AUDIT OF COMPANIES

(Qualification, disqualification, removal of

Auditors, and his rights, duties and liabilities)
 Live News
• Prabhat Dairy’s Rs 1,700-crore deal with Lactalis under Sebi lens.

• Sebi wants the Auditor to verify whether there was any misuse of
the books of accounts or funds of sale proceeds or compromise of
minority shareholder interest,” said one of the people.

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 Learning Outcome
• Recognize the qualification and disqualifications of an auditor.

• Understand the provisions related to removal of Auditor.

• Understand the provisions related to remuneration of auditor.

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 Contents
• Meaning of a Company Auditor
• Appointment of an Auditor
• Remuneration of Auditor
• Qualification and disqualifications of an Auditor
• Removal of Auditors
• Status of Company Auditor

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 Meaning of a Company Auditor
• An Auditor is the person who is appointed to
conduct the independent examination of financial
statement to report on the reliability and fairness of
P&L account and Balance sheet.

• He needs to have the reasonable skills, be honest,

tactful, methodological, cautious and careful.

• Act as watchdog not bloodhound.

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 Remuneration of an Auditor (1)
• What it is? Remuneration includes any sum paid by
the company in respect of the auditor’s expenses in
carrying out his duties.

• How it is determined?
 Appointment by BOD or Central Govt., his
remuneration is fixed by BOD or CG as the case may
be.
 In all other cases, fixed by company in a general
meeting or as the manner specified.
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 Remuneration of an Auditor (1)
• (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.

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 Remuneration of an Auditor (2)
• A special disclosure of all the amounts paid to auditor is
required to be made in the P&L A/c as:
 An auditor fees;
 An advisor’s fees, or in any other capacity in respect of
taxation matters, company law matters, management
matters;
 In any other manner.

• On re-appointment of an auditor in next AGM, the

amount fixed for the previous year continues to be the
remuneration of auditor, unless any changes are made.
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 Qualification of an Auditor
• Section 141 prescribes the qualification and disqualification of the
company auditor.

• a person shall be eligible for appointment as an auditor of a

company only if he is a chartered accountant within the meaning of
Chartered Accountants Act, 1949 and holds a valid Certificate of
Practice.
• a firm shall also considered to appointed by its firm name whereof
majority of partners practising in India are qualified for appointment
as auditor of a company.
• a firm including limited liability partnership who are chartered
accountants shall be authorised to act as auditor and sign on behalf
of the such limited liability partnership or firm.
• (it has been further provided that only partners who are Chartered Accountants will be authorised
to sign on behalf of the firm)
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 Summary
• A person shall appointed as an auditor if
he is chartered accountant within the
meaning of Chartered Accountants Act,
1949 and holding valid certificate of
practice and acting in capacity as
• a) Individual
• b) Partnership Firm
• c) Limited Liability partnership
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 Disqualification of an Auditor (1)
• According to Provisions of Section 141(3) of the Companies Act,
2013 , following persons shall not be eligible as auditor of the
company: ‐

• a) A body corporate other than LLP registered under the LLP Act,
2008

• b) An officer or employee of the company. 

• c) A person who is partner or who in the employment, of an officer or

employee of the company.

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Disqualification of an Auditor (1)
• d) A person who or his relative or partner
• (i) is holding any security/interest in the company or its subsidiary or of
its holding or associate company or subsidiary of such holding
company. It has been further provided that an relative may hold security
or interest in the company of face value not exceeding one lac rupees.
•  (ii) is indebted to the company or its subsidiary, or its holding or
associate company or subsidiary of such holding company, in excess of
Rs. 5 lacs rupees
•  (iii) has given guarantee or provide any security in connection with the
indebtness of any third person to the company or its subsidiary, or its
holding or associate company or a subsidiary of such holding company
for value in excess of Rs. 1 lacs.

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Disqualification of an Auditor (1)
•  e) A person or a firm who (whether directly or indirectly) has business
relationship with the company, or its subsidiary, or its holding or
associate company or subsidiary of such holding company or associate
company.

• f) A person whose relative is a director or is in the employment of the

company as a director or key managerial personnel.

• g) A person
(i) who is in full time employment elsewhere or
(ii) a person or a partner holding appointment as its auditor is at the
date of such appointment or reappointment holding appointment as
auditor for more than 20 companies.
•  
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Disqualification of an Auditor (1)
•   h) A person who has been convicted by a court of an offence involving
fraud and a period often years has not elapsed from the date of such
conviction. 

•  i) Any person whose subsidiary or associate company or any other form of
entity is engaged as on the date of appointment in consulting or specialised
services in reference to provision of Section 144 of the Companies Act,
2013.

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Status of Company Auditor

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 Quiz
Audit means ___________.
• A. recording business transactions
• B. preparing the final accounts
• C. examination of books, accounts,
vouchers etc.
• D. preparing final accounts

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• ANSWER: C

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 Quiz
• The auditor of a government company
shall be appointed by ________.
• A. the government company itself
• B. the central government
• C. the share holders
• D. the debenture holders
•

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• ANSWER: B

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 Quiz
The first auditors appointed by head office
____________.
• A. for a period of one year
• B. for a period of two years
• C. for a period of three years
• D. till the conclusion of the first annual
general meeting

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• ANSWER: D

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