Doubt-Appointment of auditor when he is indebted

According to Sec.226(3)(d),A person who is indebted to the company for an amount exceeding Rs.1,000 or who has given any guarantee of any third person to the company for an amount exeeding Rs.1000 shall not be qualified for appointment as an auditor of company.

According to 'Council General Guidelines,2008',A member of the institute in practice or a firm shall not accept appointment as auditor of a concern while indebted to the concern or given any guarantee or provided any security in connection with the indebtness of any third person to the concern,for limits fixed in the statute and in other cases for amount exceeding Rs.10,000/-

My Q. is that u/s 226(3),the amt.of indebtness is Rs.1,000 for disqualification and under "Council General Guidelines,2008", the amt. of indebtness is Rs.10,000.Why this difference?How should it be dealt?Please reply.

Dear Jagruti,

Look one thing is certain that idea is to protect the independence of the Auditor.

Now one reason to have different limits is the two authorities who have fixed these limits are not same one is MCA & the other is ICAI or what else could be the reasons is two provisions were enacted at different points of time & monetary limits are generally fixed as per the circumstances prevailing at the time of enacment.

But the major or the driving factor is to protect independence without creating hurdles in implementing the law.

Now corporates have a major role to play I mean if for a moment u focus on a public company only then i:e the limit should be as low as Rs 1000 bcos public at large is interested in companies & has invested their money so these provisions should be as stringent as it is now in order to safeguard their interest especially in the light of limited liability in case of corporates.

On the other hand Partnership, etc they cannot accept capital other than their partners, so a little higher amount of indebtness is sufficient to adequately safeguard the independence of the auditor.

But now question is then why we have limit of Rs. 1,000 for Private companies?? Well I would say its just that law maker made this thing harmonious with that of Public companies + here also liability is limited..

Interesting to see whether these guidelines would apply to LLP or not??? As of now I have no clue..

If still u r not satisfied then pls ask....