into the Investor
Education and Protection Fund by the company 6 Duties and powers
of the company’s auditor with reference to the audit of the branch and the
branch auditor
10.9. (1)For the purposes of sub-section(8) of section 143, the duties
and powers of the company’s auditor with reference to the audit of the branch
and the branch auditor, if any, shall be as contained in sub-sections (1) to
(4) of section 143.
(2) The branch auditor Shall submit his report to the company’s
auditor.
(3) The provisions of sub-section (12) of section 143 read with rule
10.10 hereunder regarding reporting of fraud by auditor shall also extend to
such branch auditor to the extent it relates to the concerned branch.
Reporting
of Frauds by auditor
10.10 (1) For the purpose of sub-section (12) of
section 143, in case the auditor has sufficient reason and information to
believe that an offence involving fraud which is likely to materially affect
the company, is being or has been committed against the company by officers or
employees of the company, he shall report the matter to the Central Government
immediately but not later than thirty days of his knowledge or information,
with a copy to the audit committee or in case the company has not constituted
an audit committee, to the Board.
(2) For the purpose of sub rule (1), materiality shall mean:
(a) fraud(s) that is or are happening frequently; or
(b) fraud(s) where the amount involved or likely to be involved is not
less than five percent of net profit or two percent of turnover of the company
for the preceding financial year.
(3) In all other cases, auditors shall send a report in writing to the
audit committee and where the company has not constituted an audit committee,
to the Board, and the audit committee or the Board, as the case may be, shall
reply to the auditors in writing as to steps taken by the audit committee or
the Board in addressing the issues of fraud, including systemic issues.
(4) In case the audit committee or the Board, as the case may be, is
not taking action Or the auditor is not satisfied with the action taken, he may
report to the Central Government even if the fraud is not material in nature.
(5) The report shall be sent to the Secretary, Ministry of Corporate
Affairs in a sealed cover by Registered Post with Acknowledgement Due or by
Speed post followed by an email in confirmation of the same.
(6) The report shall be on the letter-head of the Auditor and be signed
by the Auditor with his seal and shall indicate his Membership Number.
(7) The report shall be in the form of a statement as given in Form No.
10.3: Remuneration of the Cost Auditor 10.11For the purpose of sub-section (3)
of section148,
(1) In the case of
companies which are required to constitute an audit committee-
(a) the audit committee shall take into consideration the
qualifications and experience of the person appointed by the Board as 8 cost auditor and recommend to the Board a suitable remuneration to be paid
to the cost auditor; and
(b) the remuneration recommended by the Audit Committee shall be
considered and approved by the Board of Directors and ratified subsequently by the
shareholders.
(2) In the case of those companies which are not required to constitute
an audit committee, the Board shall consider and approve the remuneration of
the Cost Auditor Which shall be ratified by shareholders subsequently.
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