BACKGROUND:
Many professionals have been raising question on interpretation/ procedure for appointment of branch auditor or audit of branch under Companies Act, 2013:-
Situation:
As per Companies Act, Every company shall prepare and keep at its registered office books of account and other relevant books and papers and financial statement for every financial year which gives a true and fair view of the state of the affairs of the company, including that of its branch office or office.
Branch Office: Section 2 (14) 'branch office', in relation to a company, means any establishment described as such by the company.
Statutory Provisions:
As per Section 143(8): Where a company has a branch office, the accounts of that office shall be audited either by
- The company's auditor; or
- Any other person, qualified to be and appointed as an auditor as per the provisions of the Act to act as branch auditor under section 139.
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.
Duty of Branch Auditor is to prepare a report on the accounts of the branch examined by him and send it to the [1]statutory auditor of the company who shall deal with it in his report in such manner as he considers necessary.
Question:
i. If Statutory auditor itself doing audit of the Branch office then Whether there is need pass resolution separately for his appointment as auditor of Branch?
ii. If statutory auditor is different from the branch auditor then what will be the process of appointment of branch auditor.
Let's first discuss the questions:
If Statutory auditor itself doing audit of the Branch office then Whether there is need pass resolution separately for his appointment as auditor of Branch? Some people have confusion in such situation for passing of separate resolution and filing of separate from for appointment of branch auditor.
Statutory Provisions Contained Under the Act:
As per provision of Companies Act, 2013 Section 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.
As per section 143(3) The auditor's report shall also state -
- 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
- 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
LITERAL RULE OF INTERPRETATION
Before we discuss this issue at length, it may be mentioned in this connection that the first and foremost principle of interpretation of a statute in every system of interpretation is the literal rule of interpretation. The other rules of interpretation e.g. the mischief rule, purposive interpretation etc. can only be resorted to when the plain words of a statute are ambiguous or lead to no intelligible results or if read literally would nullify the very object of the statute. Where the words of a statute are absolutely clear and unambiguous, recourse cannot be had to the principles of interpretation other than the literal rule.
The literal rule of interpretation is not only followed by Judges and lawyers, but it is also followed by the lay man in his ordinary life. To give an illustration, if a person says "this is a pencil", then he means that it is a pencil; and it is not that when he says that the object is a pencil, he means that it is a horse, donkey or an elephant. In other words, the literal rule of interpretation simply means that we mean what we say and we say what we mean. If we do not follow the literal rule of interpretation, social life will become impossible, and we will not understand each other. If we say that a certain object is a book, then we mean it is a book. If we say it is a book, but we mean it is a horse, table or an elephant, then we will not be able to communicate with each other. Life will become impossible. Hence, the meaning of the literal rule of interpretation is simply that we mean what we say and we say what we mean.[2]
Interpretation Note:
As per power/duties of auditor u/s 143, It can be interpreted that it is the general duty of the statutory auditor of the Company to access at all times to the books of account and vouchers of the company, records of the company whether kept at the registered office of the company or any other place including branch office. The auditor shall make a report to the members of the company on the accounts examined by him and on every financial statement. It is the duty of the auditor to ensure to the stake holders that 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.
Further, he has to check the financial statements prepared by the management and have to prepare its report on the basis of such financials. Financial statement will definitely include the reporting of all the offices/ branches of the Company. Auditor has to audit financial statement of the Company and give his report on the basis of such report.
Conclusion
Hence, considering the provisions of Section 143 one can opine that it is duty of the statutory auditor of the Company to do audit of the Branch office of the Company if there is no separate auditor is appointed by the company for branch office. It is part and parcel of the duty of the statutory auditor to include all the office of the company for its audit.
Any other opinion is also welcome for further clarity of the provision of the Companies Act.
Thus, here can opine that there is no need to pass separate resolution and to file any separate form to get audit of branch office of the company by the branch auditor.
Let's discuss the questions:
If statutory auditor is different from the branch auditor then what will be the process of appointment of branch auditor? Some people have confusion in such situation for appointment of Branch Auditor.
Statutory Provisions Contained Under the Act:
As per provision of Companies Act, 2013 Section 143(8): Where a company has a branch office, the accounts of that office shall be audited either by
- The company's auditor; or
- Any other person, qualified to be and appointed as an auditor as per the provisions of the Act to act and appointed as such under section 139.
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 i.e. right of access to books of accounts, ensure about the mandatory books of accounts maintained, prepare auditors' report and state the reasons of qualification in report, if any etc
The provisions of sub-section (12) of section 143 read with rule 12 hereunder regarding reporting of fraud by the auditor shall also extend to such branch auditor to the extent it relates to the concerned branch.
Interpretation Note:
If we have gone through the provisions mentioned above, It is clearly mentioned that. If company appointed a separate auditor as branch auditor to audit the branch office of the Company then such appointment will be as per section 139 (Appointment of Auditor). Provisions of 139 applicable on the statutory auditor are same applicable on the branch auditor.
Conclusion
Hence, considering the provisions of Section 143(8) one can opine that all the provisions of section 139 relating to appointment of statutory auditor are applicable on Branch Auditor also.
Thus, here can opine that there is no separate process for appointment of branch auditor. Whatever process we follow for statutory auditor appointment will be applicable on the branch auditor
Any other opinion is also welcome for further clarity of the provision of the Companies Act.
[1] As per Section 143(3) The Auditor's report shall also state 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;
[2] B. Premanand and Ors.Vs. Mohan Koikal and Ors. (SC 2011) MANU/SC/0249/2011 –Para 33.
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