31 December 2010
Audit of Annual Accounts of a company is compulsory and is indispensable part of incorporated business. Those who carry on business with the other people’s money have to be accountable to the so-called owners. Management and accountancy demands specialised skill. Shareholders are generally laymen. Thus there arises a need of an agency to stand in between the shareholders and management. The agency, viz., statutory auditors, should be technically qualified for the job and should be independent, and able to withstand the pressure of management.
Section 224 (1) of the Companies Act, 1956 states that every company whether it is public or private limited shall have an auditor to audit its accounts. The appointment of auditor is mandatory in the Annual General Meeting for the ensuing year. The Auditors appointed at the Annual General Meeting hold the office from the conclusion of the Annual General Meeting at which he is appointed until the conclusion of the next Annual General Meeting. Thus, the Act seeks to ensure that the appointment of auditors is not in the hands of the directors and is vested in the general body of shareholders. However, the first auditors of the Company are appointed by the Board of Directors within one month from the date of incorporation of a company. The auditors, so appointed, hold the office until the conclusion of the first annual general meeting of the Company. If the Board fails to appoint the first auditor, the company may do so at a general meeting.
The first proviso of Section 224 (5) of the Companies Act, 1956, states that the company may, at a general meeting, remove the first auditor appointed by the board and appoint in its place other auditor of whose nomination a special notice has been given.
As the auditor is appointed from the conclusion of one annual general meeting until the conclusion of the next annual general meeting, the auditor shall not cease to hold the office in case the next annual general meeting is not held in each calendar year as required by Section 166 of the Companies Act, 1956. Thus, he will continue in office until the next annual general meeting is actually held and concluded. He cannot be deemed to have retired on the date when the meeting ought to have been held.
31 December 2010
MAXIMUM NUMBER OF COMPANIES FOR AN AUDITOR Section 224 (1B) places a ceiling on the number of audits of public companies which a Chartered Accountant not in full time employment, or a firm of Chartered Accountants, can conduct.
(a) A person can be appointed as an auditor, who is not in full-time employment elsewhere, of a maximum of 20 companies as described below (b) Where some companies have paid-up capital of or more than 25 Lacs, a person can be appointed as auditor of only 20 companies out of which not more than 10 companies can have paid up capital of or exceeding Rs. 25 Lacs. (c) In a firm of auditors, total number of 20 companies shall be for every partner of the firm who is not in full-time employment elsewhere.
As per the fourth proviso added to sub-section (1B) by the Companies (Amendment) Act, 2000, private companies have been excluded from the existing ceiling of 20 audits per partner and sub-ceiling of 10 audits for companies having a paid up capital of Rs. 25 Lacs or more. Thus, apart from 20 audits of public companies, an auditor may conduct audit of private companies without any ceiling.
CONFIRMATION FROM AUDITOR Before a company makes an appointment or reappointment of an auditor, a written certificate has to be obtained from the person concerned stating that the appointment or reappointment, if made, will be within the limits specified above.
NOTICE TO THE AUDITOR AND INTIMATION BY THE AUDITOR After appointment/reappointment of an auditor at the annual general meeting, the company shall give intimation to the auditor, so appointed within seven days thereof. On receipt of the intimation from the company, the auditor shall submit a return to the Registrar of Companies within 30 days of the receipt of the intimation, informing the Registrar whether he has accepted or refused to accept the appointment, in Form No. 23B as prescribed by Companies (Central Government’s) General Rules and Forms, 1956. However, the first auditors are under no obligation to inform the Registrar.
31 December 2010
REAPPOINTMENT OF AUDITORS At every Annual General Meeting, a retiring auditor shall be reappointed unless:- (a) he is not qualified for re-appointment; (b) He has given the company notice, in writing, of his unwillingness to continue as auditor; (c) A resolution has been passed at an annual general meeting appointing somebody or stating that he shall not be reappointed.
Section 224(3) of the Companies Act, 1956 provides that where at an annual general meeting no auditors are appointed or re-appointed, the Central Government may appoint a person to fill the vacancy. For this purpose, an application has to be made by the company to the Regional Director (to whom the powers have been delegated), within 7 days of the conclusion of the meeting, for appointment of an auditor and fixing his remuneration.
CASUAL VACANCY [Section 224 (6)(a)] A casual vacancy is a vacancy of a temporary nature that may occur during the currency of the year after the appointment is made by the company at its general meeting. The auditor appointed in a casual vacancy shall hold office till the conclusion of the next annual general meeting. If the casual vacancy arises, the remaining auditors, if any, will continue to act as the auditors of the company. Where the casual vacancy arises due to death or disqualification, the Board of Directors may appoint another auditor. But where the casual vacancy is caused by resignation of an auditor, the Board cannot fill up the casual vacancy but the vacancy so caused by resignation, shall be filled by the company in general meeting.
RESIGNATION OF AUDITOR An auditor may resign before his term of office expires by depositing a notice in writing to that effect at the company’s registered office. His resignation becomes effective on the date he lodges such notice or on such later date as may be specified in the notice.
RETIRING AUDITOR CANNOT BE REMOVED BY THE BOARD [Section 224(7)] The Board of Directors of the Company has no power to remove an auditor appointed by the company in general meeting, i.e., the auditors can be removed only by the company in general meeting and prior approval from the Central Government is also necessary for such removal of the auditors.
REMUNERATION OF AUDITORS [Section 224(8)] The Board fixes the remuneration of the First Auditors. Where the auditor is appointed or re-appointed by the general meeting, the remuneration is fixed by the general meeting, or it may be fixed in any manner as determined by a general meeting. Where Central Government is approached for appointing the auditor, the Government fixes the remuneration.(This power of the Central Government is delegated to the Regional Director) The remuneration fixed for an auditor is inclusive of all expenses allowed to him so that he cannot claim any amount additional to the remuneration fixed either as expenses or otherwise.
SPECIAL RESOLUTION FOR APPOINTMENT OF AUDITOR [Section 224A] This Section provides for appointment or reappointment of auditors at an annual general meeting by a special resolution when 25% or more of the subscribed share capital of the company is held jointly or singly by a public financial institution, a Government company, Central Government, any State Government, any institution established by a State Act in which the State Government holds not less than 51% of the subscribed share capital, a nationalised bank or an insurance company. Certified copy of the special resolution so passed shall be filed with the Registrar within 30 days of passing, in Form No. 23. It is also to be noted that, if, after notice of the annual general meeting is issued in the usual course and before the holding of meeting, it happens that the holdings of the public financial institutions have reached 25% of the total subscribed share capital, then the meeting has to be adjourned and after issuing notice under this section, necessary special resolution is to be passed for appointing the auditor(s).
CAclubindia
