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TMI BlogELIGIBILITY, QUALIFICATIONS AND DISQUALIFICATIONS OF AUDITORS UNDER NEW COMPANY LAWX X X X Extracts X X X X X X X X Extracts X X X X ..... ELIGIBILITY, QUALIFICATIONS AND DISQUALIFICATIONS OF AUDITORS UNDER NEW COMPANY LAW - By: - Dr. Sanjiv Agarwal - Corporate Laws / IBC / SEBI - Dated:- 14-1-2014 - - Statutory Provision ( Section 141 ) Section 141 corresponds to Section 224 on Appointment and remuneration of auditors and Section 226 on Qualifications and disqualifications of auditors of the Companies Act, 1956 . The significant changes are as follows: (a) only a chartered accountant is eligible to be appointed as an auditor. (b) new disqualification have been introduced for appointment as an Auditor of the Company. (c) in case of a firm or LLP, only the partners who are chartered accountants shall be authorised to act and sign on behalf of firm o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r LLP. (d) a firm whereof majority and not all partners in India are practicing in India ,are qualified for appointment as provided under the Companies Act, 1956 , may be appointed by its firm name to be auditor of a Company. (e) the restriction that if an auditor of a body corporate is disqualified as such, which is a holding company or subsidiary or subsidiary of holding company of such body corporate, then he shall not be qualified for appointment as an auditor of the body corporate also, has been dispensed with. (f) a person who is in full time employment elsewhere or a person / partner of firm holding appointment as auditor, shall be disqualified for appointment if at the date of appointment / reappointment, he is holding em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployment as auditor of more than 20 companies. Explanation Qualifications As per sub-section (1), only a Chartered Accountant can be appointed as auditor of the company. Further, a firm in which all the partners are practicing in India are qualified for appointment as auditor, may be appointed by its firm name to be the auditor of a company. As per the definition provided in the section 2 (17) a chartered accountant means a chartered accountant as defined in section (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 who holds a valid certificate of practice under sub-section (1) of section 6 of that Act. The proviso to sub-section (1) provides that a firm of chartered accountant practicing in India may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be appointed as auditor of the company by its firm name. A limited liability partnership firm is also eligible to be appointed as auditor of the company in the firm name, but only the partners who are chartered accountant under the meaning of section 2(17) , shall be authorised to act and sign on behalf of the firm. Limited Liability Partnership is governed by the Limited Liability Partnership Act, 2008 and the Limited Liability Partnership (LLP) Rules, 2009 . Propriety firm also qualifies for appointment but in individual's name Since only one person is a proprietor of the firm, it cannot be regarded as a partnership firm which may be properly appointed as the auditor of a company under proviso to section 141(1) . It foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows that a company must appoint the proprietor of the so-called firm, by his name in his individual capacity, as its auditor, and the auditor s report will have to be signed by the proprietor himself in his own name. [ Circular No. 8/229/56-PR, dated 20-3-1957 ]. Auditor's Disqualifications Apart from the qualifications prescribed under the Companies Bill 2012, disqualifications have been provided for appointment as an Auditor of the company. The following cannot be appointed as auditors: (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 offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er or employee of the company; (d) a person who, or his relative or partner - (i) is holding any security of or interest in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company. The relative [as defined in section 2 (77) ] may hold security or interest in the company of face value not exceeding one thousand rupees or such sum as may be prescribed in Rules. (ii) is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of such amount as may be prescribed in Rules or (iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idiary, or its holding or associate company or a subsidiary of such holding company, for such amount as may be prescribed in Rules. (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 of such nature as may be prescribed in Rules. (f) a person whose relative is a director or is in the employment of the company as a director or key managerial personnel [as defined in section 2(51) ] (g) a person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppointment holding appointment as auditor of more than twenty 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 and specialised services as provided in section 144. These provisions ensure that the auditors are independent when they conduct audit of the company. A body corporate has limited liability and hence it cannot be appointed as an auditor of the company. For ensuring the independence, an officer or an employee of the company are also disqualified to act as an auditor of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any. Further, any person whose subsidiary or associate Company or any other form of entity, is engaged as on the date of the appointment in any of the following consulting and specialized services shall not be eligible for appointment as an Auditor of any Company: 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. Thus, auditors will have to be careful and aware as well as beware not only about qualificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on but also of the disqualifications (existing and now) relatives / partners (including dormant partners) investments / holdings of relatives in auditee companies or its holding / subsidiary / associate company (The relative can hold interest in the company for face value not exceeding Rs. 1000 or higher sum, if so prescribed). Automatic Vacation of office If an auditor after being appointed as such, suffers from any of the disqualifications provided in sub-section (3), the firm or individual, as the case may be, shall be deemed to have vacated his office as an auditor from the date he becomes so disqualified and such vacation shall be deemed to be casual vacancy in the office of the auditor. Draft Rules Followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng draft rules have been prescribed separately on enactment of Companies Act, 2013 - (a) Higher amount than prescribed which may be held by the person himself or his relative or partner as security or interest in the company for being eligible to be appointed as Auditor. (b) Amount of indebtedness, beyond which the person is disqualified for appointment as Auditor. (c) Amount of guarantee or security connected with the indebtedness of third person, beyond which the person is disqualified for appointment as Auditor. (d) Nature of business relationship with the Company and others, which disqualifies a person or firm for appointment as Auditor. (e) Number of Companies, beyond which if the auditor or audit firm holds appointment as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Auditor, then it will be disqualified for appointment as Auditor in the Company. - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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