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Auditor's Disqualification

Sharad Saini (Student) (286 Points)

19 May 2010  


I want to know whether a auditor can grant loan to a company of which he is a statutory auditor. Will it count for disqualification under companies act or CA act


 5 Replies


in my opinion he can grant loan to a co. of which he is a auditor.

because neither co law nor institute give any disqualification on such a matter.

and as such disqualification is considered by these line if you are not able to take decision.

"the relationship between the auditor and his client should be such that

firstly he himself satisfied about his client and

secondly no unbiased person would be forced to the conclusion that on an objective assessment of the circumstances ther is likely to be an abridgment (reduction) of the auditor's independence."

hence by giving loan to the company auditor is in strong position and not in weak position , so company can not dominate auditor to reduce the level of checking or to give opinion in favour of the company.

Prejith (Pursuing CA) (92 Points)
Replied 20 May 2010

Auditor's disqualifications are mentioned in the section 226(3), 226(4), 226(5).

As per section 226(3)(iv): an auditor is disqualified from appointment if he is indebted towards the company for an amount exceeding Rs. 1000/- or has provided any security or gurantee towards an indebtedness towards the company on behalf of a third party for an amount exceeding Rs. 1000/-.


So in your example the auditor is in a stronger position. So it does not amount to a disqualificatiion.

I completely agree with Mr. Arvind.

Shudhanshu Agrawal (Business) (2570 Points)
Replied 20 May 2010

According to provisions of Companies Act, 1956 he is not disqualified. Moreover if a comany is not able to make payment to its statutory auditor then also it is a kind of liability for company . Here also there is no mistake on behalf of the auditor. So according to me also he is not disqualified.

bharti sharma (Chartered Accountant) (28 Points)
Replied 20 June 2021

i am again phrasing question

what if a person gives a loan to partnership firm/ company/ LLP and proprietorship  and earning interest on loan and later on appointed as auditor of same company ?

kindly guide if it covers under auditors disqualification  

Replied 27 September 2021

 is holding any security/interest in the company or its subsidiary or of its holding or associate company or subsidiary of such holding company. It has been further provided that an relative may hold security or interest in the company of face value not exceeding one lac rupees

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