Books of accounts, Audit Audit report

ACCOUNTS OF COMPANIES

• Every company shall prepare and keep at its registered office books of
account and other relevant books and papers and financial statement for
every financial year which give a true and fair view of the state of the affairs
of the company
• such books shall be kept on accrual basis and according to the double entry
system of accounting
• all or any of the books of account aforesaid and other relevant papers may be
kept at such other place in India as the Board of Directors, but the company
shall, within seven days thereof, file with the Registrar a notice in writing
giving the full address of that other place.
• The books of account and other books and papers maintained by the
company within India shall be open for inspection at the registered office of
the company or at such other place in India by any director during business
hours
•
• The books of account of every company relating to a period of not less
than eight financial years immediately preceding a financial year, or
where the company had been in existence for a period less than eight
years, in respect of all the preceding years together with the vouchers
relevant to any entry in such books of account shall be kept in good
order.
• Central Government may direct that the books of account may be kept
for such longer period as it may deem fit
• Penalty:- imprisonment for a term which may extend to one year or
with fine which shall not be less than fifty thousand rupees but which
may extend to five lakh rupees or with both.
• Every company shall, at the first annual general meeting, appoint an
individual or a firm as an auditor who shall hold office from the
conclusion of that meeting till the conclusion of its sixth annual
general meeting
• such appointment is made, the written consent of the auditor to such
appointment, and a certificate from him or it that the appointment
• the company shall inform the auditor concerned of his or its
appointment, and also file a notice of such appointment with the
Registrar within fifteen days of the meeting in which the auditor is
appointed.
•
No listed company or a company belonging to such class or
classes of companies as may be prescribed, shall appoint or re-
appoint

• an individual as auditor for more than one term of five consecutive

years
• an audit firm as auditor for more than two terms of five consecutive
years: but….
• shall not be eligible for re-appointment as auditor in the same
company for five years from the completion of his term(explanation)
members of a company may resolve to
provide that—
• in the audit firm appointed by it, the auditing partner and his team
shall be rotated at such intervals as may be resolved by members
• the audit shall be conducted by more than one auditor. 90
• in the case of a Government company or any other company owned
or controlled, directly or indirectly, by the Central Government, the
Comptroller and Auditor-General of India shall, in respect of a
financial year, appoint an auditor duly qualified to be appointed as an
auditor of companies under this Act, within a period of one hundred
and eighty days from the commencement of the financial year, who
shall hold office till the conclusion of the annual general meeting.
• the first auditor of a company, other than a Government company, shall be
appointed by the Board of Directors within thirty days from the date of
registration of the company
• in the case of failure of the Board to appoint such auditor, it shall inform
the members of the company, who shall within ninety days at an
extraordinary general meeting appoint such auditor and such auditor shall
hold office till the conclusion of the first annual general meeting.
• in the case of a Government company or any other company owned or
controlled, directly or indirectly, by the Central Government, the first
auditor shall be appointed by the Comptroller and Auditor-General of India
within sixty days from the date of registration of the company
• in case the Comptroller and Auditor-General of India does not appoint
such auditor within the said period, the Board of Directors of the
company shall appoint such auditor within the next thirty days
• in the case of failure of the Board to appoint such auditor within the
next thirty days, it shall inform the members of the company who shall
appoint such auditor within the sixty days at an extraordinary general
meeting, who shall hold office till the conclusion of the first annual
general meeting.
• Any casual vacancy in the office of an auditor of a company, other than a
Government company, shall be filled by the Board of Directors within
thirty days.
• If casual vacancy is as a result of the resignation of an auditor, the Board
of Directors shall fill the vacancy within thirty days but such
appointment shall also be approved by the company at a general
meeting convened within three months of the recommendation of the
Board and he shall hold the office till the conclusion of the next annual
general meeting
•
• in the case of a company whose accounts are subject to audit by an
auditor appointed by the Comptroller and Auditor-General of India, be
filled by the Comptroller and Auditor-General of India within thirty
days:
• Where a company is required to constitute an Audit Committee under
section 177, all appointments, including the filling of a casual vacancy of
an auditor under this section shall be made after taking into account
the recommendations of such committee
• a retiring auditor may be re-appointed at an annual general meeting,
if—
• (a) he is not disqualified for re-appointment;
• (b) he has not given the company a notice in writing of his
unwillingness to be re-appointed; and
• (c) a special resolution has not been passed at that meeting
appointing some other auditor or providing expressly that he shall
not be re-appointed.
• The auditor appointed under section 139 may be removed from his
office before the expiry of his term only by a special resolution of the
company, after obtaining the previous approval of the Central
Government
• The auditor who has resigned from the company shall file within a
period of thirty days from the date of resignation, a statement in the
prescribed form with the company and the Registrar or CAG as case
may be
• If the auditor does not comply , he or it shall be punishable with fine
which shall not be less than fifty thousand rupees but which may extend
to five lakh rupees
• Special notice shall be required for a resolution at an annual general
meeting appointing as auditor a person other than a retiring auditor, or
providing expressly that a retiring auditor shall not be re-appointed,
except where the retiring auditor has completed a consecutive tenure
of five years or, as the case may be, ten years,
• Tribunal either suo motu or on an application made to it by the
Central Government or by any person concerned, if it is satisfied that
the auditor of a company has, whether directly or indirectly, acted in
a fraudulent manner or abetted or colluded in any fraud by, or in
relation to, the company or its directors or officers, it may, by order,
direct the company to change its auditors
• an auditor, whether individual or firm, against whom final order has
been passed by the Tribunal under this section shall not be eligible to
be appointed as an auditor of any company for a period of five years
from the date of passing of the order
Eligibility, qualifications and disqualifications
of auditors.
• A person shall be eligible for appointment as an auditor of a company only if
he is a chartered accountant
• Where a firm including a limited liability partnership is appointed as an
auditor of a company, only the partners who are chartered accountants shall
be authorised to act and sign on behalf of the firm.
• The following persons shall not be eligible for appointment as an auditor of a
company, namely-
• a body corporate other than a limited liability partnership registered under
the Limited Liability Partnership Act, 2008
• an officer or employee of the company;
• a person who is a partner, or who is in the employment, of an officer or
employee of the company
• a person who, or his relative or partner
• person or a firm who, whether directly or indirectly, has business relationship
with the company,
• a person whose relative is a director or is in the employment of the company
as a director or key managerial personnel
Remuneration of auditors

• The remuneration of the auditor of a company shall be fixed in its

general meeting
• Board may fix remuneration of the first auditor appointed by it.
 Powers and duties of auditors and auditing
standards
• Every auditor of a company shall have a right of access at all times to the
books of account and vouchers of the company
• Specific enquiries to be made by the auditor under this sub-Section are as
under–
• Loans and Advances made by the Company
• Transactions represented by book entries
• Sale of investments
• Loans and Advances shown as deposits
• Allotment of shares for cash
 AUDIT REPORT
• Auditor shall make a report to the members of the company on the accounts
examined by him and on every financial statement which is required to be
laid in the general meeting of the company.
• The Audit report should state that to the best of his information and
knowledge, the said accounts and financial statements give a true and fair
view of the state of the company’s affair as at the end of the financial year
and the profit or loss and the cash flow for the year and such other matters as
may be prescribed.
•  He should include each and every information regarding director change to
financial statement of a company, pending litigation, delay in transfer of
amount etc.