CORPORATE ACCOUNTABILITY – II - AUDIT

CORPORATE ACCOUNTABILITY – II -AUDIT

Audit is an examination of accounting records undertaken with a view to establishing the correctness of the transactions reflected therein. It involves the intelligent scrutiny of the books of accounts.

Appointment and remuneration of auditors – Section 224

Every company shall, at each annual general meeting, appoint an auditor or auditors to hold office from the conclusion of that meeting until the conclusion of the next annual general meeting and shall, within seven days of the appointment, give intimation thereof to every auditor so appointed.

The remuneration of the auditors of a company -

     (a) in the case of an auditor appointed by the Board or the Central Government, may be fixed by the Board or the Central Government

    (aa) in the case of an auditor appointed under section 619 by the Comptroller and Auditor-General of India, shall be fixed by the company in general meeting

     (b) subject to clause (a), shall be fixed by the company in general meeting or in such manner as the company in general meeting may determine.

For the purposes of this sub-section, any sums paid by the company in respect of the auditors' expenses shall be deemed to be included in the expression "remuneration".

Qualifications and disqualifications of auditors – Section 226

A person shall not be qualified for appointment as auditor of a company unless he is a chartered accountant within the meaning of the Chartered Accountants Act, 1949.

Disqualification of Auditors – Section 226(3)

     (a) a body corporate;

     (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 is indebted to the company for an amount exceeding one thousand rupees, or who has given any guarantee or provided any security in connection with the indebtedness of any third person to the company for an amount exceeding one thousand rupees;

    (e) 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.

Reappointment of Auditors – Section 224A

At any annual general meeting, a retiring auditor, by whatsoever authority appointed, shall be re-appointed, unless___

          (a) he is not qualified for re-appointment;

          (b) he has given the company notice in writing of his unwillingness to be re-appointed;

          (c) a resolution has been passed at that meeting appointing somebody instead of him or providing expressly that he shall not be re-appointed; or

          (d) where notice has been given of an intended resolution to appoint some person or persons in the place of a retiring auditor, and by reason of the death, incapacity or disqualification of that person or of all those persons, as the case may be, the resolution cannot be proceeded with.

Rights of Retiring Auditors – Section 225(2) & (3)

Appointment of Auditors by Special resolution – Section 224A

In the case of a company in which not less than twenty-five per cent of the subscribed share capital is held, whether singly or in any combination, by___

     (a) a public financial institution or a Government company or Central Government or any State Government, or

     (b) any financial or other institution established by any Provincial or State Act in which a State Government holds not less than fifty-one per cent of the subscribed share capital, or

     (c) a nationalized bank or an insurance company carrying on general insurance business, the appointment or re-appointment at each annual general meeting of an auditor or auditors shall be made by a special resolution.

Removal of Auditor – Section 224(5)

the company may, at a general meeting, remove any such auditor or all or any of such auditors and appoint in his or their places any other person or persons who have been nominated for appointment by any member of the company and of whose nomination notice has been given to the members of the company not less than fourteen days before the date of the meeting; and

Section 224(7) - Except as provided in the proviso to sub-section (5) above, any auditor appointed under this section may be removed from office before the expiry of his term only by the company in general meeting, after obtaining the previous approval of the Central Government in that behalf

Auditors of Government Company – Section 619

The auditor of a Government company shall be appointed or re-appointed by the Comptroller and Auditor-General of India.

The limits specified in sub-sections (1B) and (1C) of section 224 shall apply in relation to the appointment or re-appointment of an auditor under this sub-section.

Right and Powers of Auditors

1. Access at all times to the books and accounts and vouchers of the company – Section 227(1)
2. Right to obtain information and explanations
3. Right to sign the audit report – Section 229
4. Right to receive notice and attend general meeting – Section 231 Right to Audit of accounts of branch office of company – Sec 22
5. Right to receive remuneration – Section 224(8)

Duties of Auditor – Section 227(1A)

Special Audit – Section 233A

Where the Central Government is of the opinion^___

     (a) that the affairs of any company are not being managed in accordance with sound business principles or prudent commercial practices; or

     (b) that any company is being managed in a manner likely to cause serious injury or damage to the interests of the trade, industry or business to which it pertains; or

     (c) that the financial position of any company is such as to endanger its solvency.

Cost Audit – Section 209(1)(d)

In the case of a company pertaining to any class of companies engaged in production, processing, manufacturing or mining activities, such particulars relating to utilisation of material or labour or to other items of cost as may be prescribed, if such class of companies is required by the Central Government to include such particulars in the books of account.

Penalty for non-compliance by auditor with sections 227 and 229.

If any auditor's report is made, or any document of the company is signed or authenti­cated, otherwise than in conformity with the requirements of sections 227 and 229, the auditor concerned, and the person, if any, other than the auditor who signs the report or signs or authenticates the document, shall, if the default is willful, be punishable with fine which may extend to ten thousand rupees.

True and Fair View – Section 227(2)

The auditor shall make a report to the members of the company on the accounts examined by him, and on every balance sheet and profit and loss account and on every other document declared by this Act to be part of or annexed to the balance sheet or profit and loss account, which are laid before the company in general meeting during his tenure of office, and the report shall state whether, in his opinion and to the best of his information and according to the explanations given to him, the said accounts give the information required by this Act in the manner so required and give a true and fair view

     (i) in the case of the balance sheet, of the state of the company's affairs as at the end of its financial year; and

     (ii) in the case of the profit and loss account, of the profit or loss for its financial year.