ACCOUNTS OF

COMPANY
SEC 135
 CSR [Sec. 135]
Applicable Procedure Sch VII Activity Not CSR Activity
   
(Any 1) Constitute CSR CSR me Bhegenge – wo
Committee Shortcut – PEON
1) T/O – 1000 cr. or 1) C – Contribution to national defense
more  fund / fund by C.G 
2) Net worth – 500 cr 2) S – Slum area develop sports develop
or more CSR Committee will (Rural area, Olympic, Paralympic) 1) P – Political
3) Profit – 5 cr or  Formulate 3) R- Rural development party
more
 Recommend 4) B- Basic things like hunger, poverty, 2) E –
During immediate
preceding FY a CSR policy and malnutrition Employees of
Consisting of 3 or more monitor 5) H – Health care promotion Co. & family
directors (at least 1 
should be independent 6) E- Education (promoting ) 3) O – Outside
director) Board will approve
,disclose ,ensure 7) G- Gender equality projects India.
Where to spent recommendation 8) E- Environmental program
followed 4) N – Normal
 9) N- National heritage (protection) course of

Project / 10) G – Ganga clean prof. business
Spend at least
program 11) E- Empower women
specified in Sch. 2% of avg. net profit
of preceding 3 FY 12) W – War widows
VII 13) O – Other prescribed by CG
 Question
12. Shri Limited (a company having CSR Committee as per the provision of Section 135 of the
Companies Act, 2013) decides to spend and utilize the amount of Corporate Social
Responsibility on the activities for the benefit of all the employees of Shri Limited. As
per the provision of Companies Act, 2013 this would mean that:-
(a) This is the total amount spent on Corporate Social Responsibility activities by Shri
Limited for that financial year
(b) No amount spent on Corporate Social Responsibility activities by Shri Limited for that
financial year
(c) Only Half of the total amount spent, shall be considered to be spent on Corporate
Social Responsibility activities by Shri Limited for that financial year
(d) Only the amount that has been spent on the employees having salary of Rs. 20,000
per month or less, shall be considered be considered to be spent on Corporate Social
Responsibility activities by Shri Limited for that financial year.
(2 Marks) (MTP Nov. 21)
Answer
135(5)- Amendments & Rules
1. If Company has not completed 3 years then take average of such years as
completed 135 (5)
2. If amt not spent on CSR, transfer such unspent amt to the fund specified in Sch
VII, within 6 months of the expiry of FY.(provided it is not amt related to
ongoing project)
3. Any amt unspent related to ongoing project shall be transferred to Unspent CSR
A/C within 30 days from end of the FY in scheduled bank. Such amt shall be
utilized by the Co. only for obligation towards CSR within 3 FY from the date of
such transfer, failing which the Co. shall transfer to the fund of Sch VII within 30
days from date of completion of the 3rd FY.
4. Also, if amt is spent in excess then such excess amt shall be adjusted in 3
succeeding FY as may be prescribed.
5. Where the CSR amt does not exceed Rs. 50 lakhs, CSR Committee shall not be
constituted & functions of such committee shall be discharged by the BOD.
6. Company who doesn’t fulfill requirement till next 3 consecutive years can cease
CSR spending
OTHER IMP POINTS

1. Sec 135 not applicable to specified IFSC Public & Pvt Co. for 5 years
from the commencement of business.
2. If no independent director and for private companies , csr committee
should have atleast 2 directors
3. Administrative overheads should not exceed 5 % of total CSR exp.

4. CSR Reporting:
a) BR- include annual report on CSR.
b) Foreign Co.- annexure to B/S.
4. Calculation of Avg. Net Profit (sec 198): Shall not include
a) profits from overseas branches
b) dividend from other co. in India covered u/s 135
• Provided that the company shall give preference to the local
area and areas around it where it operates, for spending the
amount earmarked for CSR activities
• The Board shall ensure that the CSR activities are undertaken by the
company itself or through –
a) a company established under section 8 of the Act, or a registered public
trust or a registered society, registered under section 12A and 80 G of the
Income Tax Act, 1961, established by the company, either singly or along
with any other company, or
b) a company established under section 8 of the Act or a registered trust or a
registered society, established by CG or State Government; or
c) any entity established under an Act of Parliament or a State legislature; or
d) a company established under section 8 of the Act, or a registered public
trust or a registered society, registered under section 12A and 80G of the
Income Tax Act, 1961, and having an established track record of at least 3
years in undertaking similar activities.
• The board shall ensure that the administrative overheads shall not exceed 5% of total CSR
expenditure of the company for the financial year.
 Question
53. CSR Committee of the Board shall consist of:
(a) Directors forming 1/3rd of the total no of directors.
(b) At least 2 directors out of which one shall be
independent director.
(c) 3 or more directors out of which one shall be
managing director.
(d) 3 or more directors, out of which at least 1 director
shall be an independent director.
Answer
 Question
54. Provisions of CSR are applicable to:
(a) Companies with net worth of ` 250 crore or more
but less than 500 crore.
(b) Companies with turnover of ` 1000 crore or more.
(c) Companies with net profit of ` 1 crore or more but
less than ` 5 crore in any financial year
(d) Companies having aggregate outstanding loans and
deposits exceeding ` 50 crore or more in any financial
year.
Answer
 Books Of Accounts (Sec. 128)
Basics (1) Maintained at(1) Books Maintained by Other Pts
whom[128(6)]
 Registered office  Accrual basis
Every Company  Can be shifted at any
 M.D; WTD; CFO;  Double entry
shall maintain other place
 or
 system
 BOA B.R.
 ANY PERSON
 Should show true
AUTHORISED BY BOD
 Other Book  and fair view
File address of new
and Papers place with ROC within 7  Maintain for 8
Days (AOC-5) years(5) except if
 F.S. co is under
 Branch and Foreign
Can be kept books are to be kept
there itself
investigation C.G
physically or  Only periodical
can ask for more
return(QUARTERLY) is than 8 years
electronic to be Submitted to
company
mode
 Question

(ii) State the persons responsible for complying with the

provisions regarding maintenance of Books of Accounts of
a Company. Support with the help of relevant provisions of
the Companies Act, 2013.
(3 Marks) (MTP Oct. 21)
 Answer

(ii) Persons responsible to maintain books: As per Section 128 (6)

of the Companies Act, 2013, the person responsible to take all
reasonable steps to secure compliance by the company with the
requirement of maintenance of books of account etc. shall be:
(a) Managing Director,
(b) Whole-Time Director, in charge of finance
(c) Chief Financial Officer
(d) Any other person of a company charged by the Board with
duty of complying with provisions of section 128.
 Question

11. Amit Limited is accepting deposits of various tenures from its

members from time to time. The current Register of Deposits,
maintained at its registered office is complete. State the
minimum period for which it should mandatorily be preserved
in good order.
(a) Four years from the financial year in which the latest entry is
made in the Register.
(b) Six years from the financial year in which the latest entry is
made in the Register.
(c) Eight years from the financial year in which the latest entry is
made in the Register.
(d) Ten years from the latest date of entry.
(1 Mark) (MTP Nov. 21)
Answer
 Maintenance of BOA in electronic
form[128(1)r/w Rule 3]
1. BOA to be accessible in India for subsequent use.
2. Info. retained in format in which originally generated.
3. Info. from branch office not to be altered
4. Info. to be capable of being displayed in legible form
5. Proper system for storage, retrieval, display or printout of
electronic records & not disposed unless law permits
6. Intimate to ROC annually while filing F.S.
 Name of service provider
 IP address
 Location of service provider
 If maintained on cloud, address as provided by service provider
Whether the company, in respect of financial
years commencing
on or after the 1st April, 2022 has used such
accounting software for maintaining its books
of account which has a feature of recording
audit trail (edit log) facility along with change
of such facility and audit trail cannot be
disabled
 Question
59. Adani Enterprises Limited has its shares listed on a recognized stock
exchange in India. During the current financial year ended March 2020,
the securities and exchange board of India (SEBI) has found some
irregularities in the filings made by the company. Accordingly, SEBI
proposes to make an application to the Tribunal for reopening of the
books of accounts of the Company. You, as an expert, are called upon by
SEBI to advise with which last financial year for reopening of books of
accounts an application can be made?
(a) 2015-2016
(b) 2013-2014
(c) 2010-2011
(d) 2011-2012
Answer
 Inspection of BOA by Directors
[128(3) r/w Rule 4]
a) Inspection by Directors:
• Open during business hours
• If books outside India, Send to registered office at quarterly intervals and if
asked by director should be made available in 15 Days from the date of receipt
of request
b) Can inspect BOA of subsidiary only by resolution of BOD.(holding co)
 Question
60. Ganesh Company Ltd, a public company incorporated under the Companies Act, 2013 has Mr. Jay-
Director, Mr. Sagar – Independent Director, Mr. Abhishek – Nominee Director and Mr. Yash – Whole
time director. Mr. Abhishek wants to inspect the books of accounts of Shankar Company Limited, the
subsidiary of Ganesh Company Limited. You are required to state whether Mr. Abhishek is eligible to
inspect the books of accounts of Ganesh Company Limited?
(a) Yes, Mr. Abhishek can inspect the books of accounts of Shankar Company limited only on
authorization of the public financial institution on whose behalf he has been so appointed in the
board of the Ganesh Company Ltd.
(b) No. Mr. Abhishek being a nominee director can only inspect the books of accounts of Ganesh
Company Ltd and not its subsidiary company.
(c) Yes, Mr. Abhishek can inspect the books of accounts of Shankar Company limited only on
authorization by way of resolution of the board of directors.
(d) Yes, Mr. Abhishek can inspect the books of accounts of Shankar Company limited only on
authorization by way of resolution of the members holding not less than 25% of the paid up share
capital of the company.
Answer
 OTHER IMP POINTS
• Director Seeking Information/Inspection Has To Do It Personally And
Not Through Agent/Attorney/Representative
• In Inspection/Investigation C.G Can Ask To Keep Records Even More
Than 8 years
• Nature of Transaction to be Recorded(MASC)
M– MONEY RECD & EXPENDED
A - ASSETS AND LIABILITIES
S - SALE AND PURCHASE
C - COST RECORDS(in case of mfg. co.)
 Financial Statements (Sec. 129)
Includes 2(40) Basic Consolidated F.S. Other Pts
requirements
 Balance Sheet  Along with consolidated F.S. ,  No cash flow statement
 Profit & loss  True and fair view Statement containing Salient o OPC
Account  Compliance with features of F.S. of o Small Company
AS a) Subsidiary o Dormant Company
 Cash Flow
 As per Schedule III b) Associate o Start up Private
Statement
 company
 Notes to Accounts  Present at every  F.Y. (Sec. 2(41)) Should
AOC – 1
(Explanatory AGM be

Notes) a)Standalone F.S.  Consolidated F.S. not a)1st April to 31st March
 Statement of b)Consolidated F.S. required if: b)If incorporation on or
changes in Equity (INCLUDES DATA a) Wholly owned or partially after 1st Jan
OF S/A) owned subsidiary- All 
members intimate in Till next 31st March
writing
c) Different F.Y. to
b) Unlisted company
c) Ultimate / any Intermediate Consolidate if, H/S/A
holding company files incorporated outside
consolidated F.S. India with approval of
CG
 SEC 129 – NON APPLICABILITY

• Insurance Co
• Banking Co
• Electricity Co
• Govt. Co. to the extent of AS-17 to Co. engaged in defence
production
 RE-OPENING OF ACCOUNTS [Sec. 130]
 The Central Government  REASONS
 Income Tax authorities 1. earlier accounts prepared in a fraudulent manner or
 SEBI 2. doubt on reliability of F.S due to mismanagement
 Statutory Regulatory body
 Any person concerned

Applies to

Court / Tribunal

1. and serves notice to the applicant

Court passes order 2. The accounts so revised / re-casted shall be final
3. No order – for period earlier than 8 FY immediately preceding the
current FY (except on order from C.G)
 VOLUNTARY REVISION [Sec. 131]
Believe that the financial statements & board reports
Board of Directors
Not in Compliance with section 129 & 134
Apply
To revise such statements in respect of any of the 3
Tribunal
immediately preceding financial year.
File copy of order of Tribunal with ROC.
Notice to CG & IT
To take into considerations the representations
Authorities

Orders to revise Can not be revised more than once in a year

Disclosure in B.R/Adoption in G.M /filing with Roc
 Question
58. During the half year ended September 2019, the board of directors (BOD) of Vidyut
Manufacturing Limited has made an application to the Tribunal for revision in the accounts of the
company for the financial year ended on March 2017. Further during the year ended March 2020, the
BOD has again made an application to the Tribunal for revision in the board’s report pertaining to the
year ended March 2019. You are required to state the validity of the acts of the Board of directors.
(a) The act of the BOD is valid only to the extent of application made for revisions in accounts as
board’s report are not eligible for revision.
(b) The act of the BOD is valid as application made for revision in the accounts and board’s
report pertains to two different financial year.
(c) The act of the BOD is invalid as the law provides for only one time application to be made in
a financial year for revision of accounts and boards report.
(d) The act of the BOD is invalid as to the application made for revision in accounts pertains to a
period beyond 2 years immediately preceding the year 2020. The application made for revision in the
Board report is however valid in law.
Answer
 National Financial Reporting Authority (Sec. 132)

Duties Constitution Disqualification Other Pts

 Recommend C.G.  1 chairman

(Appointed by
 Not  Same power
on formulation like civil
and laying down
C.G., having associated
expertise in law , with any court
of A.S. & S.A. audit , Account &
 Monitor & finance) audit firm  Head office
enforce  Other persons (till  new Delhi
compliance of AS  Audited by
& SA holding
Part time or full CAG &
 Oversee quality time office and
report
of professionals 2 years forwarded
associated with
it
Not exceeding 15 after that) to CG by
 Investigate NFRA.
person under CA
Act, 1949
 Other Imp Point
• Power to investigate any member or CA firm of professional misconduct either
suo-moto or on ref. made by CG.
• May debar the member/ firm from:
a) being appointed as auditor/internal auditor of Co./Body corporate or
b) perform any valuation as per sec 247 for period of 6 months to 10 yrs.
• Person aggrieved by order of NFRA may appeal before Appellate Tribunal.
• CG may appoint secretary or employees for efficient functioning of NFRA.
• NFRA shall maintain books as prescribed by CG in consultation with CAG.
• NFRA shall prepare annual report of its activities during the FY & forward a
copy to CG.
COMPANIES & BODY CORPORATE GOVERNED BY NFRA
 Listed Co.
 Unlisted Public Co. having
 PUC > Rs. 500 Cr. or
 T/O > Rs 100 Cr. or
 O/s loans, deb, deposits > Rs. 500 Cr as on 31 Mar of preceding FY.
 Insurance Co, Banking Co, Electricity Co, Co. under special Act
 Body corporate or company or person as referred to NFRA by CG in public interest.
 Body corporate outside India, being S/A of Co. or Body corporate in India as ref. in a to d above, if
the net-worth of such S/A exceeds 20% of consolidated net-worth.
Note:
1) Existing body corporate (other than above) shall inform the particulars of auditor to NFRA
within 30 days of the commencement of NFRA rules, in Form NFRA-1.
2) Companies governed by NFRA shall continue to be governed for 3 years after it ceases to be
governed as per above conditions.
Power to issue accounting standard [Sec.
133]
Issued Recommendation Consultancy

By Central
By ICAI NFRA
Government
 F.S, BOARD REPORTS, etc [Sec. 134]

Board Report Directors Board Report in

Contents Responsibility case of OPC
statement
 Board Report Contents

Contents (REAL_DIRECTORS) Signing of BR &

R – Responsibility statement
E – Exact no. of B.M held.
annexures attached
A – Annual Return (Extracts) to it:
L – Loan/ Guarantee/ Investments (particulars) (Sec. 186) a. If BOD authorises
chairperson then signed
D – Dividend Recommendations by such chairperson.
I – Independent directors - Comment
R – Risk Management Policy b. If BOD does not authorises
E – Expectation/ comments on modified report (Statutory/ Cost/ any chairperson then
secretarial audit) signed by:
C – CSR Spending details At least 2 directors (1 should
T – Transactions with related party be MD, if any) or,
O – Overall details of state of company affairs
R – Reserve transfer – details OPC- by a director where there
S – Subsequent event is only 1 director.
 Directors Responsibility
Shortcut:(AAAGE)

• Should state:
1) Accounting standards has been followed
2) Accounting policies are consistently selected and applied
3) Maintenance of accounting records
4) Going concern is followed
5) Ensure compliance of all other related laws
 SEC 134
 Before submission to auditor
FS approved by BOD  Cannot be approved by teleconference / video meeting / circulation
(Sec. 134)  Signed by  Chairperson or 2 director (1 MD if any) + CEO + CFO + CS
 OPC 1 director

FS Submitted to auditor

 As per contents of section 134 (REAL DIRECTOR)

 Including directors responsibility statement and management discussion analysis
Prepare Board Report report
 Signed by  Chairman (if authorised) / 2 directors (1 MD if any)
 OPC  1 director

File resolution
approving Board
MGT-14, within 30 days
Report & FS with ROC
 Rights for copy of financial statements [Section 136]
Copy of financial statement, consolidated financial statement, audit report

Other than listed company
A copy is to be send to
1. Every member
2. Trustee of debenture holders
3. Other person
21 days before the date of meeting
Listed company
Deemed to serve the document if
o Copy made available for inspection at its registered
office during the business hours for a period of 21
days before the meeting &
o Statement containing salient features of such
documents are send in form AOC-3(AOC-3A for Co.
req. to comply IND AS) or full document as the
company deems fit delivers it to its members, trustee
& other persons at least 21 days before the meeting.
NOTE:
1. Nidhi co. is not required to send notice to members holding
a) Shares not more than 1000 FV
b) >1% of PUC w.e.l.

Publish in newspaper (Public Notice- Regional language)

2. In sec. 136, for sec. 8 Co. Instead of 21 days it is 14 days

3. Less than 21 days if agreed by,
a) Co. having share capital: members holding > 95% of PUSC: OR
b) Co. not having share capital: Members holding > 95% of total voting
rights.
 Manner of circulation of FS in certain cases
In case of Listed Co.

Public Co. having:

Net worth T/O

 
> 1 cr > 10 cr
FS may be sent
a) By electronic mode to members as per Demat form & whose email ids
regd. with depository.
b) Shareholding  not in Demat format, to members consented in writing
for receiving electronically.
c) Despatch of phy. copies as per Sec. 20 in other cases
 Filing of financial statement [Section 137]
If AGM held within due date If AGM not held within due
date

Financial statements and Financial statements and such Financial statements and such
such other documents other documents are not adopted other documents along with
adopted at such AGM at such AGM reasons for not holding AGM

File with Registrar within 30 File with Registrar within 30 File with Registrar within 30
days (AOC-4 & Conso. FS if days (but as provisional days (from due date of
any, form AOC-4 CFS) records) holding AGM

Further on adoption in
OPC  within 180 days from
adjourned AGM file once
closure of FY
again within 30 days
 Question

6. One Person Company shall file a copy of the duly adopted

financial statements to the Registrar in:
(a) 30 days of the date of meeting in which it was adopted.
(b) 90 days of the date of meeting in which it was adopted.
(c) 90 days from the closure of the financial year.
(d) 180 days from the closure of the financial year.

(2 Marks) (MTP Oct. 21)

Answer
 Internal audit [Section 138]
APPLICABILITY
QUALIFICATION
Following Class of companies are required to appoint an
internal auditor (individual or firm or body corp.) • Any person certified as :
 Listed company 1. Chartered accountant
 Unlisted company having 2. Cost accountant
1. Paid up Capital not less than 50 crore, or 3. Such other professional as
2. Turnover not less than 200 crore, or may be decided by board.
3. Borrowing from banks or PFI not less than 100 crore, or • May or may not be an
4. Deposits not less than 25 crore employee of the company.
 Private company having • CA or cost accountant
1. Turnover of not less than 200 crore or whether in practice or not.
2. Borrowings from banks or PFI not less than 100 crore.
(All above limits during preceding FY)
 Question

3. Kim Private Limited was incorporated on 30th September

2016. It has a paid up share capital of ` 45 crore. The
company had a turnover of 250 crore for the financial year
2019-20. The accounts manager of the company has
intimated to the company that they are not required to
appoint internal auditor for the financial year 2020-21. The
management of the company have approached you to
advise them about the appointment of internal auditor.
Advise them as per the provisions of the Companies Act, 2013.
(RTP Nov. 21)
 Answer

3. According to section 138 read along with Rules of the Companies Act, 2013, every private
company having—
(A) turnover of 200 crore rupees or more during the preceding financial year; or
(B) outstanding loans or borrowings from banks or public financial institutions exceeding 100
crore rupees or more at any point of time during the preceding financial year.
shall be required to appoint an internal auditor which may be either an individual or a partnership
firm or a body corporate.
In the given question, the company has a paid up capital of ` 45 crore and turnover of ` 250 crore
for the financial year 2019-20.
Since, the company is fulfilling the criteria of turnover (i.e. more than ` 200 crore), hence, it is
required to appoint an internal auditor for the financial year 2020-21.
 Question
56. Vandana Operations Limited has reported a net profit of ` 2 crores for the half year
ended 30th September 2020. During the previous financial year 2019-2020, the company has
paid up share capital of ` 40 crore and outstanding loan from bank amounting to ` 80 crores
on the date of last audited financial statement. Whether the company is required to appoint
internal auditor for the current financial year ending on 31st March 2021?
(a) Yes, the company is required to appoint internal auditor for FYending on March 2021 as
the net profit of the company is more than ` 1 crore.
(b) No, the company is not required to appoint internal auditor for FY ending on March
2021 as the outstanding loans during the previous year ending on March 2020 is less than `
100 crore.
(c) Yes, the company is required to appoint internal auditor for FY ending on March
2021 as the paid up share capital of the company is more than 10 crore.
(d) No, the company is not required to appoint internal auditor for FY ended March
2021 as the paid up share capital of the company is less than ` 50 crore during the preceding
financial year.
Answer
 Basics

•Company Audit means statutory Audit of

the Company.
•Compulsory for all companies irrespective
of size or legal form.
 Who can Audit

Sec. 141

(1)(2) (3)

Qualifications Disqualifications
 Qualifications of Auditor
• CA under CA Act, 1949.
• Nationality is not imp.
• Holds COP
Can Accept Audit

By Partnership
By Proprietor firm By L.L.P
Firm

Foreign L.L. P
In his own name In firm’s name
disqualified
 Disqualifications of Auditor [Sec. 141 (3)]
(CA + COP) Still cannot do audit

To Be checked

On appointment After Appointment

If disq. cannot be appointed If disq. Attracts will leave office of

as auditor[sec 141(3) auditor i.e casual vancancy[sec
141(4)
Shortcut  BIG FIBRE ROPE
B- Body corporate
•Except L.L.P
 Indebtedness to Company

Subsidiary
Person Holding

or
More than
Partner Company Associate
Rs. 5 lac in
or
Relative Subsidiary
G  Guarantee

Subsidiary
Person Holding

or
More than
Partner Company Associate
Rs. 1 lac in
or
Relative Subsidiary
 F  Full time Employment

Employment That Co. Other Co.

Part- Time  
Full-Time  
Interest in securities of Company

Subsidiary
Person Holding
Holds sec.
or
Of any amt
Partner Company Associate

or
Relative Subsidiary
 Question

(c) Mr. R brother of CA. Sana, a practicing chartered accountant,

acquired securities of Hot Ltd. having market value of `1,20,000
(face value ` 95,000). State whether CA. Sana is qualified to be
appointed as a statutory auditor of Hot Ltd.
(3 Marks) (MTP Oct. 21)
 Answer

(c) As per the provisions of Section 141(3)(d) of the Companies Act,

2013, a person who, or his relative or partner 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 shall not
be appointed as an auditor of the Company.
However, the proviso to the said section states that the above
restriction will not apply where such relative holds security or interest
in any of the above companies of face value not exceeding ` 1,00,000
[as prescribed under the Company (Audit and Auditors) Rules, 2014].
In the given instance, CA. Sana is not disqualified to be appointed as a
statutory auditor in Hot Ltd. due to the fact that the value of securities
held by his brother (relative) is of face value of ` 95,000 in the said
company, which is within the prescribed limit.
Business relationship

Subsidiary
Holding
Person
B.R
or Company Associate
With client
Firm

Subsidiary
 Exception

HATO Services specified by

H- Hotel / Hospital CA Act other than Sec.
144
A- Airlines
T- Tele communication
O- Other similar services

Arm’s length
transaction
 Business relationship

Doing business Providing goods or Procuring goods or

together service to client service from client

Can provide Ordinary course

which are not of business
prohibited by +
H- Hospital / Hotel
prohibited companies & CA (HATO) A- Airlines
act + T- Telecommunication
Arm’s length
O- Other similar services
transaction
 Relative in company
•a person whose relative is
• a Director or is in the employment of
the Company as a director or key
Managerial Personnel
Employee
•an officer or employee of the company
•a person who is a partner, or who is in
the employment, of an officer or
employee of the company
 Restricted services(section 144).
Shortcut - ACADEMICS
1) accounting and book keeping services;
2) Carry out outsourced financial services;
3) actuarial services;
4) design and implementation of any financial information system;
5) Engaged in investment advisory or investment banking services;
6) management services
7) internal audit
8) Carry out any other kind of services as may be prescribed
 Question
63. Which of the following is a prohibited service to be
rendered by the auditor of the Company?
(a) Design and implementation of any financial
information system
(b) Making report to the members of the company on
the accounts examined by him
(c) Compliance with the auditing standards
(d) Reporting of fraud against the company by officers
or employees to the Central Government
Answer
 Overall Limit
•1 person = 20 company audit
Excludes
1. One person company
2. Dormant company
3. Small company
4. Private company having paid up capital less
than 100 cr
Person who is Convict
•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
 Question
64. The word ‘firm’ for the purpose of Section 139 shall
include-
(a) An individual auditor
(b) A LLP
(c) An individual auditor and LLP both
(d) A company
Answer
Company Incorporated 1ST AGM 6th AGM
  
 Between any 2 AGM
 Auditor normally  May it be first
appointed in AGM or other
AGM AGM  If because of any reason
 will there be no auditor discontinues
auditor till then ? without giving audit report
 No, you can  After first Auditor any
First
appoint auditor appointed

Auditor
will be  casual
This creates
subsequent vacancy and new
auditor auditor will be appointed
 Appointment of First Auditor [Tenure till 1st AGM]

Other Company Govt. Company

[Sec. 139(6)] [Sec. 139(7)]

By BOD If BOD fails

By CAG If CAG fails If BOD fails
 Within 30 days Intimate to
from shareholders  Within By BOD Intimate to
incorporation 60 days shareholders
 Naming in By shareholders from
AOA not incorp. Within By
sufficient
30 days shareholders
Within 90 days
from intimation Within 60 days
Take valid B.M in EGM from intimation
& Pass B.R in EGM
 Question

2. The Board of Directors of Moon Light Limited, a listed

company appointed Mr. Teja, Chartered Accountant as its
first auditor within 30 days of the date of registration of the
Company to hold office from the date of incorporation to
conclusion of the first Annual General Meeting (AGM). At
the first AGM, Mr. Teja was re-appointed to hold office from
the conclusion of its first AGM till the conclusion of 6th AGM.
In the light of the provisions of the Companies Act, 2013,
examine the validity of appointment/ reappointment in the
following cases:
(i) Appointment of Mr. Teja by the Board of Directors.
(ii) Re-appointment of Mr. Teja at the first AGM in the above
situation.
(RTP Nov. 21)
 Answer
2. As per section 139(6) of the Companies Act, 2013, 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 such auditor shall hold office till the conclusion of the first annual general meeting.
Whereas Section 139(1) of the Companies Act, 2013 states that every company shall, at the first annual general
meeting (AGM), appoint an individual or a firm as an auditor of the company who shall hold office from the
conclusion of 1st AGM till the conclusion of its 6th AGM and thereafter till the conclusion of every sixth AGM.
As per section 139(2), no listed company or a company belonging to such class or classes of companies as may
be prescribed, shall appoint or re-appoint an individual as auditor for more than one term of five consecutive
years.
As per the given provisions following are the answers:
(i) Appointment of Mr. Teja by the Board of Directors is valid as per the provisions of section 139(6).
(ii) Appointment of Mr. Teja at the first Annual General Meeting is valid due to the fact that the appointment of
the first auditor made by the Board of Directors is a separate appointment and the period of such appointment is
not to be considered, while Mr. Teja is appointed in the first Annual General Meeting, which is for the period from
the conclusion of the first Annual General Meeting to the conclusion of the sixth Annual General Meeting.
 Appointment of subsequent Auditor
Other Company [139(1)] Govt. Company [139(5)]
 In AGM
 By shareholders
 By CAG
 By passing O.R.  Within 180 days from
 Tenure commencement of
 F.Y.
1 term = 5 years  Tenure


i.e. from 1st AGM to 6th AGM
 After appointment
AGM to AGM

Co. intimates to ROC within 15 days

(ADT-1)
 Question

9. For appointing an auditor other than the retiring

auditor,
(a) Special notice is required.
(b) Ordinary notice is required.
(c) Neither ordinary nor special notice is required
(d) Approval of Central Government is required.
(1 Mark) (MTP Oct. 21)
Answer
 Appointment in case of Casual vacancy
Sec. 139(8)
Other Company (i) (ii) Govt. Company

Other reasons By resignation Any reason

By BOD By Shareholders By CAG If CAG fails

Within 3 months Within 30 days By BOD

Within 30 days

EGM Within 30 days

Note :- In case of resignation, Auditor within 30 days intimate to
 (1) Company, (2) ROC, (3) CAG(Govt. Co.) in form No. – ADT-3
 Reappointment of Auditor [ 139(9)]
Not eligible for reappointment if rotation applicable &
term expired (individual – 5yrs / firm – 2 terms i.e. 10 yrs)
Same auditor appointed earlier can be reappointed
except
1) Disqualified [U/s 141(3) + 139(2)(3)(4)]
2) Unwilling to continue
3) Company has appointed somebody else instead of
him
 Automatic Reappointment [ 139(10)]
If no new auditor is appointed
+
Auditor can be reappointed
[not disqualified u/s 139(9)]

Existing auditor will be automatically reappointed for next
tenure
Note: if no new auditor appointed + retiring auditor cannot
be reappointed  Casual vacancy  filled by BOD within
30 days
 Rotation Applicability

Public Private

Or Paid up
Listed Unlisted Public
Capital is 50
borrowing from cr or more

Always Paid up • F.I

Applicable share Capital • Bank
of 10 cr or
more • Public
Deposit

50 cr or more
 Rotation – [Sec. 139(2)]
 CA Proprietory firm  Max 1 term
 CA Partnership firm / LLP  Max 2 term
 Cooling period for both  5 years
 In cooling period cannot appoint
a) Same firm
b) Other firm with any common partner
c) Firm with same network i.e same brand name , trade name or
common control [Sec. 139(4)]
 Sec 139(3)  In same auditing firm  members can decide
to rotate partners & term
 Question

(b) Mr. Yash is a partner and in charge of PQR firm. The

firm is appointed as an auditor firm of A. K.
Company limited (listed company). Mr. Yash retires
from PQR firm and after some time join Gupta & Gupta
firm as a partner, on 20/05/21. In the general meeting
of the company held on 15/06/21, the company
appointed Gupta & Gupta firm as next auditor of the
company. Do you think the company has adhered to
the provision of appointing Gupta & Gupta as auditor
for the company, under the Company Act 2013.
Explain?
(5 Marks) (MTP Oct. 21)
 Answer
(b) According to Section 139(2) of the Companies Act, 2013, no listed company or a company belonging to such class
or classes of companies as may be prescribed, shall appoint or reappoint—
(a) an individual as auditor for more than one term of five consecutive years; and
(b) an audit firm as auditor for more than two terms of five consecutive years.
Provided that –
(i) 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;
(ii) 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.
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.
Under Rule 6(3)(ii)(b) of The Companies (Audit and Auditors) Rules, 2014. if a partner, who is in charge of an audit firm
and also certifies the financial statements of the company, retires from the said firm and joins another firm of chartered
accountants, such other firm shall also be ineligible to be appointed for a period of five years.
Here Mr. Yash has retired from PQR Firm and joined Gupta & Gupta Firm. Mr. Yash was a partner in PQR firm, where he
certifies the financial statement of the company, and retires from the said firm and joins Gupta & Gupta firm. Hence
Gupta & Gupta Firm will also be ineligible, to be appointed as auditor firm for a period of 5 years.
 SELECTION OF AUDITOR
RECOMMENDATION PROCESS
If Section 177 regarding Audit Committee is applicable.
If BOD agree
Recommend
Name of Auditor Recommend
Name of Auditor
Committee Board of Shareholders
Director @ AGM
If BOD disagree
Refer Back + Reasons

If AC doesn’t reconsider, If AC reconsider, then they

then BOD will shall send its will recommend new name
own recommendation and process will continue
 Consent & Certificate

Committee Board of Director

Consent Certificate
I/We agree to I certify that following is True & Correct.
become auditor of  I am qualified u/s 141
the company
 I am not disqualified u/s 141.
 Appointment is correct as per other
He should take NOC sections of companies Act, & CA Act,
from previous 1949.
auditor before
 I have limit to accept audit CA CA Firm
sending Consent as
per CA Act, 1949  List of orders & proceedings provided to
company is True & Correct.
 Removal, Resignation & Special Notice (Sec. 140)
Sec. 140(1) Sec. 140(2) & (3) Sec 140(4) Sec. 140(5)
Before completion of Resignation by auditor Special Notice for not By Tribunal
tenure Sec. 140(2): file ADT-3 reappointing retiring auditor [Sec. 140(5)]
(next AGM) indicating reasons & facts Shareholders 
 file with Special Notice (aleast 14 clear
On application of
C.G / any person
Pass B.R a) Company days) to appoint new auditor

 Company
b) Registrar If tribunal satisfied
Within 30 days take c) CAG – if govt co. Send Copy auditor acted
approval from C.G Within 30 days from Retiring Auditor fraudulently
(ADT-2) and remaining 
date of resignation shareholders Within 15 days can
 Sec. 140(3): Fine Retiring Co. will circulate it to all order auditor to
Within 60 days of Min: 50000 or auditor can shareholders (atleast 7 vacate his office
receipt of approval give days before GM) or he can
take EGM & pass SR
remuneration of representation represent in GM +
auditor, w.e.l. In AGM Cannot be auditor in
Continuing failure  Shareholders pass SR to any co. for 5 years
Follow procedure for
app of new auditor further penalty of
500 per day subj After
appoint new Auditor
Retiring auditor will give +
Appointment written consent to new auditor Sec. 447
to max 500000 Intimate to ROC (ADT-1) in 15 days
 Question

(b) (i) The Auditor of the company (other than

government company) has resigned on 31st
December, 2020, while the Financial year of the
company ends on 31st March, 2021. Discuss as per
the provisions of the Companies Act, 2013, how the
auditor will be appointed in this case.
(3 Marks) (MTP Oct. 21)
 Answer

(b) (i) The situation as stated in the question relates to the

creation of a casual vacancy in the office of an auditor due to
resignation of the auditor before the Annual General Meeting in case
of a company other government company. Under section 139 (8)(i)
of the Companies Act, 2013, any casual vacancy in the office of an
auditor arising as a result of his resignation, such vacancy can be
filled by the Board of Directors within 30 days thereof and in
addition the appointment of the new auditor shall also be approved
by the company at a general meeting convened within 3 months of
the recommendation of the Board and he shall hold the office till the
conclusion of the next annual general meeting.
Question

61. For appointing an auditor other than

the retiring auditor,
(a) Special notice is required.
(b) Ordinary notice is required.
(c) Neither ordinary nor special notice is
required
(d) Approval of Central Government is
Answer
Note
1. Duty of Company w.r.t. representation
if copy not sent because of company’s default
 auditor – oral representation – in AGM
 copy to be filled with ROC
2. Intervention by Tribunal
if tribunal satisfied that right of making
representation abused by auditor, no need to send
copy of representation
 Duties of Auditors (Sec. 143)
(1) Specific (2) (3) (4) (5)(6)(7) (8) (9)(10) SA (11) (12)
T&F Principal Quantification Powers of Branch & powers CARO Fraud
enquiry assertions of modification CAG Audit to issue SA Reporting
view
Report only when Duty to I – obtained all Reason & effect (5)- in govt co. Dealt (9) – every Report When If fraud
negative report on necessary info. of modification CAG separately auditor shall when committed on
S – loan & advance True on & explanation, if not,
basis of security   direct auditor comply with applicable or by the officer
fair view effect of such information on FS
properly secured of FS; if A- whether FS comply with AS the manner of SA / emp of co.
whether terms – any auditing To Whom If amt of fraud
prejudicial B – whether BOA maintained properly
 submit copy of AR (10) – CG 
adverse
B – whether transaction effect on B – whether B/s & P&L in conformity with issue SA
represented merely by functionin BOA & returns
to CAG < 1 Cr > 1 Cr
 AR shall include recommend
book entries are g of co.  B – whether Branch Report timely ed by ICAI in To AC/BOD Not later
prejudicial to interest of direction of CAG &
mention submitted or not Consultation  Within 2 than 2 days
company
in AR  C – whether co. has adequate internal action taken on it
I – whether assets of co. with NFRA days stating of knowledge
read Financial controls Sys & operating a) nature of fraud 
(shares / debentures / (6)(a)  CAG within
before effectiveness
securities) sold at price 60 days from receipt b) amount report to
less than purchase member D – whether any director disq U/s 164(2)
in GM  of AR – order to c) parties AC/BOD 
price  not apply to E – Observation of auditor on financial
open to conduct supp audit of involved Seeking reply
investing or banking transaction having adverse effect on
company inspection functioning of company FS by person within 45 days
Dharam – whether by any authorised by CAG
F – Further imp points: > on receipt of
loans & advances member
- pending litigation & claims  Disclose
shown as deposits of co. 6(b) – Supplement reply forward
impact
peth – whether personal comment by CAG on report to CG
expense charges to - provision made  material
foreseeable losses AR – placed in AGM within 15 days
revenue A/c
Sakha – shares allotted - Delay in transfer of amount to IEPF > Non receipt
(7) – CAG may order
for cash, then cash - Specified bank notes  whether
actually received, if Test Audit of A/c of within 45 days 
properly disclosed b/w 8th Nov 2016 to
not, correctly stated in Govt co forward Report
30th Dec 2016 Refer Note
BOA & B/s with note
 Sec. 143(1) Duty to enquire
 Enquire means to inquire & report only in case of discrepancy
Properly secured
Loan & Made by
S Security
Advance co. Terms –prejudicial
Mere book
B entries
Prejudicial to interest of Co.

Whether
I Investment in securities selling price < Purchase Price

D Deposits Loan & Advance Shown as deposits

P Personal expense Charged to revenue a/c’s

S Shares Paid up Actually cash received or not

 Sec. 143(3)– Principal Assertions
Information & Needed to Has been
I Explanation be obtained obtained

A A.S Complied or not

B Books of accounts Properly maintained

B B/s & P&L In agreement with BOA

B Branch Audit Report Timely submitted to H.A

C Control system Adequate

D Directors Disqualified u/s 164(2)

 Sec. 143(3)– Principal Assertions
Matters having adverse effect on functioning of
E Effect
company

F Further Points

Pending litigations Provision made Delay Specified bank notes

Whether properly
For material
Company has In transfer of disclose
foreseeable
disclosed amount to
losses Holding & dealing with it
impact IEPF
+
between 16th Nov. 2016 to
30th Dec. 2016
 Amendment
After clause (d), the following clauses shall be inserted –
(a)
(i) Whether the management has represented that, to the best of its
knowledge and belief, other than as disclosed in the notes to the accounts,
 no funds have been advanced or loaned or invested (either from borrowed
funds or share premium or any other sources or kind of funds) by the
company
 to or in any other person(s) or entity(ies), including foreign entities
(“Intermediaries”),
 with the understanding, whether recorded in writing or otherwise, that
 the intermediary shall, whether, directly or indirectly lend or invest in other
persons or entities identified in any manner whatsoever by or on behalf of
the company (“Ultimate Beneficiaries”) or provide any guarantee, security
or the like on behalf of the Ultimate Beneficiaries;
(ii)Whether the management has represented, that, to the best of
its knowledge and belief, other than as disclosed in the notes to
the accounts, no funds have been received by the company
 from any person(s) or entity(ies), including foreign entities
(“Funding Parties”),
 with the understanding, whether recorded in writing or otherwise,
that
 the company shall, whether, directly or indirectly, lend or invest
in other persons or entities identified in any manner whatsoever
by or on behalf of the Funding Party (“Ultimate Beneficiaries”) or
provide any guarantee, security or the like on behalf of the
Ultimate Beneficiaries; and
(iii) Based on such audit procedures that the
auditor has considered reasonable and appropriate
in the circumstances, nothing has come to their
notice that has caused them to believe that the
representations under sub-clause (i) and (ii) contain
any material mis-statement.
(b) Whether the dividend declared or paid during the year by
the company is in compliance with section 123 of the Companies
Act, 2013.
(c) Whether the company, in respect of financial years
commencing
 on or after the 1st April, 2022 has used such accounting software
for maintaining its books of account which has a feature of
recording audit trail (edit log) facility and
 the same has been operated throughout the year for all
transactions recorded in the software and
 the audit trail feature has not been tampered with and the audit
trail has been preserved by the company as per the statutory
requirements for record retention
Sec. 143 (12)  Fraud Reporting
If any Fraud
found by auditor Check amount of Fraud

Upto 1 cr Amt > 1cr

Report to audit committee / BOD Report to Within 2 days
AC / BOD
Note: 1) This section mutatis
mutandis applies to CMA Seek reply Within 45
+CS from them days
2) Company should also
include this in board report With reply Within 15
Report to days
CG ADT-4
Note
1. Report sent to Secretary, MCA, in Sealed cover by
registered post with acknowledgement due or by
speed post followed by email
2. Report to be send on letter head of auditor with
address, email, contact number, signed by auditor
with seal & membership no
3. Report in Form ADT-4
 Rights / Powers of Auditors
1. Right to access to books, accounts & vouchers - books include financial, statutory or statistical books,
memorandum records & quantitative records
2. Right to obtain information & explanation: from officers wherever necessary for performance of his duties & report
u/s 143(3)
3. Right to visit branch office & access to branch accounts – even if branch auditor is different from company auditor
4. Right to receive notice & attend general meeting (Sec. 146)
- has right to receive all notices & other communication related to GM  attend either by himself or through his
authorised representative who shall also be qualified to be an auditor
- right as well as obligation to attend GM
- cannot attend BM
5. Right to make representation (Refer Sec. 140(4))
6. Right to report to members: right as well as duty
7. Right to sign Audit Report (Sec 145): right as well as duty
- sign AR, B/s, P&L & all documents attached & annexed thereto
- open to inspection by any member of company
8. Right to seek opinion of expert for technical matters
9. Right to receive remuneration (Refer Sec. 142)
10. Auditor’s lien  right of 1 person  to satisfy claim against another  by holding other’s property as security or
converting other’s property lawfully
Conditions to exercise lien i) document – belong to client – owe money
ii) Document – possession of auditor by authority of client & not through illegal means
iii) can retain document – if done work on document
iv) such document – on which fees not paid
v) even if retained books of client – provide abstract / copies whenever client seeks
Remuneration to auditor Sec. 142
Jo appoint karega wohi remuneration bhi fix karega

Other Company  BOD - 

Shareholders - 

Except Government Company

 appointed by CAG
 Remuneration fixed by shareholders
Sec. 143 (12)  Fraud Reporting
If any Fraud
found by auditor Check amount of Fraud

Less then 1 cr 1cr or more

Report to audit committee / BOD Report to Within 2 days
AC / BOD
Note: 1) This section mutatis
mutandis applies to CMA Seek reply Within 45
+CS from them days
2) Company should also
include this in board report With reply Within 15
Report to days
CG ADT-4