There is a huge tremendous Change in new Provisions under the Companies Act, 2013 with respect to Auditors as compared to the old Companies Act, 1956. The new Act intents to improve Corporate Governance and to further strengthen regulations. The responsibilities of Auditors has become cumbersome. The Auditors should be very careful in their work. They cannot simply rely upon their juniors. Lot of responsibilities imposed under the Act & Rules. From the perusal of the provisions with respect to Auditors, it clearly reveals that, Auditor should not listen to management advice during the finalization of accounts and it should be purely independent finalization and Financial statement should reflect true and fair view of the business otherwise auditor is held responsible.
ELIGIBILITY, QUALIFICATIONS & DISQUALIFICATIONS OF AUDITOR
• Only a Chartered Accountant or a firm where majority of partners practicing in India are Chartered Accountants can be appointed as auditor.
• Where a firm including a limited liability partnership is appointed as an auditor of a company, only the partners who are chartered accountants shall be authorized to act and sign on behalf of the firm.
• The following persons shall not be eligible for appointment as an auditor of a company, namely:
• A body corporate, except LLP.
• An officer or employee of the company;
• Any partner/employee of officer or employee of company
• A person who himself or his partner is holding security or interest in a company, or any company which is its holding, subsidiary, associate or fellow subsidiary.
• A person whose relative is holding security or interest not exceeding Rs. One Lac face value in companies as mentioned above.
• 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 fellow subsidiary.
• A person whose relative is a director or is in the employment of the company as a director or key managerial personnel
• A person who is in full time employment elsewhere
• Person who is auditor of more than 20 companies.
• 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.
• 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 as provided in section 144.
Auditor not to render following services to company, holding company or subsidiary company, directly or indirectly:
(a) accounting and book keeping services;
(b) internal audit;
(c) design and implementation of any financial information system;
(d) actuarial services;
(e) investment advisory services;
(f) investment banking services;
(g) rendering of outsourced financial services;
(h) management services; and
(i) any other kind of services as may be prescribed.
TERM OF APPOINTMENT OF AUDITOR
OPC and Small Company – Same Auditor can be re-appointed every five years.
Listed Companies and Companies other than OPC and Small Company –
i. Individual – One term of 5 consecutive years. Can be re-appointed after cooling off period of 5 years
ii. Firm of Auditors – Two terms of 5 consecutive years. Can be re-appointed after cooling off period of 5 years
DOCUMENTS TO BE OBTAINED FROM AUDITOR BEFORE APPOINTMENT
• Consent letter to act as auditor
• Certificate confirming following particulars:- He or it is eligible for appointment and is not disqualified for appointment under the Act, the Chartered Accountants Act, 1949 and Rules and Regulations made therein. - The proposed appointment is within the term allowed under the Act. - The proposed appointment is within the limit laid down in the Act.
ROTATION OF AUDITORS
• Members can provide for following by passing a resolution:
(a) In the audit firm appointed by it, the auditing partner and his team shall be rotated at such intervals as may be resolved by members; or
(b) The audit shall be conducted by more than one auditor.
• Rotation on expiry of term: Same procedure as appointment.
• For the purpose of rotation, the period for which the auditor is holding office prior to the commencement of this act will also be counted in calculating the period of 5 years or 10 years as the case may be.
• Where a company has appointed two or more persons as joint auditors, the company shall follow the rotation of auditors in such a manner that all of the joint auditors do not complete their term in the same year.
LIMIT ON NUMBER OF COMPANIES FOR APPOINTMENT OF AUDITOR
• An individual or partner of an audit firm cannot be appointed as an auditor in more than twenty companies.
REMUNERATION OF AUDITOR
Remuneration of auditors. Board may fix remuneration of the first auditor appointed Remuneration of the auditor of a company shall be fixed in its general meeting.
REAPPOINTMENT OF RETIRING AUDITOR
• Subject to the maximum tenure of appointment, a retiring auditor can be re-appointed if— - He is not disqualified for re-appointment; - He has not given the company a notice in writing of his unwillingness to be reappointed - A special resolution has not been passed at that meeting appointing some other auditor or providing expressly that he shall not be re-appointed.
• Where at any annual general meeting, no auditor is appointed or re-appointed, the existing auditor shall continue to be the auditor of the company.
REMOVAL OF AUDITOR BEFORE TERM
• Special Resolution to be passed by company for removal of auditor.
• Application to be filed with Central Government in form no. 10.1 within 30 days of passing special resolution.
• The application shall be accompanied by such fees as specified.
• The auditor concerned shall be given a reasonable opportunity of being heard.
RESIGNATION OF AUDITOR
• Auditor to file statement in form 10.2 within 30 days of resignation giving reasons and other facts for resignation.
• Statement to be filed with ROC and Company.
• If the auditor does not comply with above provisions, he or it shall be punishable with fine which shall not be less than Rs. 50,000/- but which may extend to Rs. 5,00,000/-.
APPOINTMENT OF AUDITOR OTHER THAN RETIRING AUDITOR
• Special notice required for appointment of auditor other than retiring auditor except in case where term has got over.
• On receipt of special notice, company to send notice to retiring auditor.
• Retiring auditor can make representation which needs to be circulated to members.
SIGN AUDIT REPORTS
Auditor shall sign the auditor’s report. Any qualifications, observations or comments on financial transactions matters, which have any adverse effect on the functioning of the company mentioned in the auditor’s report shall be read before the company in general meeting and shall be open to inspection by any member of the company.
PUNISHMENT FOR CONTRAVENTION
If an auditor of a company contravenes any of the provisions of section 139 section 143, section 144 or section 145, the auditor shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extent to five lac rupees. if an auditor has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or creditors or to authorities, he shall be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than one lac rupees b which may extend to twenty-five lac rupees.
Conclusion Role and responsibilities of the Professionals have got amplified in the Act & Draft Rules. Punishment and penalties are huge.... apart from the ICAI Disciplinary committee, there will be a NFRA. One thing is very clear that, we should act in our own and no one should influence us otherwise we have to face the consequences.