Qualifications and Disqualification of the Auditor

An auditor is a person authorized to verify and review the accuracy of financial records and ensure that companies comply with tax laws.

There are certain criteria set for a person to be appointed as an auditor of the company. The same is discussed in this article. Read on to know more.

Qualifications for Appointment as the Auditor

A person in order to be appointed as the auditor should meet the following qualifications-

1. A person shall be a Chartered Accountant.
2. A firm where majority of the partners practising in India are qualified for appointment may be appointed by its firm name to be the auditor of the company.
3. In case of an LLP, only those partners who are Chartered Accountants shall be authorized to act and sign on behalf of the firm.

Disqualifications of Auditor

The following persons are not eligible to be appointed as the auditor-

1. A body corporate except an LLP registered under Limited Liability Act,2008.

2. An employee or officer of the company.

3. A person who is a partner or who is in employment of an officer or employee of the company.

4. A person who or his relative or partner is having interest or holding security in a company.

However, a relative can hold security or interest in a company not exceeding the face value of Rs. 1,000 or Rs. 1,00,000 as prescribed by the rules. In case the amount of security or interest held by a relative exceeds the threshold limits, a corrective action shall be taken by the auditor to maintain the limits, within 60 days from the date of such acquisition or interest.

5. A person who or his relative or partner has indebted to a company or its holding or its subsidiary or an associate company or a subsidiary of such holding company for an amount exceeding Rs. 5,00,000.

6. A person who or his relative or partner has given guarantee to the indebtedness of any third party to the company or its holding or its subsidiary or an associate company or a subsidiary of such holding company for an amount exceeding Rs. 1,00,000.

7. A person or a firm who, whether directly or indirectly has any business relationship with the company or its holding or its subsidiary or an associate company or a subsidiary of such holding company.

However, the commercial transactions in the nature of professional services permitted to be rendered an auditor or an audit firm under Chartered Accountants Act, 1949 and the rules and regulations made thereunder and the commercial transactions which are made in the ordinary course of business of the company at an arm’s length price shall not be considered as business relationship.

8. A person whose Relative is a director or is in employment of the company as director or Key Managerial Personnel of the company.

9. A person who is full-time employed elsewhere.

10. A person who is convicted of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction.

11. A person who directly or indirectly renders any service referred to in section 144 of the Companies Act, 2013 to the company or its holding company or its subsidiary Company.

The following services are covered under section 144 of the Companies Act, 2013

• Accounting and Bookkeeping Services
• Internal audit
• Design and Implementation of any financial information system
• Actuarial Services
• Investment Advisory services
• Investment Banking Services
• Rendering of Outsourced Financial Services
• Management Services and
• Any other services as may be prescribed

If a person attains any of the above-discussed disqualifications after being appointed as an auditor of the company, then, such person shall vacate his office as an auditor immediately.

The vacancy arising due to such vacation shall be considered a casual vacancy.