Auditors under Companies Act, 2013 …By CS Jitesh Gupta (FCS, MIMA, PGD-TL, MBA)

AUDITORS Section 141 (Qualification of Auditor) - Must be a Chartered Accountant - A firm including LLP whereof majority of partners practicing in India are qualified for appointment as auditor - Where such firm/LLP is appointed as an auditor of a company, only the partners who are CAs shall be authorized to act and sign on behalf of the firm

Disqualification of Auditor A body corporate other than LLP An officer or employee of the company A person who, or his relative or partner - Is holding any security of or interest in Co. or its subsidiary, or of its holding or associate Co. or a subsidiary of such holding co. Relative – Rs. 1 L Provided that the relative may hold security or interest in the company of face value not exceeding Rs. 1,00,000.

- is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of Rs. 5,00,000. - has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, for Rs. 1,00,000.

A person or a firm who, whether directly or indirectly, has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company of such nature as may be prescribed For the above purpose “business relationship” shall be construed as any transaction entered into for a commercial purpose, except:-

(i) commercial transactions which are in the nature of professional services permitted to be rendered by an auditor or audit firm under the Act and the Chartered Accountants Act, 1949 and the rules or the regulations made under those Acts. (ii) commercial transactions which are in the ordinary course of business of the company at arm’s length price like sale of products or services to the auditor, as customer, in the ordinary course of business, by companies engaged in the business of telecommunications, airlines, hospitals, hotels and such other similar businesses.

a person whose relative is a director or is in the employment of the company as a director or key managerial personnel a person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies

a person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction any person whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialised services. If the auditor after appointment incurs any of the disqualifications – vacate his office by casual vacancy

Section 139 (Appointment of Auditor) 1st appointment to be within 30 days by Board, if not then members in 90 days in EGM Appointment of auditor at 1st AGM to hold office till the conclusion of its 6th AGM Thereafter the appointment is also to be done till the conclusion of its 6th AGM from the AGM at which it is appointing the company shall place the matter relating to such appointment for ratification by members at every AGM Co to inform Auditor concerned & ROC in 15 days in Form ADT-1

Term of Appointment/re-appointment No listed company Public companies having paid up share capital of Rs. 10 crore or more Private companies having paid up share capital of Rs. 20 crore or more All companies having paid up share capital of below threshold limit mentioned above, but having public borrowings from financial institutions, banks or public deposits of Rs. 50 crore or more But except OPC and Small Companies Shall appoint or re-appoint an individual as auditor for more than one term of five consecutive years; and

(b) an audit firm as auditor for more than two terms of five consecutive years: Provided that- an individual auditor who has completed his term under clause (a) shall not be eligible for re- appointment as auditor in the same company for five years from the completion of his term an audit firm which has completed its term under clause (b), shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term

As on the date of appointment, no audit firm having a common partner or partners to the other audit firm, whose tenure has expired in a company immediately preceding the financial year, shall be appointed as auditor of the same company for a period of five years every company, existing on or before the commencement of this Act which is required to comply with provisions of this section, shall comply with the requirements of this provision within 3 years from the date of commencement of this Act

Members of the co. may resolve to rotate auditing partner & his team at specific interval Casual vacancy other than by resignation to be filled by Board within 30 days If vacancy caused by resignation to be filled by members in 3 months

Retiring auditor may be re-appointed at AGM, if— He is not disqualified for re- appointment he has not given the company a notice in writing of his unwillingness to be re-appointed; and A SR has not been passed at that meeting appointing some other auditor or providing expressly that he shall not be re-appointed Automatic reappointment of existing auditor at AGM if not re-appointed.

Appointment of Auditor in Government Companies 1st Auditors – by CAG within 60 days from registration of Company. If not appointed BOD to appoint in next 30 days If not appointed BOD to inform members, who to appoint in auditor in EGM within 60 days

Every year thereafter - To be done by CAG within 180 days from start of FY To hold office till conclusion of AGM Casual vacancy to be filled by CAG in 30 days. If not then by Board in next 30 days

Section 140 (Resignation of Auditor) Auditor may resign before his term. To file a statement with ROC in ADT-3 as well as the Co. within 30 days, indicating reasons In case of Government companies to be filed with CAG too.

Removal of Auditor Before Expiry of term: By Special Resolution Prior approval of Central Government in Form ADT-2 is required before taking any action, the auditor concerned shall be given a reasonable opportunity of being heard.

- Acted in fraudulent manner or - Abetted or Special notice required at AGM to appoint other auditor than the retiring auditor except in case of rotation Removal by Tribunal Tribunal suo moto or on application of CG or any person concerned may change auditor if it is satisfied, that auditor has directly or indirectly: - Acted in fraudulent manner or - Abetted or Colluded in any fraud by or in relation to, Co. or its directors or officers

If on CG application – Tribunal on satisfaction change of the auditor is required it shall within 15 days to appoint another auditor On final order - shall not be appointed for 5 years in any other Co. and shall be liable u/s 447.

Section 142 (Remuneration) Remuneration shall be decide in the AGM In case of First Auditors by the Board Remuneration includes: Fee Expenses incurred in connection with audit Expenses on any facility extended to him Does not include - Remuneration for any other service rendered at request of Co.

Powers & Duties of Auditors Every auditor of a company shall have a right of access at all times to the books of account and vouchers of the company, whether kept at the registered office of the company or at any other place and shall be entitled to require from the officers of the company such information and explanation as he may consider necessary for the performance of his duties as auditor.

and amongst other matters inquire into the following matters, namely:- whether loans and advances made by the company on the basis of security have been properly secured whether transactions of the company which are represented merely by book entries are prejudicial to the interests of the company

where the company not being an investment company or a banking company, whether so much of the assets of the company as consist of shares, debentures and other securities have been sold at a price less than that at which they were purchased by the company whether loans and advances made by the company have been shown as deposits whether personal expenses have been charged to revenue account

where it is stated in the books and documents of the company that any shares have been allotted for cash, whether cash has actually been received in respect of such allotment, and if no cash has actually been so received, whether the position as stated in the account books and the balance sheet is correct, regular and not misleading

the auditor of a company which is a holding company shall also have the right of access to the records of all its subsidiaries in so far as it relates to the consolidation of its financial statements with that of its subsidiaries To comment if required by Audit committee on internal control systems, scope of audit, observations of auditors and review of financial statement before their submission to the Board

To certify DPT -3 – Annual return of Deposits To have a right to be heard in meetings of Audit Committee when it considers auditor’s report but shall not have right to vote To certify DPT -3 – Annual return of Deposits Certification in Prospectus To report that fund requirements of co. after the corporate debt restructuring (under compromise or arrangements) as approved by Tribunal shall conform to the liquidity test based upon the estimates provided to them by the Board

CS Jitesh Gupta 9810043622 E-mail: jitesh@jkgupta.com