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auditor s appointment, re-appointment, removal, rights duties

Company Audit. Table of ContentBasic Provisions relating to authentication, circulation, Adoption and filing of annual Accounts Appointment of AuditorRe-Appointment of AuditorCeiling on Number of AuditQualifications and Disqualifications of AuditorRemoval Of AuditorRights of AuditorDuties of Auditor.

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auditor s appointment, re-appointment, removal, rights duties

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    1. Auditors Appointment, Re-appointment, Removal, Rights & Duties CA. Atul Seksaria Sr. Partner S. S. Kothari Mehta & Co. E mail: mis@sskmin.com 1

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    3. Basic Provisions relating to authentication, circulation, Adoption and filing of annual Accounts of Company Authentication of Annual Accounts :-The Balance Sheet (BS) and Profit & Loss account (P &L A/c) duly considered, approved and signed should be handed over to the Companys Auditors for their report thereon {Sec 215(3)} Profit & Loss A/c must be annexed to the Balance Sheet and the Auditors report must be attached thereto {Sec 216} Circulation of Annual accounts:- A copy of BS, P& L A/c, Director Report & every other documents required to be annexed or attached there to shall be sent to every member of the company , not less than 21 days before the meeting. {Sec 219} Adoption of Account (including Balance Sheet, Profit & Loss A/c and directors report thereon) in AGM {Sec 210} BS & P &L A/c shall be filed with the Registrar of the Companies together with all documents which are required by the Companies to be attached/annexed thereto within 30 days of AGM. {Sec 220} 3

    4. Appointment of Auditor 4

    5. Appointment of Auditor 5

    6. First Auditor is appointed by BOD 6

    7. Sec. 224(5) Appointment & Removal of First Auditor Appointed by BOD within 1 month of registration of the company. ` Sec 224(5) If BOD fails to appoint, the company may appoint at a General Meeting. Holds office until the conclusion of first AGM. Thus, he will continue in office until the next annual general meeting is actually held and concluded. Members at any GM may remove such auditor and appoint another one in his place, of whose nomination special notice has been given to the members of the company not less than fourteen days before the date of the meeting. Proviso to section 224(5) Appointment of first auditors through the MOA & AOA -not a valid appointment. The first auditors are under no obligation to inform the Registrar. 7

    8. Subsequent Auditor in AGM 8

    9. S. 224(1)Appt. of Subsequent Auditor Appointed at each AGM to hold office until the conclusion of next AGM. Sec 224(1) Intimation to the auditor within 7 days. Auditor to file form 23B to ROC within 30 days, whether he has accepted or refused to accept the appointment. Sec 224(1A) Appointment of auditor is mandatory in the AGM for the ensuing year. Before any appointment or re-appointment of auditor or auditors written certificate shall be obtained by the company from the auditor or auditors proposed to be so appointed to the effect that the appointment or re-appointment, if made, will be in accordance with the limits specified in sub-section (1B).] Requirement of a valid peer review certificate for appointment of statutory auditors- Clause 41(1) (h) of Listing Agreement CIR/CFD/DIL/1/2010 9

    10. What if Company Fails to appoint Auditor in AGM? Where at an annual general meeting no auditors are appointed or re-appointed, the Central Government may appoint a person to fill the vacancy. Sec 224(3) Company to give notice to Central Govt within 7 days after AGM that no auditor has been appointed. Sec 224(4) Delay in giving such notice does not affect the jurisdiction of the Central Govt. Powers of Central Govt. - Delegated to Regional Director. 10

    11. Casual Vacancy in the office of the Auditor 11

    12. Section 224(6) Casual Vacancy BOD may fill any casual vacancy. Sec 224(6)(a) Vacancy caused by resignation - filled by the company in GM. Such Auditor holds office till conclusion of next AGM. Sec 224(6)(b) Where an auditor refuses to accept appointment or re-appointment- Deemed to be no appointment - CG If one of the two joint Auditors resigns before the completion of the tenure - Casual Vacancy by resignation - GM If there is a complete change in the constitution of the firm of Auditors i.e. all the earlier partners retire and new partners joins - Casual Vacancy.- By Board 12

    13. Appointment by Special Resolution 13

    14. Appointment by Special ResolutionSection 224A Where not less than 25% of subscribed share capital is held by -Public Financial Institution/ Govt.Company/ Central Govt./ State Govt. -any institution established under State/ Provincial Act in which State Govt.holds not less than 51% of subscribed share capital. -Nationalised bank/ Insurance company DCA through its circular has clarified that the above three clauses are not mutually exclusive. It would apply to all cases of shareholding in any combination. DCA-Circular No.14 of 2001 dated 16-07-2001 14

    15. Appointment by Special ResolutionSection 224A Material date for 25% holding of subscribed share capital - date of AGM at which Special Resolution is to be passed and not the date of notice of meeting. DCA-Circular No.2/76[1/1/76-CL-V] dated 5-6-1976 Irrespective of the circumstances in which a nationalized bank is holding shares, if the name of the bank is entered in the register of members of the company, such holding of shares will have to be taken into account for the purposes of sec 224A. DCA-Circular No.18/74 dated 12-12-1974 15

    16. Appointment by Special ResolutionSection 224A Certified copy of the special resolution so passed shall be filed with the Registrar within 30 days of passing, in Form No. 23. If, after notice of the annual general meeting is issued in the usual course and before the holding of meeting, it happens that the holdings of the public financial institutions have reached 25% of the total subscribed share capital, then the meeting has to be adjourned and after issuing notice under this section, necessary special resolution is to be passed for appointing the auditor(s). If Company omits or fails to pass special resolution- it shall be deemed that no auditor or auditors had been appointed by the company at its annual general meeting and Central Govt. will appoint auditors to fill the vacancy in term of Section 224(3) 16

    17. ICAI Recommendations It would not be sufficient for the incoming Auditor to accept a certificate from the management of the Company that provisions of Companies Act with respect to Appointment has been complied with. If the Company is unwilling to allow the incoming Auditor to verify the relevant records, Auditors should not accept the Audit Assignment Incoming Auditor Should verify the following:- (i) Whether a member of the Company has given special notice of the resolution as required u/s 225(1) at least 14 days before the date of the GM. A True copy of the Certificate should be obtained (ii) Whether this special notice has been sent to the members of the company as required u/s 190(2) at least 7 days before the date of GM (iii) Whether this special notice has been sent to the retiring auditors forthwith as u/s 225(2) (iv) Whether representation received from the retiring Auditors, if any has been sent to the members of the company as required u/s 225(3) (v) Whether the representation received from the retiring Auditor has been considered at the GM and the resolution, proposed by the special notice, has been properly passed at the GM. Incoming Auditors should also communicate with the outgoing Auditor in writing before accepting the audit assignment. 17

    18. Appointment of Auditor of Govt. Companies (sec 619) Appointed or re-appointed by the C&AG Submits a copy of report to C&AG who have the right to comment on upon, or supplement the audit report in such manner as he may think fit. Any such comments or supplement to the audit report shall be placed before the AGM as audit report. 18

    19. Lets Summarize 19

    20. Branch Auditor- Section 228 Where a company, whether a public or a private limited, has a branch office, its accounts should also be audited. Auditor may be the Companys Auditor or some other person qualified to be appointed as Auditor. If the branch is situated in a country outside India, a person who is duly qualified to act as auditor of the branch in accordance with the laws of that country. Where Branch Auditor is different from Companys Auditor, he is appointed by the Company in GM or BOD are authorised to appoint him in consultation with Companys Auditor. Same powers as Companys Auditor. Central Government may make rules providing for the exemption of any branch office from the provisions of this section to the extent specified in the rules. 20

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    22. Qualifications of an Auditor Sec 226 A Chartered Accountant who is a member of ICAI and holding certificate of practice and Should practice in India (Practicing C.A.) A Partnership firm of Practicing C.A.s Holder of Certificate under part B States Act, 1956 Sec 226(2) It is to be noted that The Auditor's Certificate Rules were published in 1932 whereby government authorities sought to regulate the accountancy profession. 22 Entry of names in the Register of ICAI -Any person who, at the commencement of this Act, is engaged in the practice of accountancy in any Part B State and who, although not possessing the requisite qualifications to be registered as an accountant under the Auditor's Certificate Rules, 1932, fulfils such conditions as the Central Government may specify in this behalf;Entry of names in the Register of ICAI -Any person who, at the commencement of this Act, is engaged in the practice of accountancy in any Part B State and who, although not possessing the requisite qualifications to be registered as an accountant under the Auditor's Certificate Rules, 1932, fulfils such conditions as the Central Government may specify in this behalf;

    23. Who can not be appointed as Auditor?Section 226(3) A Body Corporate An Officer or Employee of the Company A Person who is a Partner, or in the employment, of an Officer or Employee of the Company. A Person who is indebted / Guarantor to the Company for an amount exceeding Rs.1000. A Person holding any security of that Company after a period of one year from the date of commencement of the Companies Amendment Act 2000. (security means instrument carries voting right) Disqualified by subsidiary company, then disqualified by holding company also and vice versa 23

    24. Who can not be appointed as Auditor?Section 226(3) If an auditor, after his appointment, becomes subject to any disqualification mentioned above, he shall be deemed to have vacated as such. Statutory auditor can not be internal auditor. DCA-Circular No.5/77[1/1/76-CL-V]dated 8-4-1977 24

    25. Ceiling on Number of Audit Section 224(IB) Should not be in FULL TIME EMPLOYMENT Auditor of max 20 Companies only 10 can be Large Companies Large Companies - paid up capital of or exceeding 25 lacs In a Firm of Auditors, the limit of 20 Companies is per Partner. As per Companies(Amendment)Act,2000, Private Companies will not be taken into account for counting the limit of 20 Companies. However, as per ICAI notification, a person can carry out the audit of Max 30 companies including Private Companies. 25

    26. Ceiling on Number of Audit Joint audit assignments - to be counted as one company. Branch Audits not included DCA-Circular No.21 of 75 dated 24-9-1975 Guarantee companies having no share capital also excluded DCA-Letter No.8/12/(224)/74-CL-V dated28-9-1974 Foreign companies audit - not included DCA-Circular No.21 of 75 dated 24-9-1975 26

    27. Removal of Auditor 27

    28. Removal of Auditor Special notice required from any member atleast14 days before the date of the GM - Section 225(1) Ordinaryresolution at AGM required but notice would be special Days would be exclusive of the day on which the notice is served or deemed to be served and the day of the meeting. Auditor can be removed before expiry of his term by Company in GM after previous approval of Central Govt (powers delegated to Regional Director). Section 224(5) Prior approval of Central govt. require before actually removing an Auditor. Though resolution for removal can be passed before. 28

    29. Removal After Expiry of the term Section 224(1) Subject to the provisions of sub-section (1B) and section 224A at any annual general meeting,] a retiring auditor, by whatsoever authority appointed, shall be re-appointed, unless- 29

    30. Rights of an Auditor Sec 227 To access books of accounts of the company.[227(1)] To seek information and explanation from the officers of the company To visit branches where he is not satisfied with the details given by the branch auditor[228] To receive notice of AGM[231] To make any representation which the co. can send to all its shareholders or read out at the GM. To take advice from experts. To receive Branch Audit Report. To sign the audit report. To receive remuneration. To attend AGM. To speak at AGM. To be indemnified. Right of lien. 30

    31. Duties of an Auditor Report to the shareholders on:- Whether proper Books of Accounts were kept and proper returns received from the Branches not visited by him. Whether necessary information was received during the course of audit . Whether BS & P& L A/c are in agreement with the Books of Accounts. Whether BS & P& L A/c are as per Co.s Act. Whether the BS & P& L A/c complied with Accounting Standards referred in Sec 211(3C) Whether Accounts show True & Fair View. Report on CARO (if applicable) Qualifications in report. Directors disqualifications if any. 31 Proper books of account shall not be deemed to be kept with respect to the matters specified therein,- (a) if there are not kept such books as are necessary to give a true and fair view of the state of the affairs of the company or branch office, as the case may be, and to explain its transactions; and (b) If such books are not kept on accrual basis and according to the double entry system of accounting.] Proper books of account shall not be deemed to be kept with respect to the matters specified therein,- (a) if there are not kept such books as are necessary to give a true and fair view of the state of the affairs of the company or branch office, as the case may be, and to explain its transactions; and

    32. Duties of an Auditor Duty to inquire into Certain Matters Sec 227(IA) Loan and advances made by the company. Book entries. Sale of investment below cost. Loan and Advances shown as deposit Personal expenses. Shares issued during the year. 32

    33. Duties of an Auditor Sign & submit the Audit Report. Certify the Prospectus regarding : Rate of Dividend paid for the last 5 years Profits & Losses for the last 5 years Assets & Liabilities of the company Certify Statutory report regarding : Numbers of shares allotted Cash received on such allotment Receipt and Payment Account Comply with the Directives of the ICAI and that of Central Govt. 33

    34. THANK YOU 34

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