COMPANY AUDIT AND

COMPANY AUDITOR
DR.SREEMOYEE GUHA ROY
PH.D.,M.COM.,MBA,NET
Chapter X of CA,2013 and the
Company(Audit and Auditors)Rules,2014
APPOINTMENT OF AUDITORS AT AGM(FIRST AND SUBSEQUENT AGMs)-
139(1):
1) Applicability – a) except Govt Co. b) any other co owned or
controlled,directly/indirectly by CG ,one or more SG,partly
2) Appointment and re-appointment till sixth AGM- 1st AGM-6TH AGM
3) MANNER AND PROCEDURE OF SELECTION OF AUDITORS(RULE 3):
i) Qualification and experience should be considered by Board or AC
ii) While considering the appointment of audit-i) any order of Prof
misconduct or any proceedings pending for prof misconduct
iii) Such other info
If no AC, then Board recommends to members the in the AGM for appt.
IF AC is there:
1) AC recommend to the Board for consideration
2) Board agrees recommends to the members in the AGM
3) Board Disagrees,refer back with reasons for reconsideration to AC
4) If the AC doesnot reconsider,The Board records reasons for
disagremment and sends its own recommendation
5) If the AC disagrees ,but the Board agrees then the Board
recommends to the members in AGM
Certificate and Consent by Auditor,and
Notice of appointment by Company
Before any appt.,the auditor shall furnish:
1) His written consent for such appointment
2) A certificate* that: i) shall be accordance with the conditions as may
be prescribed ii) auditor certifies criteria u/s 141
3) Conditions prescribed for APPT. and notice to Registrar(Rule 4)
4) Notice of Appt. to be given by the company i) informing the audr
ii)file a notice with Registrar within 15d of the meeting of such
appoinment
*i) he is eligible,ii)proceedings are disclosed and are true and correct,
iii) Is as per term provided in the Act
Re-appointment of Retiring auditor
May be re-appointment at an AGM if: 139(9) and 139(10)
1)He is not disqualified
2) He has not given the company a notice in writing of his unwillingness
3) A special res has not been passed for appointing any other auditor or
providing expressly that he shall be not appointed

NO auditor is appointed at AGM-existing auditor shall continue.

Rotation of Auditors 139(2) and 139(4)
The concept of rotation is applicable to:
1) Listed Cos.
2) All companies belonging to such class as may be prescribed
Rule 5 of the Companues(Audit and Auditors) Rules,2014:
i) All unlisted pub co having paid up share cap>10 cr or more
ii) All private limited cos having paid up share cap>50 cr or more
iii) All Cos.having shr cap below the above limit but having pub
borrowings from financial institutions,banks and pub deposits>50
cr or more.
SHALL NOT APPLY TO OPC or SMALL CO.
Rotation of Auditors 139(2) and 139(4)
INDV auditor – No indv will be appt/re-appt as auditor for more than 1 term of 5
consecutive yrs.
Firm as auditor- No audit firm will be appt/re-appt as auditor.2 consecutive term of
5 yrs
Cooling period:
INDV AUDITOR FIRM AS AUDITOR
Firm having same partner NA Same cooling prd
Certifying partners joins NA Same
other firms
Same network is same Same same
contril,same brand name
or trade name

Manner of rotation is given by Rule 6

1) Right of removal or resignation not affected
2) Strict provisions w.r.t. rotation may be imposed by members-
i) Audit firm so appointed,the auditing partner and his team shall be
rotated at such intervals as may be resolved by members
ii) The audit can be conducted by more than one auditor.
3) Rule for Rotation of auditors(Rule 6)- The board makes it own
recommendation for appt of next auditor by the members in the AGM.
Appointment of First Auditor 139(6) and
139(7)
139(7) 139(6)
Manner of appointment of 1st Govt co Any other co
auditor
CAG* within 60 d of registration of BOARD 30DAYS OF REGISTRATION
the co. OF COS
If CAG fails,then Board next 30 d 90 DAYS BY MEMBERS AT EGM
If board fails,then members 60
days in an EGM
Tenure Till the conclusion of the first AGM

CAG- Comptroller Auditor General of Inida

Appointment of Subsequent Auditor in case
of Govt Co.
CAG SHALL in respect of a FY appoint an auditor within 180 days from
the commencement of the FY
TENURE-HOLD OFFICE TILL THE CONCLUSION OF THE AGM
CASUAL VACANCY* 139(8)

CASE 1
MANNER OF FILLING UP CASUAL IN A CO WHOSE AUDITOR IS
VACANCY APPOINTED BY CAG
i) Within 30 days by CAG
ii) If CAG doesnot fill then Board
within the next 30 days
tenure Till the conclusion of the next AGM
CASE 2
OTHER CO
i) Within 30 days by Board
ii) Due to resignation,then by Board
in 30 days and should be approved
in a Gen Meeting convened within
3m of the recommendation of the
Board

Casual Vacancy not defined by CA,2013.It generally means vacancy caused by the auditor ceasing to act as such
after accepting a valid appointment. E.g. death,disqualification,resignation etc.
REMOVAL,RESIGNATION OF AUDITOR
AND GIVING SPECIAL NOTICE u/s 140
1) Removal before expiry of his term 140(1)-
i) Such removal requires Special res
ii) Previous approval of CG must be obtained
iii)Application with prescribed fees to CG,made within 30d of passing
the Boards res FORM ADT-2
iv) The co shall hold GM within 60d of getting the approval from CG for
passing SR
v) Reasonable opportunity of being heard
2) Resignation by auditor 140(2) and
140(3)
1) When a auditor resigns,he needs to File a Statement
2) Reasons and other facts
3) File with :
-Co,
-Registrar,
IN CASE OF CAG(GOVT CO):
4) Within 30 days of resignation-ADT-3
5) FINE 50,000 or remuneration whichever is less + Rs.500/day for
continuous failure SUBJECT TO MAX OF 5L
Remuneration of auditors Sec142
Fixed in a GM or in such a manner as may be decided in the GM.
First auditor is appointed by the Board –remuneration is fixed by the
Board
Remuneration can also include– any expense incurred by the auditor in
connection with the audit and any facility extended to the auditor.
POWERS and DUTIES of AUDITORS Sec
143
Rights and Duties 143(1)
1) Right to access books-ALL BOOKS AND VOUCHERS,WHETHER IN
REGD OFFICE OR NOT ,BOOKS OF SUBSIDIARY AND ASSOCIATES AS
WELL
2) Right to require information-FROM OFFICERS,Such info and
explanation,ALL INFO NECESSARY,for the performance of his duties
as auditor.
3) Duty to make inquiries-loans and advances,personal expenses etc.
4) Duty to make report 143(2)- TRUE AND FAIR VIEW OF STATEMENT
OF AFFAIRS,P/L A/C AND CASH FLOW
5) Report on principal assertions 143(3)*-
6) REASONS TO BE GIVEN 143(4)-where any matter reqd to be
*1) whether he has sought and obtained all information and
explanations
2) Whether in his opinion proper books of a/c s maintained
3) Loans and advances made by the company shown as deposits
ELIGIBILITY,QUALIFICATIONS AND
DISQUALIFICATION SEC 141
ELIGIBILITY:
INDV-CA
FIRM- MAJORITY OF PARTNERS ARE PRACTICING IN INDIA ARE
QULAIFIED FOR APPT.
FIRM also includes LLP (the members of LLP who all are qualified can
only sign on behalf of the firm)
DISQUALIFICATIONS 141(3)
FOLLOWING PERSONS SHALL NOT BE ELIGIBLE AS AN AUDITOR
a)BODY CORP which is not LLP
b)OFFICER OR EMPLEE OF THE CO
c)PERSON WHO IS A PARTNER OF AN OFFICER OF THE CO OR PERSON
WHO IS IN THE EMPLOYMENT OF AN OFFICER OR EMPLOYEE OF THE
CO
d)A PERSON IS HOLDING ANY THE CO
-WHO OR SECURITY THE SUBSI CO
HIS RELATIVE OR ITS HOLDING CO
HIS PARTNER ASSOCIATE CO
SUBSI OF SUCH HOLDING
CO
-DO- IS INDEBTED> 5L -DO-
-DO- HAS GIVEN A GUARANTEE -DO-
OR PROVIDED ANY
SECURITY(>1L)
HOWEVER IF RELATIVE HOLDS SECURITY FV>RS.1000 OR SUCH SUM AS MAY BE
PRESCRIBED (1L)-NOT DISQUALIFIED
IF IT EXCEEDS 1L,CORRECTIVE STEPS TO BE TAKEN within 60d TO LIMIT IT TO 1L
e) A PERSON OR A FIRM HAS BUSINESS -DO-
RELATIONSHIP (commercial transaction)
f) A PERSON WHOSE RELATIVE IS A DIRECTOR OR IS IN THE EMPLOYMENT OF THE CO
AS A DIRECTOR OR KMP
g) A PERSON WHO IS FULL TIME EMPLOYMENT ELSEWHERE OR > 20 CO HOLDING
APPOINMENT(OTHER THAN OPC,DORMANT CO,SMALL CO,PVT co havingPSC <100cr)
h) A person convicted by court of an offence involving fraud and 10 yrs
not lapsed from the date of such conviction.
i) Renders services referred u/s 144
VACATION OF OFFICE 141(4)IF DISQUALIFIED SHALL VACATE
THIS WILL BE CASUAL VACANCY

Relative include as per Rule 4 of Companies( specification of definition

details) Rules,2014:
Father, Mother,S on, Son’s wife, Daughter, Daughters husband, Brother
and Sister
PUNISHMENT FOR CONTRAVENTION
SEC 147
AUDIT COMMITTEE Sec 177 of
Companies Act,2013
- MANDATORY TO CONSTITUTE AC:
- EVERY LISTED PUB CO
- RULE 6 of the Companies(meetings of Board and its Powers)Rules,2014
- ALL PUB CO PSC>10CR.
- ALL PUB CO T/O >100 CR
- All pub co agg o/loan >50 cr

- COMPOSITION of AC:
- Min 3 directors,independent directors,read and understand FS
BRANCH AUDIT u/s 143(8)
Audited by company’s auditor
Any other person qualified to be an auditor of the co.
Duties and Power of Branch auditors prescribed under Rule 12: 143(1)
to (4)
Branch audit report prepared and should be sent to the auditor of the
company.
AUDITORS NOT TO RENDER CERTAIN
SERVICES*
PROHIBITED SERVICES SEC 144:WHETHER DIRECTLY OR INDIRECTLY
1) A/CING AND BOOK KEEPING SERVICES
2) INT AUDIT
3) ACTURIAL SERVICES
4) INV ADVISORY SERV/Inv banking
5) MGT SERV
6) DESIGN AND IMPLEMENTATION OF ANY FINANCIAL INFO SYS
7) INV BANKING SERVICES

*shall provide such services as approved by the board or AC as the case may be.
Reporting of Fraud by an Auditor 143(12) to
(15)
1) If the auditor has reasons to believe that an offence of fraud involving
such amount has been committed in the co. by its officers and
employees-te auditor shall report to CG
Rule 13-individually 1 cr>-report to CG
2) Report within prescribed time
--within 2 days to Board or AC(seeking reply/obs within 45 d)
--recs reply then within 15d fwd to CG (his report,the reply,comments on
reply)
--fails to rec reply,he shall fwd to CG(his report,note containing detaila of
earlier for which no reply recd)
The report should be sent :
--to the Secretary, MCA
--in a sealed cover
--by Regd post with Ack due or speed post
--also an email
--report in the letter head of auditor,signed with membership no.
--report shall be in a statement ADT-4
FRAUD LESS THAN 1cr.—report to AC or Board,
Rule 13- within 2d to AC/Board about nature of fraud,approx.
amt.,parties involved.
Punishment for non-compliance 143(15)—listed co 5L,other co 1L
PRINCIPAL DETERMINANTS OF
DIVISIBLE PROFIT
1) Profit after providing fr dep
2) Grant by the govt
3) Arrear dep-should be provided
4) Past losses-should be set off
5) Exemption from dep-rare cases
6) Transfer to res
Provisions of CA,2013 relating to unpaid or
unclaimed div
124(1)-not paid or not claimed within 30 d, then within 7d the total
amount will be tranfd to “ Unpaid Div A/C”
124(3)-if not transfd then the co shall pay int @12% p.a. on such
amount
124(5)-for 7 years if shrholders have not claimed it,then transfer to
“investors education and protection fund”(IEPF)
125(2)-the relevant shrs should also be transfd to “IEPF”
AUDITOR’s Duty regarding payment of
dividend
1) Examine Documents to ascertain Right and privileges
2) Examine Minutes of the both directors and shareholders meeting
regarding payments
3) Verify the Rate of div and justify it with profit earned
4) Unclaimed div tranfd to separate a/c
5) Register of members to check div warrants sent within the stipulated
time
6) AOA to verify authority of payment
7) Declaration does not affect adversely the WC of the co.
8) Basic accounting principles have been followed
AUDITORS LIEN
LIEN- ANY PERSON HAVING THE LAWFUL POSSESSION OF SOMEBODY
ELSE’S PROPERTY ON WHICH HE HAS WORKED,HE MAY RETAIN THE
PROPERTY FOR NON-PAYMENT OF HIS DUES.
AUDITOR CAN EXERCISE LIEN ON BOOKS AND DOCUMENTS.