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CA Gagan Anand (Chartered Accountant) (47 Points)

12 April 2010

Hello Friends

This is the question which i was being asked in one of the recent inteviews i faced. Please clarify that what would be the most appropriate answer to it.

Question was
Why do the companies required to have their accounts audited by an Auditor ?
Which Section or Provision of the Companies Act 1956 puts a liability on the Comapnies to have Statutory Audits ?

Your valuable comments are welcome...

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10 Replies

CourseCart.in (Mentor at SHAYVIDZ Academy) (3756 Points)
Replied 13 April 2010

UNAUDITED ACCOUNTS CANNOT BE FILED :-

Sec 216 requires that auditor's report shall be attached to Balance Sheet.

Sec 218 imposes penalty if auditor's report is not attached with Balance Sheet.

Sec 219 requires that auditor's report shall be circulated to members alongwith Balance Sheet.

Sec 220 requires that auditor's report shall be filed with ROC alongwith Balance Sheet.

These sections put a liability on the Companies registered under Companies Act, 1956, to have Statutory Audit.

Further,

Sec 226 says the Qualifications & Disqualification of Auditor i.e. Auditor for Statutory Audit of Company.

Jagruti (CS) (Service) (1953 Points)
Replied 13 April 2010

Also Section 224 states the complusory appointment of Auditor by the Company within stipulated time period else Central Governtment shall appoint the same.

Thus, appointing auditor and thereby getting Account audited is mandatory for every Company

Ansari (ca final) (444 Points)
Replied 13 April 2010

Originally posted by : Adarsh
	UNAUDITED ACCOUNTS CANNOT BE FILED :- Sec 216 requires that auditor's report shall be attached to Balance Sheet. Sec 218 imposes penalty if auditor's report is not attached with Balance Sheet. Sec 219 requires that auditor's report shall be circulated to members alongwith Balance Sheet. Sec 220 requires that auditor's report shall be filed with ROC alongwith Balance Sheet. These sections put a liability on the Companies registered under Companies Act, 1956, to have Statutory Audit. Further, Sec 226 says the Qualifications & Disqualification of Auditor i.e. Auditor for Statutory Audit of Company.

CA Gagan Anand (Chartered Accountant) (47 Points)
Replied 13 April 2010

I agree with you my friends.

But i had also answered the same sections that u/s 224 a company is liable to appoint an auditor, then there is auditor's duties defined u/s 227 which he has to perform. Also we have to file Annual Accounts to the ROC within 60 days of AGM and it has to be filed along with auditor's report as per sec 220.

But the interviewer still persistently asked that please provide me with a specific provision or section of the Companies Act which incurrs a liability on the Companies to have Statutory Audits. Also he sai that the provisions i had quoted were all supportive or incidental provisions because they do not put any specific liability of conducting a statutory audit.

So my friends the question remains unsolved.....

Whether there is any section which directly states that a company has to get its accounts audited........?

Max Payne (employed) (2569 Points)
Replied 13 April 2010

Dear Sir,

I feel that 224 and 227(2) read together produce the desired effect.

Every company should appoint an auditor,

and auditor provides his report on the basis of his examination of records for every period during which he holds office.

I think its 227 certainly. If auditor has to provide his report, then surely the company has to get its books audited?

And what is audit but an independent examination of financial records to express an opinion thereon?

But i think, if he was persistent, you could have just said that you have to look it up and you should have asked the interviewer what the correct answer is.... By the way what is the correct answer? Anyone?

J. Manivannan (Advocate & IP) (242 Points)
Replied 13 April 2010

Dear Mr. CA.GAGAN ANAND

Excerpts from an article relating to audit under Companies Act, 1956 wrote by Mrs.Ruchika Jain A.C.S., M.Com.

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 specialized 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. It is because of this law demands for skill full and independent auditor, who is appointed by the shareholders of the company so that they are reported by a reliable person.
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.

CourseCart.in (Mentor at SHAYVIDZ Academy) (3756 Points)
Replied 13 April 2010

Originally posted by : CA Gagan Anand
	I agree with you my friends. But i had also answered the same sections that u/s 224 a company is liable to appoint an auditor, then there is auditor's duties defined u/s 227 which he has to perform. Also we have to file Annual Accounts to the ROC within 60 days of AGM and it has to be filed along with auditor's report as per sec 220. But the interviewer still persistently asked that please provide me with a specific provision or section of the Companies Act which incurrs a liability on the Companies to have Statutory Audits. Also he sai that the provisions i had quoted were all supportive or incidental provisions because they do not put any specific liability of conducting a statutory audit. So my friends the question remains unsolved..... Whether there is any section which directly states that a company has to get its accounts audited........?

Dear Gagan,

Interviewer had just checked ur confidence level..

CA Gagan Anand (Chartered Accountant) (47 Points)
Replied 14 April 2010

@ Adarsh - Yes u are right ..he was checking my confidence level.....

Beacuse even after lots of searchin i've not came across a single section which states that the Company is liable to have Statutory Audits.

Thanks Guys for taking active part in this discussion......

Regards

CA Gagan Anand

CourseCart.in (Mentor at SHAYVIDZ Academy) (3756 Points)
Replied 15 April 2010

Originally posted by : CA Gagan Anand
	@ Adarsh - Yes u are right ..he was checking my confidence level..... Beacuse even after lots of searchin i've not came across a single section which states that the Company is liable to have Statutory Audits. Thanks Guys for taking active part in this discussion...... Regards CA Gagan Anand