LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

Company audit

Rahul Toshniwal (Student CA Final ) (27 Points)

28 November 2012

Section 226 of the Co.s Act'56 disqualifies the Auditor for being indebted to its client for an amt exceeding Rs. 1000;but what if the client is indebted to the auditor for any "x" amt and for "y" no. of years...????will dis also amt to disqualificatn?

Reply
Follow
Share

6 Replies

Lalatendu Bal (CA) (49 Points)
Replied 28 November 2012

no it will not be so.

the concept of Rs 1000 is framed in a manner that if an auditor is indebted to a co for a sum then it may impair his independence while carrying out the audit work so he debbared from being appointed as auditor.

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 03 December 2012

Yes, it would definitely attract disqualification of the auditor. Say if the audit fees payable to the auditor is remaining outstanding for more than 1000Rs, then in this case the client is indebted to teh auditor. So this would attract disqualification. However the council of the institite has opined that if teh auditor recovers his fees on progressive basis without completing hte audit, then he shall not be said to be indebted & would not attract diaqualification.

So teh indebtness attracts both way, the auditor is indebted to the company & vice-versa.

Harish (CA Student) (568 Points)
Replied 08 March 2013

I Agree with Mr. Giridhar.

Pawan Mittal (CA Final) (702 Points)
Replied 08 March 2013

No, Mr. Giridhar and Mr. Harish both are totally wrong. Section 226 emphasizes on independence of auditor so the auditor should not be indebted to the company.

If the company is indebted to the auditor in that case the auditor is not disqualified.

Because in many cases in the real world the audit fees remains outstanding for many years still the same auditor continues to do the audit of the same company.

CA Deepak Rathore (EXPERT) (281 Points)
Replied 12 March 2013

226(3)(d)

None of the following persons shall be qualified for appointment as auditor of a company-

a person who is indebted to the company for an amount exceeding one thousand rupees, or who, has given any guarantee or provided any security in connection with the indebtedness of any third person to the company for an amount exceeding one thousand rupees;

So, there is no logic of disqualification

Nakul Sharma (CA FINAL) (35 Points)
Replied 12 March 2013

The reason why such clause has been remaining in law is that , independence of auditor impairs while he's indebted to the company. It is however important to note that, once a new auditor has been appointed and audit fees payable of previous year is still outstanding in the books (for cases other than a sick PSU) , then the incoming auditor should not accept such appointment.