Introduction
There has been a lot of changes as far as provisions relating to
auditors are concerned, in the new Companies Act, 2013. Additional duties have
been entrusted with the auditors and more procedural steps introduced. More
stringent penal provisions has also been introduced to ensure the quality of
professional services. Here I have tried
to bring together all those important points that highlights the auditors role
according to The Companies Act, 2013
Appointment
1. Appointment of first auditor shall be made by
the board within 30 days of registration of the Company. If board fails to do
so then the members shall appoint the first auditor at an EGM within 90 days
from when they are informed.
2. In case of govt. company or company owned and
controlled by govt., CAG shall make the appointment within 60 days of
registration of the company. If CAG fails to make the appointment within the
prescribed time then, board may appoint within 30 days. If the board also fails
to make the appointment in time, then the members shall at an EGM make the
appointment within 60 days from when they are informed.
3. The first auditor shall hold office till the
conclusion of the first AGM.
4. Subsequent appointment of auditors has to be
made at the first AGM for a period of 5 years. i.e. the auditor shall hold
office till the conclusion of that AGM till the conclusion of the 6th Meeting.
5. In case of govt. company or company owned and
controlled by govt., subsequent auditor shall be appointed by the CAG within
180 days from the commencement of financial year.
6. An individual auditor cannot be appointed for
more than one term of 5 years and an audit firm for not more than 2 terms of 5
years in the case of listed companies and such other class of companies as may
be prescribed. *
A transition period of 3 years from the
commencement of this Act has been prescribed for an already existing company to
comply with these provisions.
7. Though appointment is done for 5 years, the
appointment should be ratified at every AGM
8. No auditor/ audit firm/ audit firms having
common partners shall take audit for a consecutive term of 5 years after a five
year term has been completed.
9. Casual vacancy arising due to resignation of
an auditor shall be filled by the company in its meeting within 3 months from
the date of recommendation of the board.
10.
Whereas casual
vacancy arising due to any reason other than resignation, then the board shall
fill such vacancy within 30 days.
11.
In case of govt.
company or company owned and controlled by govt., casual vacancy shall be
filled by the CAG within 30 days . If CAG fails to do so in the prescribed
time, then the Board may make the appointment within 30 days.
12.
Any auditor who is
holding office as auditor for twenty companies shall not be eligible for
appointment.(Ceiling on number of company audits for an auditor.)
13.
The members may
require rotation of audit partner every year.
14.
Audit can be
conducted by one or more auditor.
15.
In case an LLP is
appointed as an auditor, only a chartered accountant shall be allowed to act
and sign on behalf of the firm.
16.
Multi
disciplinary partnerships are allowed.
Duty of auditor
on resignation
17.
Auditor is
required to file a statement specifying the reasons and fact of resignation
within 30 days of resignation with the ROC and company or CAG in case of Govt.
Companies.
18.
If auditor fails
to comply with this provision, then he shall be punishable with a fee of
Rs.50,000 to Rs.5,00,000
Duty of company
in case of representation from auditor.
19.
The company is
required to send a copy of the representation to every member and if copy of
representation is not sent, then a copy shall be filed with the registrar.
Duties
20.
An additional
duty of fraud reporting has been casted on the auditor, accordingly the auditor
shall immediately report to the Central Government, any offence
involving fraud which has been committed against the company by officers or
employees of the company, if he has reason to believe that such fraud has been
committed while exercising his duties as an auditor.
21.
The auditor shall
comply with the auditing standards. The central government shall prescribe the
standards on auditing as recommended by ICAI in consultation with and after
considering the recommendations of NFRA.
22.
All notices of
and other communications relating to, any general meeting shall be forwarded to
the auditor of the company, and the auditor shall attend either by himself or
through his authorised representative (who shall also be qualified to be an
auditor) at all such general meetings and shall have the right to be heard at
such meeting on any part of the business which concerns him as the auditor.
23.
An auditor shall
not provide the following non-audit services to the company, its holding
company or subsidiary company directly or indirectly:- (as given in section
144)
(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:
* indirectly includes through relative,
connected or associated person, or other entity over which individual has
significant influence or control, or whose name or trademark or brand is used
by the individual.
Power of Auditor
24.
The auditor of an holding company shall have
the right of access to the records of all subsidiaries in so far as it relates
to the consolidation of its financial statements with that of its subsidiaries.
Disqualifications
of an auditor.
25.
If any partner is
holding interest or security in the company or its subsidiary, or of its
holding or associate company or its subsidiary, or a subsidiary of such holding
company.
26.
If any relative
of such person holds interest or security whose face value exceeds Rs.1,000 or
such sum as may be prescribed, in the company or its subsidiary or holding
company or associate company etc. * relative includes
member of HUF, husband and wife, or related in such other manner as may be
prescribed.
27.
If any relative
of such person is a director or employee of director or key managerial
personnel.
28.
If person or firm
has any business relationship with the company or its subsidiary, or of its
holding or associate company or its subsidiary, or a subsidiary of such holding
company.
29.
Any person whose
subsidiary or associate company or any other form of entity, is engaged as on
the date of appointment in consulting and specialized services
30.
Consulting and
specialized services means-
1. Accounting and book keeping services
2. Internal audit
3. Design and implementation of any financial
information system
4. Actuarial services
5. Investment advisory services
6. Investment banking services
7. Rendering of outsourced financial services
8. Management services
9. Any other kind of services as may be
prescribed
10.
Any person
convicted by court of offence involving fraud and 10 years hasn’t elapsed from
the date of such conviction
11.
Person holding
appointment as auditor in 20 or more companies
12.
Person in full
time employment
Remuneration of
Auditors
31.
Remuneration of
auditors shall be decided by the members at a general meeting. For first
auditor it shall be fixed by the board.
Audit committee
32.
Every listed
company shall form audit committee with at least three directors, of which
majority shall be independent directors and shall have the ability to read and
understand financial statements.
33.
Appointment,
terms of appointment and remuneration of auditor shall be made only after
considering the recommendations of the audit committee.
34.
The committee
existing before constitution of the Act shall be reconstituted within 1 year of
commencement, ensuring compliance with
these provisions of the Act.
Actions against
the Auditor
35.
NFRA(National
Financial Reporting Authority) shall have the power to investigate (either suo
moto or on a reference made to it by the Central government) into the matters
of professional or other misconduct
committed by any member or a firm of chartered accountants, registered under
The Chartered Accountants Act, 1949
* provided that, no other institute or body shall initiate or continue
any proceedings in such matters of misconduct where NFRA has initiated an
investigation under this section.
36.
It shall have the
powers of a civil court under the code of civil procedure, 1908 while trying a
suit.
37.
Where
professional or other misconduct is proved, It shall have the power to
(i)
Impose a penalty
of Rs 1, 00,000 to five times the fee received in case of an individual and Rs 10,00,000 to 10 times the fee received
in the case of a firm.
(ii)
Debar the member
or the firm from engaging himself or itself from practice as a member of the
institute for a minimum period of 6 months or for such higher period not
exceeding 10 years as may be decided by NFRA.
*The appellate authority constituted under the respective Acts shall be
the appellate authority against any order by NFRA and the aggrieved shall have
the right to appeal before the appellate authority.
38.
In case the
auditor contravenes the provisions related to his powers & duties, provide
services given under section 144, then in addition to punishment provided in
the section, he shall be required to refund the remuneration received from the
company & shall be liable to pay the damages to the company or to any
person for the loss arising out of misleading or incorrect information.
39.
It is
specifically provided that the partner or partners of the firm and the firm
shall all be jointly and severally responsible for the liability, whether civil
or criminal as provided in this Act or in any other law for the time being in
force.
40.
If it is proved
that the auditor has acted in a fraudulent manner or abetted or colluded in any
fraud, they shall also be punishable in the manner provided in section 447.
