Change in Auditor
An auditor of the company is an independent professional who verifies the financial statements of the company and give his/her opinion the financial position of the company through their Audit report.
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Meaning of Change in Auditor of company
An auditor appointed in a company is an independent external professional who is authorized to review and verify the company’s financial position and who is require to certify the company’s financial statements. An auditor is someone who is responsible for evaluating the validity and reliability of a company or organization’s financial statements. The auditors perform the most crucial task of the company. Thus, selection and appointment of auditor is an important task for board of directors.
duties and responsibility of an auditor
1) Prepare an Audit Report:
The auditor is responsible for preparing an audit report based on the financial statements of the company. The books of accounts so examined by him should be maintained in accordance with the relevant laws. He must ensure that the financial statements comply with the relevant provisions of the Companies Act 2013, relevant Accounting Standards etc.
2) Branch audit:
Where the auditor is the branch auditor and not the auditor of the company, he will lend assistance in the completion of the branch audit. He shall prepare a report based on the accounts of the branch as examined by him and then send it across to the company auditor. The company auditor will then incorporate this report into the main audit report of the company.
3) Reporting of fraud:
The auditor may have certain suspicions with regard to fraud that’s taking place within the company, certain situations where the financial statements and the figures contained therein don’t quite add up. When he finds himself to be in such situations, he will have to report the matter to the Central Government immediately and in the manner prescribed by the Act.
4) Adhere to the Code of Ethics and Code of Professional Conduct:
The auditor, being a professional, must adhere to the Code of Ethics and the Code of Professional Conduct. Part of this involves confidentiality and due care in the performance of his duties. Another important requisite is professional skepticism.
Appointment of auditor
Appointment by Board of Directors:
Within one month from the date of registration of the company, the first auditor or auditors may be appointed by the Board of Directors.
Appointment by company at a General Meeting:
In case, the first auditors are not appointed by the Board of Directors, the company may appoint the first auditors at a general meeting
Appointment of Auditors other than First Auditors (Appointment of Subsequent Auditor):
- At each Annual General Body meeting of the company, the shareholders shall appoint an auditor for the company.
- The auditor so appointed shall hold office until the conclusion of the subsequent annual general body meeting.
- The company should intimate the auditor about the appointment within 7 days of such appointment.
- The acceptance or refusal of such appointment should be intimated by the auditor to the Registrar of Companies within 30 days of the receipt of the intimation of such appointment.
- Such acceptance / refusal should be made in a prescribed form.
- The intimation to the Registrar about the acceptance / refusal of appointment is necessary only if the auditor / auditors are appointed in an annual general body meeting. This intimation shall be given by filing form ADT-1 within 15 days from the date of appointment along with prescribed documents and prescribed fees. The form ADT-1 can be downloaded from the government website http://mca.gov.in.
Qualification and disqualification of an auditor.
QUALIFICATION OF AN AUDITOR (WHO CAN BE AUDITOR)?
According to Provisions of Section 141(1) of the Companies Act, 2013 “a person shall be eligible for appointment as an auditor of a company only if he is a chartered accountant within the meaning of Chartered Accountants Act, 1949 and holds a valid Certificate of Practice.”
It has been further provided that the firm shall also considered to appointed by its firm name whereof majority of partners practicing in India are qualified for appointment as auditor of a company.
According to Provisions of Section 141(2) of the Companies Act, 2013, a firm including limited liability partnership who are chartered accountants shall be authorized to act as auditor and sign on behalf of the such limited liability partnership or firm.
DISQUALIFICATION OF AN AUDITOR (WHO CAN NOT BE AN AUDITOR):
According to Provisions of Section 141(3) of the Companies Act, 2013 , following persons shall not be eligible as auditor of the company: ‐
a) A body corporate other than LLP registered under the LLP Act, 2008
b) An officer or employee of the company.
c) A person who is partner or who in the employment, of an officer or employee of the company.
d) A person who or his relative or partner
(i) is holding any security/interest in the company or its subsidiary or of its holding or associate company or subsidiary of such holding company. It has been further provided that an relative may hold security or interest in the company of face value not exceeding one lac rupees.
(ii) is indebted to the company or its subsidiary, or its holding or associate company or subsidiary of such holding company, in excess of Rs. 5 lacs rupees
(iii) has given guarantee or provide any security in connection with the indebtedness of any third person to the company or its subsidiary, or its holding or associate company or a subsidiary of such holding company for value in excess of Rs. 1 lacs.
e) A person or a firm who (whether directly or indirectly) has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company.
Here the business relationship shall be construed as any transactions enter into for a commercial purpose except: ‐
1) Commercial transactions which are in the nature of professional services permitted to be rendered by an auditor or audit firm by the professional bodies regulated such members.
2) Commercial transactions which are in ordinary course of business of the company at arm’s length price as customer.
f) A person whose relative is a director or is in the employment of the company as a director or key managerial personnel.
g) A person,
(i) who is in full time employment elsewhere or
(ii) a person or a partner holding appointment as its auditor is at the date of such appointment or reappointment holding appointment as auditor for more than 20 companies.
h) A person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction.
i) Any person whose subsidiary or associate company or any other form of entity is engaged as on the date of appointment in consulting or specialized services in reference to provision of Section 144 of the Companies Act, 2013.
Further According to Provisions of Section 141(4) of the Companies Act, 2013, where a person appointed as auditor of the company incurs any of the disqualification mentioned in Section 141(3) of the Companies Act, 2013 after his appointment, he shall vacate his office as such auditor and such vacancy shall be deemed to be casual vacancy in the officer of the auditor.
It must be noted that the aforesaid provisions are applicable to all types of auditors i.e. cost auditors, statutory auditors and secretarial auditors.
Removal of auditor
The auditor who has RESIGNED FROM the company shall file within a period of 30 days from the date of resignation, a Statement in the Form No. ADT-3 with the company and the ROC, indicating the reasons and other facts as may be relevant. From ADT-3 can be downloaded from government website http://mca.gov.in
Form ADT – 3 require below mentioned information
1) Income Tax PAN of auditor or auditor’s firm
Name of the auditor or auditor’s firm
- Membership Number of auditor or auditor’s firm’s registration number
- Address of the auditor or auditor’s firm
- Contact details (Email id and Phone number) of the auditor or auditor’s firm
3) Resignation letter to be attached with the above mentioned form
FAQS
FORM ADT-1 is required to be filed for appointment of an auditor.
YES, auditor can be removed before expiry of his term subject to approval of central government.
YES, it is the duty of an auditor to remain present at annual general meeting of company.
YES, more than one auditor/auditor's firm can be appointed in a same company. This kind of auditor is called joint auditors. The Roles and responsibility can be divided amongst the auditors.
FORM ADT-3 is required to be filed for resignation of an auditor.
YES, an auditor can be held responsible for any default in a company if the default comes under the purview of his duties and responsibilities and if he failed to identify the default or do not report the default.
NO, director need not be compulsorily present at each board meeting of a company. But if the agenda of meeting requires auditor's presence then he must be present to guide company in such matters.
An auditor in whose purview or in whose area of the duty, the default occurs shall be held responsible for the same. If the areas of the work are not divided amongst the auditors then every auditor shall be held responsible.
