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Changes in Audit and Auditors- Companies Act, 2013


Abhilash 
posted on 23 September 2013


The companies act, 2013 has come into existence on 29.08.2013 that replaces a nearly six decade-old legislation and overhauls the way corporate function and are regulated in the country.

 

This article contains the description of some provisions related to audit and auditors which have been modified in companies Act, 2013.

 

Appointment of first auditor in case of every company except govt. company or company owned/ controlled by CG/SG/CG and SG [139(6)]:-

 

Appointment of first auditor shall be made by board within 30 days of registration of company. If Board fails to appoint the first auditor within given time then it shall inform to members and members shall make the appointment of first auditor within 90 days of information at an EGM. The First Auditor shall hold office till the conclusion of first AGM.

 

NOTE: No time period is mentioned for Board to inform the members about the Non appointment of first auditor.

 

Appointment of first auditor in case of govt. company or company owned/ controlled by CG/SG/CG and SG139(7):-

 

Appointment of first auditor shall be made by CAG within 60 days of registration of the company. If CAG fails to appoint the first auditor within given time then Board of such company shall appoint first auditor within 30 days. If Board fails to appoint the first auditor within given time then it shall inform to members and members shall make the appointment of first auditor within 60 days of information at an EGM. The First Auditor shall hold office till the conclusion of first AGM.

 

NOTE: No time period is mentioned for Board to inform the members about the Non appointment of first auditor.

 

Appointment of Subsequent Auditor in case of every company except Govt. Company or company owned/ controlled by CG/SG/CG and SG[139(1)]:-

 

Appointment of auditor shall be made by members at First AGM and every subsequent 6th AGM. Company shall intimate the auditor about appointment. After intimating, company shall obtain written consent and certificate (in accordance with the conditions prescribed in section 141) from auditor. Then, company is required to file a notice with the registrar about the appointment within 15 Days of the meeting.

 

Note: The Auditor shall hold office for a period of 5 Years.

 

Note: Company can ratify such appointment at any AGM falling between 5 years from such appointment

 

Conditions for appointment of Subsequent Auditor in case of Listed Companies or companies of such class [139(2)]:-

 

If an individual is appointed as an auditor for 1 term i.e. for 5 consecutive years then that individual will not be eligible for reappointment for next 5 years from the expiry of his term as an auditor of company.Whereas, if an audit firm is appointed as auditor for 2 term i.e. for 10 consecutive years then that audit firm will not be eligible for reappointment for next 5 years from the expiry of its term as an auditor of company

 

Note: Audit firm having common partner to the old audit firm of the company will not be eligible for appointment.

 

Note: Any existing listed company is required to comply with the above mentioned provisions within 3 years from the commencement of this act.

 

Appointment of Subsequent Auditor in case of Govt. Company or company owned/ controlled by CG/SG/CG and SG [139(5)]:-

 

Appointment of auditor shall be made by CAG within 180 days from the commencement of financial year. The Auditor shall hold office for a till the conclusion of AGM

 

Appointment of auditor in Casual Vacancy in every company except Govt. Company or company owned/ controlled by CG/SG/CG and SG [Section 139(8)(i)]:-

 

If casual vacancy is arising by resignation then vacancy shall be filled by the Company in its meeting within 3 months from the date of recommendation of the Board.

 

Whereas casual vacancy is arising by other than resignation then vacancy shall be filled the Board within 30 days.

 

Appointment of auditor in Casual Vacancy in case of Govt. Company or company owned/ controlled by CG/SG/CG and SG [Section 139(8)(ii)]:-

 

Casual vacancy shall be filled by CAG within 30 days. If CAG fails to fill the vacancy within given time then BOD shall fill the vacancy within 30 days.

 

Rotation of Auditors [ 139(3)]:

 

1. Member can rotate auditing partner and his team for any interval

2. Audit can be conducted by 1 or more auditor

 

Audit Committee[177] and  Role Audit Committee  in appointment of auditors[139(11)]:-

 

Every Listed Company shall form Audit Committee consisting of minimum 3 directors. Whereas, Majority of directors should be independent and ability to read & understand financial statement

 

Role: Appointment, remuneration and term of appointment of auditor shall be made after considering the recommendations of the Audit Committee

 

Note: Committee existing before commencement of this act shall be reconstitute within 1 year of commencement in accordance of above mentioned provisions

 

Duty of auditor when he or it resign [140(2)]:-

 

Auditor is required to file a statement specifying the reasons and fact of resignation within 30 days of resignation with ROC and company or CAG in case of Govt. Companies. If auditor fails to comply with above mentioned provisions then he shall be punishable with fee of Rs. 50,000- Rs. 500,000.

 

Duty of Company in case of representation received from auditor [140(4)]:-

Company is required to send a copy of the representation to every member and if copy of representation is not sent then a copy shall be filed with registrar.

 

Role of Tribunal in case auditor found guilty of fraud [140(5)]:-

 

Tribunal may by itself or on application by CG/any concerned person order to change the auditor. And if the application is made by CG then tribunal shall pass an order within 15 days of application. In case of final order is passed then the auditor shall not be appointed for a period of five years in any other company and be further liable for monetary as well as penal punishment.
 

Disqualifications of Auditors [141(3)]:-

 

1. If any partner of the person  holding  interest  or  security  in  the  company  or  its subsidiary,  or  of  its  holding  or  associate  company  or  a  subsidiary  of  such  holding company

 

2. If any  relative  of the person holding  interest  or  security whose face value exceeds Rs. 1000 or such sum as may be prescribed in  the  company  or  its subsidiary,  or  of  its  holding  or  associate  company  or  a  subsidiary  of  such  holding company. Note: Relative means member of HUF, Husband and wife or related with person as may be prescribed

 

3. If any  relative  of the person is a director or employee of director or key managerial personnel

 

4. Limit of indebt or guarantee is not mentioned and specified that any amount which may be prescribed

 

5. If person or firm has business relationship with in  the  company  or  its subsidiary,  or  of  its  holding  or  associate  company  or  a  subsidiary  of  such  holding company or associate company

 

6. Any person whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialized services

 

Note: consulting and specialized services means-

 

1. accounting and book keeping services;

2. internal audit;

3. design and implementation of any financial information system;

4. actuarial services;

5. investment advisory services;

6. investment banking services;

7. rendering of outsourced financial services;

8. management services; and

9. any other kind of services as may be prescribed

10. Any person convicted by court of offence involving fraud and 10 years has not elapsed from the date of such conviction

11. Person holding appointment as auditor of more than 20 companies.

12.Person in full time employment

 

Remuneration of Auditors [142(1)]:-

 

Remuneration shall be decided by members at a general meeting except for the remuneration of first auditor which shall be decided by board.

 

Power of Auditor [143(1) Proviso]:-

 

Auditor of holding company has the right of access to the records of all subsidiaries in so far as it relates to the consolidation of its financial statements with that of its subsidiaries

 

Duties of Auditor [143(9),(12),(13),(15) and 146]:-

 

1. Every auditor need to comply with auditing standard [143(9)].

2. Auditor shall report the fraud to the CG within prescribed time and manner and the same shall not be construed as breach of duty[143(12) & (13)]

3. If auditor fails to comply with above mentioned provisions then he shall be punishable with fee of Rs. 100,000 Rs. 500,000 [143(15)].

4. Auditor has to attend general meeting unless exempted by the company [146].

 

Eligibility of LLP's as auditors[141(2)]:-

 

LLP's can be appointed as auditors of company but only chartered accountant partners are authorized to act  and sign on behalf of firm.

 

Auditor not to render certain services [144]:-

 

Auditor cannot provide following services to the company, its holding company or its subsidiaries, or associate company:

 

1. Accounting and book keeping service; Internal audit;

2. Design and implementation of any financial information system;

3. Actuarial services;

4. Investment advisory services;

5. Investment banking services;

6. Rendering of outsourced financial services;

7. Management services; and

8. Any other kind of consultancy services.

 

Note: If auditor is providing such services before the commencement of this act then he has to comply with the above mentioned provision before the closure of the first financial year after the date of such commencement.

 


Published in Corporate Law
Source : http://www.mca.gov.in/Ministry/companies_act.html
Views : 13565
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