Module 4

 Boardof Directors
 Annual General Meeting
 If the BOD fails to make an appointment
 Appointment during the AGM
 Intimation to the newly appointed auditor
 Information to the ROC from the newly appointed auditor

 Central Government (i.e., CAG)

 A Government company
 Any other company owned or controlled, directly or indirectly:
 By the Central Government,
 By any State Government or Governments,
 Partly by the Central Government and partly by one or more
State Governments
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 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.
 No listed company or a company belonging to such class or
classes of companies as may be prescribed, shall appoint or
re-appoint—
(a) 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
(1) A person shall be eligible for appointment as an
auditor of a company only if he is a chartered
accountant
(2) 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
authorized 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) A body corporate other than a limited liability
partnership registered under the Limited Liability
Partnership Act, 2008;
(b) An officer or employee of the company;
(c) A person who is a partner, or who is in the
employment, of an officer or employee of the
company;
(d) A person who, or his relative or partner

Continued…….
The following persons shall not be eligible for appointment as an
auditor of a company, namely:
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(e) A person or a firm who, whether directly or indirectly, has
business relationship
(f) A person whose relative is a director or is in the employment
(g) A person who is in full time employment elsewhere or a
person or a partner of a firm
(h) A person who has been convicted by a court of an offence
involving fraud and a period of ten years
(i) Any person whose subsidiary or associate company or any
other form of entity

*Where a person appointed as an auditor of a company incurs

any of the disqualifications
(1) The remuneration of the auditor of a company shall be
fixed in its general meeting or in such manner as may be
determined therein: Provided that the Board may fix
remuneration of the first auditor appointed by it.
(2) The remuneration under sub-section (1) shall, in
addition to the fee payable to an auditor, include the
expenses, if any, incurred by the auditor in connection with
the audit of the company and any facility extended to him
but does not include any remuneration paid to him for any
other service rendered by him at the request of the
company.
1. If an auditor has resigned from the company, he shall file
within a period of thirty days from the date of
resignation;
2. 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
i. Special notice shall be required for a resolution at AGM
ii. On receipt of notice of such a resolution, the company
shall forthwith send a copy thereof to the retiring auditor.
iii. Where notice is given of such a resolution and the
retiring auditor makes a representation in writing:
a) In any notice of the resolution given to members of
the company, state the fact of the representation
having been made; and
b) Send a copy of the representation to every member
of the company
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3. Without prejudice to any action, the Tribunal either suo

motto or on an application made to it by the Central
Government or by any person concerned, if satisfied that
the auditor of a company has acted in a fraudulent
manner or abetted or colluded, it may, by order, direct
the company to change its auditors
1. Right to access books of accounts
2. Right to obtain information and explanation
3. Right to receive notices and other
communication relating to General
meetings and to attend them
4. Right to visit branches
5. Right to correct any wrong statement
6. Right to sign the Audit report
7. Right of being indemnified
8. Right to seek legal and technical advise
9. Right to receive remuneration
1. An Auditor may consider necessary for the performance of his
duties to inquire into:
1. Whether loans and advances made by the company on the
basis of security have been properly secured
2. Whether transactions of the company which are represented
merely by book entries are prejudicial to the interests of the
company;
3. Where the company not being an investment company or a
banking company consist of shares, debentures and other
securities have been sold at a price lesser
4. Whether loans and advances made by the company have
been shown as deposits;
5. Whether personal expenses have been charged to revenue
account;
6. Where company’s shares that have been allotted for cash,
whether cash has actually been received in respect of such
allotment
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2. The auditor shall make a report to the members of the company
on the accounts examined by him
3. The auditor’s report shall also state:
 Whether he has sought all the information and explanations to the best of his
knowledge and belief
 Whether, in his opinion, proper books of account as required by law have
been kept by the company
 Whether the report on the accounts of any branch office of the company
audited has been sent to him
 Whether the company’s balance sheet and profit and loss account dealt with
in the report are in agreement with the books of account and returns;
 Whether, in his opinion, the financial statements comply with the accounting
standards;
 The observations or comments of the auditors on financial transactions or
matters which have any adverse effect on the functioning of the company;
 Whether any director is disqualified
 Any qualification, reservation or adverse remark
 Whether the company has adequate internal financial controls system in
place and the operating effectiveness of such controls;
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4. In the case of a Government company, the Comptroller and
Auditor-General of India shall appoint the auditor and direct
such auditor the manner in which the accounts of the
Government company are required to be audited and thereupon
5. Where a company has a branch office, the accounts of that
office shall be audited either by the auditor appointed or by any
other person qualified
6. Auditor not to render certain services (Sec. 144)
a) Accounting and book keeping services;
b) Internal audit;
c) Design and implementation of any financial information system;
d) Actuarial services;
e) Investment advisory services;
f) Investment banking services;
g) Rendering of outsourced financial services;
h) Management services; and
i) Any other kind of services as may be prescribed
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7. Auditor to sign audit reports, etc (Sec. 145)
8. Auditors to attend general meeting (Sec.146)
9. Every auditor shall comply with the auditing standards.
10. The Central Government may prescribe the standards of
auditing or any addendum thereto, as recommended by
the ICAI in consultation with and after examination of
the recommendations made by NFRA
11. The Central Government may, in consultation with the
NFRA, by general or special order, direct, in respect of
such class or description of companies, as may be
specified in the order
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12. Notwithstanding anything contained in this section, if an
auditor of a company, in the course of the performance
of his duties as auditor, has reason to believe that an
offence involving fraud is being or has been committed
against the company by officers or employees of the
company, he shall immediately report the matter to the
Central Government within such time and in such
manner as may be prescribed.
13. No duty to which an auditor of a company may be
subject to shall be regarded as having been contravened
by reason of his reporting the matter referred to in in the
above point, if it is done in good faith.
 Civil Liability:
 Civil Liability for Negligence:

 If there has been negligence in the performance of his

duty
 There happens to be a loss or damage as a result of
negligence
 The loss was suffered by the client

 Liability for mis-statements in the prospectus:

 Sec.35: where it is proved that a prospectus is issued
with, an intent to defraud the applicants; shall be
personally liable for all the losses incurred.
 Civil Liability:
 Civil Liability for Misfeasance: the liquidator can
bring a suit
 Liability towards third party:
 For Frauds
 For Negligence
 Criminal liabilities under the Companies Act, 2013:
 Sec.34: Criminal liability for mis-statements in prospectus,
punishable under Sec.447
 Sec.447: Punishment for fraud; six months imprisonment
extendable to ten years; also fine not less than the amount
involved and extendable to three times of the amount involved.
 Sec.147: Punishment for contravention: If any of the provisions
of sections 139 to 146 (both inclusive) is contravened, the
company shall be punishable with fine which shall not be less
than twenty-five thousand rupees but which may extend to five
Lakh rupees and every officer of the company who is in default
shall be punishable with imprisonment for a term which may
extend to one year or with fine which shall not be less than ten
thousand rupees but which may extend to one Lakh rupees, or
with both.
 Criminal liabilities under the Income Tax Act, 1961:
 Sec.288: convicted for an offence in connection with
taxation, liable to be disqualified from Commissioner of
Income Tax as well as the ICAI.
 Sec.277: submission of false statement of accounts, to
prepare the Income Tax Returns -2years of imprisonment.
 Sec.278: Any person, who aids, counsels or procures in any
manner to other person to make and deliver false statements
or declaration. Imprisonment from 3months to 3years with
fine.
 Criminal liabilities under the Chartered Accountants
Act, 1949:
 If any person not being a CA as per Sec.29 of the
Chartered Accountant Act, 1949 and signs any of the
financial documents. 1st time fine of Rs.1000,
subsequent time fine of Rs.5000 and imprisonment up
to 6 months.
 Part III of 1st schedule of Chartered Accountant

Act,1949
 Includes any statement, return or form to be
submitted to the council is false.
 Not being a fellow styles himself as a fellow
 Does not supply with the information called for.