COMPANY LAW

PROJECT
TOPIC:-
Appointment of Auditor,
Qualifications, Disqualifications,
Rotation, Removal,
Duties and Responsibilities

Submitted by:
Kunal Paliwal (2423174)
Manjot Singh (2423148)
Pratham Mishra (2423112)

Submitted to:
Prof. Uma Sharma
 ACKNOWLEDGEMENT
We wish to extend our heartfelt gratitude to those who
have contributed to the successful completion of this
assignment. Our sincere thanks go to (Prof. Uma
Sharma), whose insightful feedback and guidance were
instrumental throughout this project. Their expertise
and encouragement significantly enhanced my
understanding and execution of the assignment.

We would also like to acknowledge my classmates and

friends for their support and valuable discussions that
helped refine my ideas. Their diverse perspectives and
constructive critiques were crucial in shaping my
approach.

Additionally, We are deeply grateful to my family for

their unwavering support and patience during this
period. Their encouragement provided the motivation
and strength needed to meet deadlines and overcome
challenges.

This assignment is the result of collective efforts, and

We are appreciative of everyone who played a role in
its completion.

Thank you.
An auditor is an independent professional or firm appointed to
examine and evaluate the financial records, statements, and
practices of an organization. The role of an auditor is crucial
in ensuring the accuracy, reliability, and transparency of
financial information.

Appointment of Auditor
The appointment of an auditor is governed by the Companies
Act, 2013, and the rules prescribed thereunder. The following
are the key provisions regarding the appointment of auditors
in India:

First Auditor
For newly incorporated companies, the first auditor is
appointed by the Board of Directors within 30 days from the
date of incorporation. The first auditor holds office until the
conclusion of the first Annual General Meeting (AGM) of the
company.
Subsequent Appointment
After the first AGM, the appointment of an auditor is made by
the shareholders of the company. The appointment is done
through an ordinary resolution passed at the AGM.

Term of Appointment
The appointment of auditors is typically for a period of five
consecutive years. However, the Companies Act allows for
the reappointment of the same auditor for two more terms of
five years each, subject to certain conditions and compliance
with rotation requirements.

Rotation of Auditors
Certain companies are required to rotate their auditors to
ensure independence and fresh perspective. As per the
Companies Act, the following companies are required to
rotate their auditors:

1. Listed Companies: Listed companies and their subsidiaries

are required to rotate auditors after the completion of two
consecutive terms of five years each.

2. Other Companies: Certain classes of companies, based on

their paid-up share capital or borrowing limits, are also
required to rotate auditors as per the prescribed thresholds.

Eligibility Criteria
The Companies Act specifies the eligibility criteria for
appointment as an auditor. Only a person or a firm of
chartered accountants (CA) or a limited liability partnership
(LLP) of CAs can be appointed as an auditor of a company.
The auditor must hold a valid certificate of practice issued by
the Institute of Chartered Accountants of India (ICAI).

Consent and Eligibility Certificate

Before appointment, the proposed auditor must provide
his/her consent and submit an eligibility certificate to the
company. The eligibility certificate confirms that the auditor
is eligible for appointment as per the prescribed criteria.

Disqualifications
The Companies Act lays down certain disqualifications that
may prevent a person or a firm from being appointed as an
auditor. These disqualifications include reasons such as
holding an office or employment with the company, being
indebted to the company, or having a business relationship
with the company.

Removal and Resignation

The removal or resignation of an auditor before the
completion of the term requires compliance with the
procedures prescribed under the Companies Act. These
procedures include obtaining approval from the Central
Government or the National Financial Reporting Authority
(NFRA), as applicable.
Qualification of Auditor
To qualify as an auditor in India, certain qualifications and
criteria must be met. The qualifications for becoming an
auditor are primarily governed by the Institute of Chartered
Accountants of India (ICAI), which is the regulatory body for
the accounting profession in India. Here are the key
qualifications required to become an auditor in India:

Chartered Accountant (CA) Qualification

The most common and recognized qualification for auditors in
India is the Chartered Accountant (CA) qualification awarded
by the ICAI. To become a Chartered Accountant, individuals
must complete the following steps:

1. CA Foundation Course: After completing 10+2 education,

aspiring Chartered Accountants can register for the CA
Foundation course. The Foundation course includes subjects
such as Accounting, Economics, Business Law, and
Mathematics

2. CA Intermediate Course: Upon successfully clearing the

Foundation course or holding a relevant academic
qualification, candidates can enroll for the CA Intermediate
course. The Intermediate course consists of a comprehensive
study of various subjects related to accounting, finance,
taxation, and law.

3. Practical Training: Alongside the CA Intermediate course,

candidates must complete a mandatory practical training
period of three years, called Articleship. During Articleship,
candidates work under the guidance of a practicing Chartered
Accountant to gain practical experience in auditing,
accounting, taxation, and other related areas.

4. CA Final Examination: After completing the Intermediate

course and the prescribed period of practical training,
candidates become eligible to appear for the CA Final
examination. The CA Final examination is the last stage of the
CA qualification and covers advanced topics in accounting,
auditing, financial management, and law.

5. Membership: After clearing the CA Final examination and

completing other requirements, candidates become eligible for
membership of the ICAI, which allows them to practice as
Chartered Accountants and undertake audit assignments.

Eligibility Certificate
Before being appointed as an auditor of a company, a
Chartered Accountant must obtain an eligibility certificate
from the ICAI. The eligibility certificate confirms that the
Chartered Accountant is eligible for appointment as an auditor
as per the prescribed criteria, including the specified number
of years of post-qualification experience.

Continuing Professional Development (CPD)

Once qualified, auditors in India are required to participate in

Continuing Professional Development programs offered by
the ICAI. CPD ensures that auditors stay updated with the
latest developments, regulations, and best practices in auditing
and accounting.

Regulatory Compliance

Auditors must comply with the regulations and guidelines

issued by the ICAI and other regulatory bodies, such as the
Securities and Exchange Board of India (SEBI), the Reserve
Bank of India (RBI), and the Ministry of Corporate Affairs
(MCA).

Disqualifications of Auditor
In India, there are certain disqualifications that can prevent a
person or a firm from being appointed or continuing as an
auditor of a company. These disqualifications are specified
under the Companies Act, 2013, and are designed to ensure
independence, integrity, and professional conduct of auditors.
The key disqualifications of an auditor in India are as follows:

Relationship with the Company

An individual or a firm is disqualified from being appointed

as an auditor if they have any of the following relationships
with the company:

1. Officer or Employee: The person is an officer or employee

of the company or its subsidiary, or has been in the past three
years. This disqualification aims to maintain independence
and prevent conflicts of interest.

2. Relative: The person is a relative of a director or a key

managerial personnel of the company. Relatives include
spouses, parents, siblings, children, and their spouses.

3. Business Relationship: The person has a business

relationship with the company, directly or indirectly, in any
manner that may compromise their independence or
impartiality.
4. Indebtedness: The person or their relative has any
outstanding loan, guarantee, or security provided by the
company or its subsidiary, or has given any such financial
assistance to the company.

Professional Relationship

Certain professional relationships can disqualify an individual

or a firm from being appointed as an auditor. These include:

1. Statutory Auditor: A person who is already serving as a

statutory auditor of more than the specified number of
companies cannot be appointed as an auditor of any additional
companies.

2. Internal Auditor: A person who is an internal auditor of the

company or its subsidiary cannot be appointed as the statutory
auditor of the same company.

3. Concurrent Auditor: A person who is a concurrent auditor

or a branch auditor of the company or its subsidiary cannot be
appointed as the statutory auditor of the same company.

Non-Compliance and Misconduct

An individual or a firm can be disqualified from being an
auditor if they have been found guilty of certain offenses or
misconduct, including:

1. Conviction: The person has been convicted of an offense

involving fraud, dishonesty, or moral turpitude.

2. Removal by the Government: The person has been removed

from the office of an auditor by the Central Government, the
National Financial Reporting Authority (NFRA), or any other
regulatory body.
⁠3. Professional Misconduct: The person has been found guilty
of professional misconduct by the Institute of Chartered
Accountants of India (ICAI) or any other regulatory authority.

It's important to note that these disqualifications are applicable

not only during the appointment of auditors but also
throughout their tenure. If an auditor becomes disqualified
during their term, they are required to vacate the office and
inform the company and the concerned regulatory authorities
about the disqualification.

Rotation, Removal, Duties and Responsibilities of

Auditor

Rotation of Auditor:
According to the Companies Act, 2013, certain companies are
required to rotate their auditors to ensure independence and
fresh perspectives in the audit process. The provisions related
to the rotation of auditors are as follows:

Mandatory Rotation: Listed companies and certain classes of

companies, based on their paid-up share capital

or borrowing limits, are required to rotate their auditors.

Listed companies and their subsidiaries must compulsorily
rotate their auditors after the completion of two consecutive
terms of five years each. Other companies, as prescribed by
the government, are also required to rotate their auditors as
per the thresholds specified.

Cooling-off Period: After the completion of the maximum

term, an outgoing auditor is required to observe a cooling-off
period before being eligible for reappointment. The cooling-
off period for individual auditors is five years, and for audit
firms, it is three years. This ensures that auditors maintain
their independence and are not excessively associated with a
company.

Removal of Auditor:
The removal of an auditor before the completion of their term
requires compliance with certain procedures and legal
provisions. The removal can be initiated by the company or
by the regulatory authorities. The key aspects related to the
removal of an auditor are as follows:

Ordinary Resolution: The removal of an auditor by the

company can be done through an ordinary resolution passed at
a general meeting of the shareholders. The auditor must be
given a reasonable opportunity to be heard and present their
case before the resolution is passed.

Special Notice: A special notice of the resolution for the

removal of the auditor must be given to the company at least
14 days before the general meeting where the resolution will
be considered. The notice should comply with the
requirements specified under the Companies Act.

Central Government's Power: In certain circumstances, such

as when an auditor has contravened provisions of the
Companies Act, the Central Government has the power to
remove the auditor and take appropriate action.
Duties and Responsibilities of Auditor:
The duties and responsibilities of an auditor are essential in
ensuring the accuracy and reliability of financial statements
and maintaining the trust of stakeholders. The key duties and
responsibilities of an auditor include the following:

Examination of Financial Statements: The primary

responsibility of an auditor is to examine the financial
statements of the company and express an opinion on their
accuracy and fairness. This involves assessing the
presentation of financial information, compliance with
accounting standards, and adequacy of disclosures.

Compliance with Applicable Laws and Regulations: Auditors

are responsible for evaluating the company's compliance with
relevant laws, regulations, and accounting standards. They
need to ensure that the financial statements reflect a true and
fair view of the company's financial position and results of
operations.
Evaluation of Internal Controls: Auditors assess the
effectiveness of internal controls and accounting systems

in place within the organization. They review the company's

internal control framework to identify weaknesses, assess
risks, and make recommendations for improvement.

Independence and Objectivity: Auditors must maintain

independence and objectivity throughout the audit process.
They should be free from any conflicts of interest that may
impair their judgment or compromise the

integrity of the audit. Independence is crucial to ensure an

unbiased assessment of the financial statements. Reporting
and Communication: After completing the audit, auditors
issue an audit report that includes their opinion on the
financial statements. They communicate their findings to the
company's management, board of

directors, and shareholders. If any material misstatements or

irregularities are identified. auditors mav also havea duty to
report them to the appropriate authorities.

Professional Ethics and Standards: Auditors are bound by

professional ethics and standards, including those prescribed
by the Institute of Chartered Accountants of India (ICAI).
They are expected to conduct themselves with integrity,
objectivity, and professional competence.
Auditors: Auditors are expected to perform their duties with
due care, diligence, and professional skepticism. They should
exercise professional judgment while conducting the audit and
should follow the Generally Accepted Auditing Standards
(GAAS) and other relevant auditing standards.

Audit Planning: Auditors are responsible for planning the

audit engagement effectively. This includes understanding the
business and industry of the company, assessing the risks
associated with the financial statements, and designing an
appropriate audit approach.

Audit Evidence: Auditors gather sufficient and appropriate

audit evidence to support their opinion on the financial
statements. They perform various audit procedures such as
inspection, observation, inquiry, and analytical procedures to
obtain the necessary evidence.

Fraud Detection: Auditors have a responsibility to assess the

risk of fraud within the company and design procedures to
detect material misstatements due to fraud. They should
maintain professional skepticism and exercise professional
judgment to identify any indicators of fraud during the audit.

Reporting Internal Control Weaknesses: If auditors identify

significant weaknesses in the company's internal controls
during the audit, they should communicate those findings to
the management and the audit committee.

This helps the company to address control deficiencies and

improve their internal control system.
Going Concern Assessment: Auditors evaluate the company's
ability to continue as a going concern. They assess the
appropriateness of the management's use of the going concern
assumption and determine whether there are any significant
uncertainties that may cast doubt on the company's ability to
continue its operations.

Compliance with Auditing Standards: Auditors are required to

comply with the auditing standards issued by the ICAI,
including the Standards on Auditing (SAs). These standards
provide guidance on various aspects of the audit process,
including risk assessment, audit documentation,
communication with management and those charged with
governance, and the form and content of the audit report.

Professional Development: Auditors have a responsibility to

maintain and enhance their professional competence. They
should stay updated with changes in auditing standards,
accounting regulations, and other relevant professional
developments through continuous professional education
programs and training.

Confidentiality and Data Protection: Auditors are entrusted

with sensitive and confidential information during the audit
process. They have a duty to maintain the confidentiality of
such information and should comply with the relevant
provisions related to data protection and privacy.

Ethical Conduct: Auditors must adhere to the Code of Ethics

issued by the ICAI. This includes maintaining integrity,
objectivity, professional behavior, and confidentiality. They
should avoid any conflicts of interest that may impair their
independence or objectivity.