ROLE OF PROFESSIONALS -AUDITORS

The Companies Act 1956, lists out the role of professionals such as Chartered Accountants, Company Secretaries and Cost Accountant

This article will give you the activities, duties and responsibilities of these professionals in dealing with the affairs of a Company.

Auditors (section 224 to 233B)

Who is an auditor?

An auditor is a person who possess extensive knowledge, expertise and requisite qualification for auditing the financial affairs of the company and does not have any pecuniary relationship with the company and who gives a true and fair view of the affairs of the company for the benefit of the stakeholders.

Section 226 of the act details the qualifications for an auditor.

v    A person who is a chartered accountant as defined in “The Chartered Accountants act of 1949”

v    No Body corporate or company should be appointed as auditor of the company.

v   The auditor who has been disqualified by virtue of any of the provisions of this section should not be appointed as auditor for the holding or subsidiary companies also.

How an Auditor is appointed?

Generally, an auditor/s is appointed at the Annual General meeting of the company to hold office from the conclusion of the AGM until the conclusion of the next AGM.

He should intimate his appointment to the ROC in e-form 23B within 30 days of his appointment.

The first auditor of a company should be appointed by the board of directors within one month of registration of the company and the first auditor holds office until the conclusion of the First AGM.

Members have the right to remove the first auditors of the company in the annual general meeting. Any member can nominate a person or persons as auditors of the company and such nomination notice must be given 14 days before the date of the AGM.

It is evident that, the auditor is answerable to the members/ investors of the company.

What is the limit in number of companies acting as a Auditor?

An individual auditor or a firm can act as auditor for 20 companies, each of which has a paid up capital of less than Rs. 25 lacs

In any other case, they can act as auditor of 20 companies out of which not more than 10 companies should have a paid up capital of Rs. 25 lacs or more.

In case of a company other than a private company, no board or company should appoint any person who is in the full time employment elsewhere, as auditor of the company if he exceeds the specified number of companies.

Any person - in case of firm of auditors, the specified number of companies will be construed as the number of companies specified for every partner.

Can the retiring auditor be reappointed?

Subject to complying with the provisions of acting as auditor of specified number of companies, A retiring auditor can be reappointed unless

©      He is disqualified for re-appointment

©      He has given his unwillingness to be re-appointed

©      A resolution has been passed not to appoint him as auditor

©      By reason of death or incapacity or the resolution cannot be proceeded with.

How is casual vacancy filled?

The resignation of auditors must be filled by the members in general meeting. All other casual vacancies in the office of auditors can be filled by the board of directors.

Auditor appointed in casual vacancy can hold office up to the conclusion of next annual general meeting.

How can auditor be removed?

The power to remove auditor who is appointed in general meeting lies with the members and it requires prior approval of central government.

Brief about the Remuneration of auditors

The remuneration to the auditor is determined by the board of directors/ members / central government who appoints the auditor.

“The provisions relating to auditors give a wider power to the members of the company than to the board of directors. This is because the auditors are responsible for projecting the actual state of affairs of the company and they have a bounded duty to give a fair view about the business to its investors.”

Special notice for appointment of auditors:

The appointment of any other person other than the retiring auditor requires a special notice to be attached with the AGM notice. This special notice is required even in the case of removing an auditor.

The act confers a power on the retiring auditors to give his representation about the company. This representation must be sent to the members along with the notice of AGM or a fact must be stated in the notice that such a representation is received by the company from the Auditors. The officers who are responsible for sending notice of AGM should take the responsibility for sending this representation.

The auditor might ask for the same representation to be read out at the meeting.

If anybody feels aggrieved by such representation, they can apply to the Central Government to prevent from the circulation of such representation or reading out at the AGM and if the CG approves, the auditor may have to bear the entire cost of such expenses.

“This is a power conferred upon the auditor and a kind of duty on the auditor to give out his representation about the company. “ This power can be exercised by the first auditor, auditor appointed by members and also by a retiring auditor who is specifically prohibited from re-appointment.”

Brief about the Auditors report:

Section 227 talks about the Auditors report.

It should detail about the functions of the company, the way the funds are utilized, the mandatory compliances carried out by the company etc,.

The auditor’s report must be signed by the Auditor of the company; in case of firm of auditors the person who represents the firm must sign the report.

The auditor has a right to get the notices of AGM and they have a right to attend the Annual general meeting of the company.

“This requires the Auditors to give an unbiased report about the financial affairs of the company. It imposes a duty on the auditor to bring out any qualifications or adverse remarks on the affairs of the company.”

From the provisions of Companies Act, it is clear that the role of auditor is not simply confined with the reporting of the affairs of the company, rather involves a responsibility of projecting the misdeeds and frauds involved in the activities of the company.  

The report of the auditor has a greater significance in knowing about the company and is not simply a report to be complied as per the act but it is a weapon in the hands of investors.