Auditor appointment

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SUDHANSHU (Querist)

06 September 2012 Sir,
Please help me,A ca in practice can be appointed or not as auditor of a company in which his brother is a dorector as well as shareholder?

CA Ghanshyam Joshi

CA Ghanshyam Joshi (Expert)

14 September 2012 It is, however, clear that there is no prohibition on a relative of a director or a partner of such relative to be appointed as an auditor. The provisions of Section 297(1) would also not apply to the appointment of such a person as an auditor because an audit is in the nature of rendering personal service obtained not on the basis of the lowest tender but on account of professional expertise irrespective of cost involved. However, the appointment of an auditor who is a relative of a director or a firm of auditors in which a director of the company or his relative is a partner would be an office of profit under Section 314 requiring the consent of the company by a special resolution, if the total monthly remuneration exceeds prescribed limits (Section 314). Prior consent of the company and approval of Central Government (Company Law Board) would also be required in appropriate cases.

CA Ghanshyam Joshi

CA Ghanshyam Joshi (Expert)

14 September 2012 Moreover, a chartered accountant in
practice shall be deemed to be guilty of professional misconduct under the Chartered
Accountants Act, 1949 if he expresses his opinion on the financial statements of any
enterprise, in which he, his firm or a partner in his firm or any of his relatives have a substantial interest, unless he discloses the interest also in his report. The term “relatives” is to be construed with reference to Section 6 of the Companies Act. Similarly, the expression “substantial interest” is to have the same meaning as is assigned thereto under Explanation 3 to Section 13 of the Income Tax Act, 1961.

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