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This file contains charts of Auditor topic for full charts of CA Final COMPANY LAW & ALLIED LAW VISIT - www.lawcharts.in #pdf
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Visit : www.lawcharts.in Page 30 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 1 Visit : www.lawcharts.in Page 31 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 2 Visit : www.lawcharts.in Page 32 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 3 Visit : www.lawcharts.in Page 33 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 4 Visit : www.lawcharts.in Page 34 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 5 Visit : www.lawcharts.in Page 35 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 6 Visit : www.lawcharts.in Page 36 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 7 Visit : www.lawcharts.in Page 37 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 8 Visit : www.lawcharts.in Page 38 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 9 Visit : www.lawcharts.in Page 39 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 10 Visit : www.lawcharts.in Page 40 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 11 Lawcharts.inCompanies (Audit and Auditors) Amendment Rules, 2015. 1. (1) These rules may be called the Companies (Audit and Auditors) Amendment Rules, 2015. (i) For rule 13, the following rule shall be substituted, namely:- “13. Reporting of frauds by auditor and other matters: 1.If anauditor of a company, in the course of the performance of his dutiesas statutory auditor, hasreason to believethat an offence of fraud, which involves or is expected to involve individually an amount of rupeesone crore or above, is being or has been committed against the company by its officers or employees, the auditor shall report the matter to the Central Government. 2.The auditor shall report the matter to the Central Government as under:- a)the auditor shall report the matter to the Board or the Audit Committee, as the case may be, immediatelybut not later than two daysof his knowledge of the fraud, seeking their reply or observationswithin forty-five days; b)on receipt of such reply or observations, the auditor shall forward his report and the reply or observations of the Board or the Audit Committee along with his comments (on such reply or observations of the Board or the Audit Committee)to the Central Government within fifteen days from the date of receiptof such reply or observations; c)in case theauditor fails to get any reply or observations from the Boardor the Audit Committee within the stipulated period offorty- five days, he shall forward his report to the Central Government along with a note containing the details of his report that was earlier forwarded to the Board or the Audit Committee for which he has not received any reply or observations; d)the report shall be sent to the Secretary, MCAin a sealed cover by Registered Post withAcknowledgement Due or by Speed Post followed by an e-mail in confirmation of the same; e)the report shall be on the letter-head of the auditor containing postal address, e-mail address and contact telephone number or mobile number and be signed by the auditor with his seal and shall indicate his Membership Number; and f)The report shall be in the form of a statement as specified inForm ADT-4. 3.In case of a fraud involving lesser than the amount specified in sub- rule (1), the auditor shall report the matter to Audit Committee constituted under section 177 or to the Board immediately but not later than two days of his knowledge of the fraud and he shall report the matter specifying the following:- (a) Nature of Fraud with description; (b) Approximateamount involved; and Visit : www.lawcharts.in Page 41 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 12 Lawcharts.inCompanies (Audit and Auditors) Amendment Rules, 2015. (c) Parties involved. 4.The following details of each of the fraud reported to the Audit Committee or the Board under sub-rule (3) during the year shall be disclosed in the Board’s Report:- (a) Nature of Fraud with description; (b) Approximate Amount involved; (c) Parties involved, if remedial action not taken; and (d) Remedial actions taken. 5.The provision of this rule shall also apply, mutatis mutandis, to a Cost Auditor and a Secretarial Auditor during the performance of his duties under section 148 and section 204 respectively. Visit : www.lawcharts.in Page 42 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 13 Visit : www.lawcharts.in Page 43 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 14 Visit : www.lawcharts.in Page 44 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 15 Lawcharts.inAuditors–(139 to 148 ) Q.1State the procedure for the following, explaining the relevant provisions of the Companies Act,2013: i.Appointment of First Auditor, when the Board of directors did not appoint the First Auditor within one month from the date of registration of thecompany. ii.Removal of Statutory Auditor (appointed in last Annual General Meeting) before the expiry of his term. Hint– i.Refer Sec 139(6) ii.Sec 140 Q.2.Explain how the auditor will be appointed in the following cases: i.A Government Company within the meaning of section 394 of the Companies Act, 2013. ii.The Auditor of the company (other than government company) has resigned on 31stDecember, 2013, while the Financial year of the company ends on 31st March, 2014. iii.A company, whose shareholders include the following: a)Bank of Baroda (A Nationalized Bank) holding 12% of the subscribed capital in the company. b)National Insurance Company Limited (carrying on General Insurance Business) holding 10% of the subscribed capital in the company. c)Maharashtra State Financial Corporation (A Public Financial Institution) holding 8% of the subscribed capital in the company. Ans-The appointment and re-appointment of auditor of a Government Company or agovernment controlled company is governed by the provisions of section 139 of theCompanies Act, 2013 which are summarized as under: The first auditor shall be appointed by the Comptroller and Auditor General of India within60 days from the date of incorporation and in case of failure to do so, the Board shallappoint auditor within next30 days and on failure to do so by Board of Directors, it shallinform the members, who shall appoint the auditor within 60 days at an extraordinarygeneral meeting (EGM), such auditor shall hold office till conclusion of first Annual General Meeting. Incase of subsequent auditor for existing government companies, the Comptroller &Auditor General of India shall appoint the auditor within a period of 180 days from thecommencement of the financial year and the auditor so appointed shall hold his positiontill the conclusion of the Annual General Meeting. (ii) The situation as stated in the question relates to the creation of a casual vacancy in theoffice of an auditor due to resignation of the auditor before the AGM in case of acompany other government company. Under section 139 (8)(i) any casual vacancy in theoffice of an auditor arising as a result of his resignation, such vacancy can be filled by theBoard of Directors within thirty days thereof and in addition the appointment of the newauditor shallalso be approved by the company at a general meeting convened withinthree months of the recommendation of the Board and he shall hold the office till theconclusion of the next annual general meeting. (iii) The Companies Act, 2013 categorizes companiesinto government companies and nonGovernment Companies and lists down the provisions Visit : www.lawcharts.in Page 45 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 16 Lawcharts.inAuditors–(139 to 148 ) relating to appointment, ofauditors as per this classification. Hence, in the given case as the total shareholding ofthe three institutions adds up to 30% of the subscribed capital of the company it is not agovernment company also not a deemed Government company. Hence, the provisions applicable to non-government companies in relation to the appointment of auditors shallapply. Q.3What is the liability of an auditor forfailure to point out in his report that dividend is paid out of capital?(CA May, 2003) Answer:An auditor who is party to such payment of improper dividend is liable to proceedings by action. In caseof winding up, he is liable to misfeasance.As per Section 147 of Companies Act, 2013, for non- complying duty, auditor is liable for punishment withfine of not less than Rs. 25,000 and not more than Rs. 5 Lakhs. If auditor has contravened any provisionswith knowledge or to deceive shareholders or creditorsor tax authorities, he is punishable withimprisonment upto 1 year and fine which is not less than Rs. 1,00,000 but not more than Rs. 25 Lakhs. In addition, auditor is liable to: Refund the remuneration received from company and Pay for damages to companyor authorities or other person because of incorrect or misleadingstatement in his audit report. Q.4Can an auditor be disqualified for indebtedness in the following cases? (a) Where he is recovering his fees on a progressive basis even though the job isnot complete. (b) Where the auditor's firm has purchased goods from the auditee company and not paid for them for over six months.(CA MAY 2003) Answer a)The Auditor cannot be said to be indebted as per Section 141 of Companies Act, 2013 when he isreceivinghis fees on progressive basis even though the job is not complete. Moreover person who is proposed to be appointed as auditor can be indebted to company or its subsidiary or holdingcompany or its associate company for not more than Rs 5 Lakh b)In this casethe auditor of the company is said to be indebted, if the amount outstanding from himregarding goods and services purchase from the company audited by him exceeds Rs. 5 Lakh- irrespective of the nature of purchase or period of credit allowed to other customerupto Rs. 5 Lakhindebtnes is allowed Q.5How would you deal with the following situation in the matter of appointment of Auditors? The shareholding of L.I. C. and U. T.I. increased from 23 per cent to 27 per cent of the subscribed sharecapital ofthe company after issue of notice of the Annual General Meeting, but before the date of the Annual General Meeting.(CA November, 2003) Answer As per Section 139 of Companies Act, 2013, auditor of company other than Non-government Companyis appointed by passing ordinary resolution by members at annual general meeting for one term of maximum period of 5 years. Appointment of auditor is required to be ratified at every annual generalmeeting by passing ordinary resolution. Shareholding of LIC & UTI increasedfrom 23 to 27 does not impact in any way on method ofappointment of auditor in company. Fresh notice of Visit : www.lawcharts.in Page 46 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 17 Lawcharts.inAuditors–(139 to 148 ) the meeting is not required and auditor can beappointed by passing ordinary resolution. Q.6Ram & Company was appointed as auditor of ABC Ltd. at theAnnual General Meeting held on 30thSeptember, 2014. Can Ram & Co. continue as auditor of the company in case the next annual general meeting has not been held in time? What would be the position in case the next annual general meeting was held on 30"' September, 2014, but adjourned without considering the business of appointment or re- appointment of auditor?(CA November 2006 Modified) Or Examine the validity of the following appointments with reference to the provisions of the Companies Act, 2013: DalaudaCement Limited appointed CA Naresh as statutory auditor of the company at the AnnualGeneral Meeting held on 30"'September, 2014. The next Annual General Meeting was held on30th September, 2014 but it was adjourned to 30tl'November, 2014 for considerationof the financialstatements for the year ended 31st March, 2014. CA Naresh continued to function as statutory auditorof the company. Decide (CA November 2012 Modified) Answer:Auditor is appointed at the annual general meeting to the conclusion of the 6th annual general meetingsubject to ratification at every annual general meeting. It means auditor can be appointed by membersfor maximum one term of 5 years at time. In the given question, it is not clarified that whether auditoris appointed by members at annual general meeting is for 5 years or less number of years. Therefore, thetenure of office of the auditor does not expire on the last date on which the annual general meeting wasdue to be held in terms of Section 139 of Companies Act, 2013. Hence Ram & Co. can continue as auditoreven if the AGM for the year 2014 has not been held in time. In case AGM for 2014 was held on 30th September, 2014 that adjourned without considering the businessof appointment or reappointment of auditor, the tenure ofRam & Co. will continue as auditor. Q.7An allegation was levelled against PQR Ltd. that the funds of the company are misused. Mr. Z, oneof the Directors of the company wants to inspect the books of account of the company in order toascertain whether the allegation was true. But since Mr. Zdoes not have the knowledge of accounting,he appoints Mr. A, his friend and a practicing Chartered Accountant to go through the books ofaccount of the company on his behalf. The company seeks your advice as to whether Mr. A may beallowed to inspect the books of account of the company on behalf of Mr. Z. You are required to giveyour advice to the company on behalf of Mr. Z. You are required to give your advice to the company keeping in view the provisions of the Companies Act, 2013. What would be your advice if Mr. Z would,have been a shareholder only and not a Director of the company? (CA May 2007 Modified) Answer:Summarised returns of the books of account of the company kept and maintained outside India shall besent to registered office at quarterly intervals. It should be kept at registered office and kept open to directors for inspection. If any other financial information is maintained outside the country, director can furnish request tocompany setting out full details of financial information sought and period for which such informationis sought in writing. Company should provide financial information within 15 days. Financial information should be demanded by director himself and not by his power of attorney holderor agent or representative. In view of above Visit : www.lawcharts.in Page 47 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 18 Lawcharts.inAuditors–(139 to 148 ) provisions, Mr. A director who can be refused right ofinspection through agent. In case Mr. Z is a member of the company, he shall be able to inspect the books of account only if he isgiven such a right by ordinary resolution of the members or if authorized by the board. Here Mr. Z wouldhave to exercise the right personally and not through a proxy i.e. he can himself inspect the books but cannot ask Mr A to inspect the books on his behalf . Q.8Parkash Carriers Limited appointed Mr. Roman as its auditor in the Annual General Meeting heldon 30th September, 2014. Initially, he accepted the appointment. But he resigned from his office on31st October, 2014 for personal reasons. The Board of Directors seeksyour advice for filling up thevacancy by appointment of Mr. Albert as auditor. Advise. Also suggestthe procedure to be adopted incase Mr. Albert is proposed to be removed from his office before the expiry of his term. (CA November 2009 Modified)Or A is the Auditor ofB & Co. Ltd. Board of Directors decided to remove A on certain grounds. Pleaseindicate what procedure is to be followed to remove A? Advise the Board. (CA November 2010 Modified) Answer Casual vacancies in office of auditor of non-government company is filled by board of directors within30 days. But if such vacancy is created by resignation of auditor, appointment should be made at generalmeeting within period of 3 months on recommendation of board.-Section 139(8). Thus, in thepresent case, the company may convene an Extraordinary General Meeting to appoint Mr.Albert as its auditor consequent upon the resignation by Mr. Raman. Removal of Mr. Albert before expiry of his term: Auditor of government and non-government company canbe removed before expiry of his term bypassing special resolution and prior approval of Central Government. Auditor sought to be removedshould be given reasonable opportunity of being heard. Company is required to following procedure for removal: Board resolution should be passed. Application to Central Government is made in Form ADT-2 within 30 days of passing of boardresolution. Hold general meeting within 60 days of receipt of approval of Central Government. Q.9Examine the validity of the following with reference to the provisions of the Companies Act, 2013: Mr. Prakash, a Chartered Accountant in full time practice was appointed as the auditor ofABC Ltd,a company which is a subsidiary ofDGHLtd. AndDGHLtd. has another subsidiary called PKM Ltd.Mr. Prakash had taken a loan of Rs.25,000 from PKM Ltd. and the loan is outstanding as on the dateof his appointment as auditor of ABC Ltd.(CA June 2009 Modified) Answer :As per section 141 of Companies Act, 2013, if person is holding any security of or interest in company orits subsidiary or holding or associate company or subsidiary of holding company is not eligible for appointment of auditor of company. But person himself or his relative or partner who is indebted to company or its subsidiary or holdingcompany or its associate company for more Visit : www.lawcharts.in Page 48 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 19 Lawcharts.inAuditors–(139 to 148 ) than Rs 5 Lakh is not disqualified to be appointed as auditorof company- Section 141 of Companies Act 2013, Applying above provisions to given situation, since ABC Ltd is a subsidiary of DGH Ltd; which is theholding company of PKM Ltd. to whom Mr. Prakash is indebted for a sum within limit of Rs. 5 Lakhs hencehis appointment as the auditor of ABC Ltd. is in order. Q.10As required under the provisions of the Companies Act, 2013, a company incorporated underthe Act has to include in the Report of Board of Directors a 'Directors Responsibility Statement. Directors of the company seek your advise about the matters to be included in the statement. Advise. (CA November 2010 Modified) Answer:To know about which matters should be included under Directors responsibility statement Q11Examine the validity of the following appointments with reference to the provisions of the Companies Act, 2013: Yashodharman Granites Limited reappointed Suresh &Company, a firm of Chartered Accountants, as auditors of the company at the Annual General Meeting held on 30thSeptember, 2013. The wife of one of the partners of Suresh & Company acquired large number of equity shares in Yashodharman Granites Limited on5th October, 2013. But Suresh & Company continue to function as statutory auditors of the company. (CA November 2012 Modified) Answer:As per Section 141 of Companies Act, 2013 a person who himself holding any security or interest in the company or itssubsidiary company or holding company or associate company is not eligible for appointment of auditor of company. However relative of the person proposed to be appointed as auditor may hold security in company of face value not exceeding Rs. 1 Lakh. Wife of partner of audit firm is covered within meaning of relative. In the given question, it is not clearly mentioned about face value of securities held by wife of Mr. Suresh. Assuming that she is not holding or not acquired shares of more than Rs. 1 Lakh face value, it can be said that Suresh & Co. can continue to act as statutory auditor of company even after 5th October, 2013. Q.12The paid up capital of Western Zone Insurance Limited is Rs. 7 crore. Point out whether the said company is required to fileBalance Sheets and Profit and Loss Account along with Director's and Auditor's Report for the year 2013-14 by using the XBRL taxonomy under the Companies Act, 2013? (CA November 2012 Modified) Answer Following companies are required to file its financialstatement in the XBRL taxonomy from the year 2010-11 onwards: ❑Indian listed company and its Indian subsidiary company ❑Company having paid up capital of Rs 5 crore or more ❑Company having turnover of Rs. 100 crore or more. But the above rule isnot applicable to following companies: ❑Banking company ❑Insurance company ❑Power company ❑Non-banking finance company (NBFC) Visit : www.lawcharts.in Page 49 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 20 Lawcharts.inAuditors–(139 to 148 ) In the above given case, Western Zone Insurance Ltd is Insurance company and hence it is not required to file financial statement in XBRL for the year 2013-14. Q.13The paid up capital ofAJD Ltd. is Rs. 10 crores consisting of 70 lakh equity shares ofRs. 10 each fullypaid up 30 lakh preference shares of Rs. 10 each, fully paid up. Nationalized bank, LIC and IDBI holdamong themselves 30 lakh equity shares and 25 lakh preference shares. With reference to theprovisions of the Companies Act, 2013,examine whetherAID Ltd. is a government company. Explainthe manner in which you would proceed in the matter of appointmentof auditors for the saidcompany.(CA May 1998)Or The aggregate shareholding of nationalized Banks, LIC and IDBI exceeded 55 of the paid up sharecapital of the company. How will the auditors of the company be appointed?(CA November 1994) Answer If CentralGovernment or State Government or both hold at least 51 of shares of company, it isGovernment Company. Share capital includes equity and preference shares. In the given case, no share is held by Central or State Government. Therefore company is not GovernmentCompany. Therefore, appointment of auditors will be made by the shareholders at annual general meetingfor one term of maximum five years subject to ratification at every annual general meeting. Q.14CRELtd., a Government Company wants to appoint Parasnath & Co. as its auditors for the period2014-15. State with reference to the provisions applicable to Government Companies, the procedureto appoint the auditors.CA November 2009 Modified)Or Mr. Rao & Rao, a firm of Chartered Accountants have to beappointed as the auditors ofM/s. ABCCo. Ltd., a Government company. Explain the steps to be taken regarding the appointment andpayment of remuneration to the auditors (CA November 2001) Answer:Comptroller and Auditor General is required to appoint auditor within period of 60 days from registrationof Government Company. If CAG fails to appoint within 60 days of registration, board of directors shall appoint auditor within 30 days. If board fails to appoint auditor in 30 days, it shall inform members whoshall appoint auditor within 60 days at EGM. Subsequent appointment (ie. appointment or re-appointment) of auditor in Government Companyshould be made by CAG within 180 days from the commencement of financial year. Q.15Examine the validity of thefollowing with reference to the provisions of the Companies Act, 2013:- (i) EF Limited appointed a individual firm, Naresh & Company, Chartered Accountants, as Auditors of the company at the Annual General Meeting held on 30th September, 2014. Mrs. Kamala,wife of Mr. Naresh, invested in the equity shares face value of Rs. 1 lakh of EF Limited on 15th October, 2014. But Naresh & Company continues to function as statutory auditors of the company. (ii) Mr. Suresh, a Chartered Accountant, was appointed by theBoard of Directors of AB Limited as the First Auditor. The company in General Visit : www.lawcharts.in Page 50 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 21 Lawcharts.inAuditors–(139 to 148 ) Meeting removed Mr. Suresh without seeking the approval of the Central Government and appointed Mr. Gupta as Auditor in his place. Answer (i) Disqualification of auditor: According to section 141(3)(d)(i) of the Companies Act,2013, a person who, or his relative or partner holds any security of the company or itssubsidiary or of its holding or associate company a subsidiary of such holding company,which carries voting rights, such person cannot be appointed as auditor of the company. Provided that the relative of such person may hold security or interest in the company offace value not exceeding 1 lakh rupees as prescribed under the Companies(Audit andAuditors) Rules, 2014. Inthe case Mr. Naresh, chartered accountants, did not hold any such security. But Mrs.Kamala, his wife held equity shares of EF Limited of face value Rs. 1 lakh, which is withinthe specified limit. Further Section 141(4) provides that if an auditor becomessubject, after his appointment,to any of the disqualifications specified in sub-section 3 of section 141, he shall bedeemed to have vacated his office of auditor. Hence, Naresh & Company can continue tofunction as auditors of the Company even after 15th October 2014 i.e. after theinvestment made by his wife in the equity shares of EF Limited. (ii) Removal of first auditor: Section 140(1) stipulates that any auditor appointed undersection 139 may be removed from office before the expiry of his term bypassing specialresolution in general meeting, after obtaining the previous approval of the CentralGovernment in that behalf. Provided that before taking any action under subsection (1) of Section 140, the auditorconcerned shall be given a reasonable opportunity of being heard. The first auditors appointed by Board of Directors can be removed in accordance with theprovision of Section 140(1) of the Companies Act, 2013. Hence the removal of the firstauditor appointed by the Board without seeking approvalof the Central Government isinvalid. The company contravened the provision of the Act. Q.16An audit firm, comprising of two partners, holds office as auditor of 40 private companies out of which paid-up capital of 20 companies exceeds 50 Lakhs. Such audit firm wants to be appointed as an auditor in XYZ Pvt. Ltd. Decide whether this is in consonance with the applicable law. Answer-As per section 141(3)(g) of the Companies Act, 2013, private companies shall also beenincluded in the provisions withrespect to ceiling on number of audits with the restriction thatthe private companies having paid up share capital less than 100 crore rupees shall not beincluded for calculation of specified number of audits. As per the provision, a person shall notbeeligible for appointment as an auditor of a company if such person or partner is at the dateof such appointment or reappointment holding appointment as an auditor of more than twenty companies. Therefore, such firm cannot be appointed as an auditor of XYZPvt. Ltd as it willexceed the ceiling prescribed for number of audits. There is no relevance of paid up sharecapital of 20 companies in the above case. [Note: As per the Notification G.S.R. 464(E), dated 5th June 2015, section 141(3)(g) shallapply on the private companies with the modification that private company with paid upshare capital less than one hundred crore Visit : www.lawcharts.in Page 51 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 22 Lawcharts.inAuditors–(139 to 148 ) rupees shall be excluded while calculatingceiling on the number of audits] Q.16Explain the concept of ‘CSR’ (Corporate SocialResponsibility) as introduced by the Companies Act, 2013. Examining the provisions of the Act, answer the following: (i) Which companies are required to constitute CSR Committee? (ii) Which companies are excluded from the requirements of the provisions ofthe Act in relation to CSR committee? (iii) What is the minimum contribution the companies are required to make towards CSR? Ans–Refer sec 135 Visit : www.lawcharts.in Page 52 of 264 Contact : 9098486961 CA CS Ashish Gupta Page 23




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