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Audit of Limited Companies

This document discusses the qualifications, disqualifications, appointment process, and removal of company auditors under the Companies Act of India. It states that a company auditor must be a chartered accountant, certified auditor, or auditing firm. Certain individuals are disqualified from being auditors, such as employees of the company. The first auditors are appointed by the board of directors, while subsequent auditors are appointed by shareholders at the annual general meeting. Auditors can be removed either before or after their term expires via a shareholder vote or central government approval in some cases. The remuneration of auditors is also outlined depending on who appoints them.

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310 views20 pages

Audit of Limited Companies

This document discusses the qualifications, disqualifications, appointment process, and removal of company auditors under the Companies Act of India. It states that a company auditor must be a chartered accountant, certified auditor, or auditing firm. Certain individuals are disqualified from being auditors, such as employees of the company. The first auditors are appointed by the board of directors, while subsequent auditors are appointed by shareholders at the annual general meeting. Auditors can be removed either before or after their term expires via a shareholder vote or central government approval in some cases. The remuneration of auditors is also outlined depending on who appoints them.

Uploaded by

animaha
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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AUDIT OF LIMITED COMPANIES

Qualifications of
Company Auditor

Qualifications of Company
Auditor u/s 226

Disqualifications u/s 226

Qualifications of Company Auditor u/s 226


1. A Chartered Accountant:- A person should be a Practising
Chartered Accountant within the meaning of the Chartered
Accountants Act, 1949
2. A Firm of Chartered Accountants:- A firm whereof all the
partners are Chartered Accountants practising in India may be
appointed as an auditor by its firm name. In such a case any
partner so practising may act in the name of the firm
3. A Certified Auditor:- The holder of a certificate under the
Restricted Auditors Certificates Rules can be appointed as an
auditor of companies.

Disqualifications u/s 226


According to Section 226 (3) of the Companies Act, 1956 none
of the following persons shall be qualified for appointment as
an auditor of a company:
1. A body corporate,
2. An officer or employee of the company,
3. A person who is a partner, or who is in the employment, of
an officer or employee of the company,

4. A person who is indebted to the company for an amount exceeding


rupees,

one thousand

5. A person who has given any guarantee or provided any security in connection with
the indebtedness of any third persons to the company for an amount exceeding one
thousand rupees
6. A person who is a director or a member of the private company,
7. A firm which already holds the specified number of company audits cannot accept
any more company audits,
8. A person holding any security (i.e. an instrument with voting rights) of that company
An auditor, who after his appointment, becomes subject to any of the
above disqualifications, shall be deemed to have vacated his office as an
auditor.

Appointment of First Auditors


The first Auditors are appointed by the

Board of Directors
Within 30 days of Incorporation,
If Directors Fail to do so,
Shareholders can appoint the first

auditors in a General Meeting.


Such auditors hold the office till the

conclusion of the first annual general


meeting.

Appointments and Reappointments by


Shareholder
At each AGM an auditor appointed

will hold the office until the Next AGM


A retiring auditor shall be reappointed

unless:
he is not qualified for reappointment;
he has given the company a notice in writing

of his unwillingness to be reappointed;


a resolution has been passed at the meeting

appointing somebody else instead of him.

Appointment by Central
Government
Where no Auditors appointed at an AGM or
Appointed by ordinary resolution even

though a Special resolution is necessary


Within 7 days of such a meeting company

shall intimate this information to the


Central government which may appoint
a person to fill the vacancy.

Appointment by Special Resolution


In case of a company in which not less than 25% of the subscribed share capital is
held by:
a public financial institution, or a Government company or the Central Government, or any
State Government;
Any institution in which State Government holds not less than 51% of the subscribed share
capital;
A nationalised bank or an insurance company carrying on general insurance business;
The appointment or reappointment shall be made by Special Resolution (which must be
approved by 75% of members present.
If the company fails to pass such a Special resolution, the Central Government may appoint
the auditor of the company.

Casual Vacancy
Where a vacancy is caused by the resignation of an
auditor, the vacancy shall be filled by the company in a
general meeting.
The Board of Directors may fill any other casual vacancy
(e.g. arising due to death, disqualification etc.) in the
office of an auditor.
Any auditor appointed in a casual vacancy shall hold
office until the conclusion of the next annual general
meeting.

Appointment of Auditor

Which

First Auditor

Re-appointment

Casual Vacancy

By Whom
Board of
Directors

Shareholders at
AGM
Shareholders at GM
Board of Directors

Shareholders fail to reappoint


Special Resolution not
passed
Government
Company

Central
Government

C & AG

When & How


Within 30 days of
incorporation
Normally by Ordinary Resolution
Special Resolution if 25% of
shares held by specified entities
If Vacancy due to
Resignation
Other vacancy e.g. by
death
Company to inform
Central Govt. within 7
days of failure

Removal of Auditors u/s 225


In order to provide a check against the removal of
independent and honest auditors, the Companies Act
prescribes strict rules in this regard.

Removal

After Expiry of the Term


Expiry of the Term

Before

By Members at AGM
First Auditors

Other Auditors

Removal of First Auditors Before Expiry of


the Term
The first auditor, appointed by the board of directors,
can be removed by shareholders at a general meeting
before expiry of the term;
without obtaining the prior approval of the central
government;
provided 14 days notice is given.
Other Auditors
By shareholders at a general meeting
After obtaining prior approval.

Remuneration of Auditors
First
Auditors

Board of
Directors
appoint auditors

Remuneration shall
be fixed by BOD

Board of
Directors
Shareholders
Fail
appoint auditors
Casual
in the general
vacancy due
meeting
to
Resignation

Remuneration shall
be fixed by
Shareholders at
the general
meeting

Casual
Vacancy

Remuneration of Auditors
Subsequent
auditors

Shareholders
appoint auditors
at the AGM

Remuneration shall
be fixed by
shareholders at the
AGM

No Auditors
are
appointed
Special
Resolution
not passed

Central
government
appoints the
auditor

Remuneration shall
be fixed by central
government

Remuneration of Auditors
Government
company

Retiring
Auditor

Comptroller &
Auditor General
of India

Remuneration shall
be fixed by
shareholders

Shareholders
appoint the
auditors at the
AGM

The amount fixed


for the previous
period shall be
considered as
remuneration for
the current year.

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