- 139 auditors ko appoint kiya gaya tha toh 140 auditor removal, resignation of auditors & giving of special notice kaise de sakte hai. or toh or 144 auditors's ne service dene se mana kar diya.
- auditor ne 146 general meeting attend ki jaha par usne 145 board report par sign kiya. 1 par nahi kiya jiski wajah se usko 147 rupees ki penelty & punishment mili.
- Auditor ne kaha ki 147 ki penelty lagayi but muje remuneration toh 142 milta hai.
- Mai 143 (i love you) apni power & duties & auditing standard se bahut pyar karta hu. or ab tak 141 companies me eligibile , qualify, or disqualify ho chuka hu.
First Auditor Appointment:
- Every company needs to appoint an auditor at its first Annual General Meeting (AGM).
- The auditor will serve from the end of that meeting until the conclusion of the 6th AGM.
- After that, the auditor will continue until the conclusion of every 6th AGM.
Example: If a company holds its first AGM in 2023, the appointed auditor will serve until the conclusion of the 6th AGM which might be (जो हो सकता है) in 2029.
Bonus tips - Before Appointment:
- Obtain the auditor's written consent and a certificate stating eligibility.
- The certificate must confirm the auditor meets criteria under section 141 and list any ongoing professional proceedings.
Example: Before hiring an auditor, the company needs the auditor's agreement and a certificate confirming they're qualified and not facing professional issues.
Manner of Selection of Auditor:
If a company is required to form an Audit Committee (AC) under section 177, the AC will recommend the auditor to the Board.
If there is no AC, the Board itself will consider and recommend an auditor to the members in the AGM.
Example: If a company has an Audit Committee, this group will suggest an auditor based on qualifications and experience.
Responsibility of Selection:
- The decision-makers (AC or Board) should consider the qualifications and experience of the proposed auditor.
- They must also check if there are any ongoing issues related to professional misconduct before professional bodies or courts.
Example: If an auditor has a good track record and relevant experience, they might be a suitable choice. (वे एक उपयुक्त विकल्प हो सकते हैं.)
Reconsideration:
- If there is a disagreement between the Board and AC on the auditor's choice, there's a process.
- The Board can send it back to the AC for a second look, stating reasons for disagreement.
- If the Board decides not to reconsider, it records the reasons for its disagreement and presents its own recommendation to the members in the AGM.
Example: If the Board thinks the recommended auditor lacks some crucial qualification, they might send it back to the AC for reconsideration.
Appointment Process:
Example: Once the company decides on an auditor, they let the auditor know and officially register the appointment with the RoC.
Explanation - "Appointment" Includes Reappointment:
Example: If a company extends the term of an existing auditor, it's considered reappointment.
NFRA Rules:
Example: Companies under NFRA rules need to notify NFRA when they appoint auditors.
Tenure, Reappointment, and Cooling Period:
- can't appoint an individual for more than 5 consecutive years (लगातार 5 साल) or
- an audit firm for more than 2 terms of 5 consecutive years.
Example: A big private company can't have the same auditor for more than 5 years in a row; they must take a break before reappointing.
Incoming Auditors and Common Partners:
Example: If Audit Firm A finishes its term, and Audit Firm B shares partners with A, B can't be the auditor for the same company for the next 5 years.
Note on Company's Right:
Example: Even with these rules, a company can still replace an auditor or an auditor can choose to resign from the position.
Certainly! This section covers the rotation of auditors, appointment procedures for government companies, and the selection of the first auditor for different types of companies.
Rotation of Auditor (Section 139(3)):
- appointed in government companies,
- and chosen for the first time in other companies.
- Rotation aims at ensuring fresh perspectives, and government companies have specific procedures for auditor appointments.
Company members can decide to rotate auditing partners and their teams or have more than one auditor. Central Government (CG) may define rules for how companies should rotate auditors.
Manner of Rotation of Auditor (Rule 6):
Audit Committee (AC) recommends a replacement for the current auditor to the Board.
If there's no AC, the Board itself suggests the rotation of auditors for member approval in the Annual General Meeting (AGM).
- Rules specify that the period before the Act's commencement counts toward the 5 or 10 consecutive years.
- Incoming auditors can't be associated with outgoing auditors under the same network.
- Joint auditors should be rotated to avoid completing their terms simultaneously.
Illustrations:
A break of 5 continuous years fulfills the rotation requirement.
If a partner who certifies financial statements retires and joins another firm, that firm can't be appointed for 5 years.
Auditor in Government Companies (Sections 139(5) & 139(7)):
Controller and Auditor General (C&AG) appoints a qualified auditor for a government company within 180 days from the start of the financial year. The auditor holds office until the AGM concludes.
The first auditor for a government company is appointed by C&AG within 60 days of registration.
If C&AG doesn't appoint, the Board has the next 30 days.
If the Board also fails, members appoint within 60 days at an Extraordinary General Meeting (EGM).
First Auditor in Other Companies (Section 139(6)):
- The Board appoints the first auditor within 30 days of company registration.
- If the Board doesn't appoint, members must do so within 90 days at an EGM.
- The appointed auditor serves until the conclusion of the first AGM.
1. Filling Casual Vacancy in Auditor's Office (Other than Govt Co):
Procedure: Board of Directors (BoD) fills the casual vacancy within 30 days. If due to resignation, approval at a General Meeting (GM) is needed within 3 months. C&AG Intervention (हस्तक्षेप) If the company's accounts are subject to audit by the Comptroller and Auditor General (C&AG), and the C&AG fails to fill the vacancy, the BoD steps in within the next 30 days.
Term: The newly appointed auditor holds office until the conclusion of the next Annual General Meeting (AGM).
2. Re-appointment of Retiring Auditor (Section 139(9)):
Conditions: A retiring auditor can be re-appointed at an AGM if not disqualified, has not expressed unwillingness, and no Special Resolution (SR) is passed against re-appointment.
3. No Appointment or Re-appointment at AGM (Section 139(10)):
Scenario: If an AGM doesn't appoint or re-appoint an auditor, the existing auditor continues to serve.
4. Role of Audit Committee (Section 139(11)):
Requirement: If a company needs to have an Audit Committee (AC) under Section 177, all auditor appointments, including filling casual vacancies, consider the committee's recommendations.
5. Chapter Clarifications:
Definition: "Appointment" includes reappointment. The term "firm" includes a Limited Liability Partnership (LLP) under the LLP Act, 2008.
NFRA Rules: Clarifications related to the National Financial Reporting Authority (NFRA) Rules are intentionally skipped.
Concept Clarity Check:
Can an Auditor Be Appointed for 4 Years?
Answer: No, an auditor cannot be appointed for less than 5 years. However, there is an annual ratification requirement.
Can an Audit Firm Be Appointed as an Internal Auditor During the Cooling Period?
Answer: Yes, there's no restriction on appointing an audit firm as an internal auditor during the cooling period. The only limitation is that the same audit firm cannot be appointed as the statutory auditor.
1. Removal of Auditor (Section 140(1)):
Procedure: Auditor removal requires a Special Resolution (SR) by the company and prior approval from the Central Government (CG).
Example: ABC Ltd decides to change its auditor mid-term. They pass a Special Resolution and seek approval from the Central Government.
Rule 7 - Manner of removal of auditor:
Application: The company applies to the CG within 30 days of the Board of Directors (BoD) resolution, using Form ADT-2.
Timeline: A General Meeting (GM) must be held within 60 days of CG approval for passing the SR.
2. Resignation of Auditor (Section 140(2)):
Process: A resigning auditor files a statement in Form ADT-3 within 30 days, sharing reasons and relevant facts.
Example: XYZ Corp's auditor resigns, citing personal reasons (व्यक्तिगत कारणों का हवाला देते हुए). Within a month, they submit Form ADT-3 explaining the decision.
(3) Contravention:
Penalties: Failure to comply results in a penalty of
- either Rs. 50,000 or the auditor's remuneration.
- Continuous failure can lead to an additional penalty of Rs. 500/day, maxing at Rs. 2 lakhs.
3. Special Notice for Removal of Auditor (Section 140(4)):
Requirement: A special notice is needed at the AGM to appoint a person other than the retiring auditor or expressly state that the retiring auditor won't be re-appointed.
Example: ABC Ltd's AGM agenda includes a special notice to appoint a new auditor since the existing one completed the maximum tenure.
(5) Tribunal may order to change auditor:
Authority: The Tribunal can order a change if it finds rights are being abused, or if the auditor has acted fraudulently.
Example: The Tribunal may intervene if a company applies, arguing that the rights of shareholders are being unfairly manipulated in the process of changing auditors.
- Instead of directing the company, Tribunal may itself change auditor:
Scenario: If the CG applies and the Tribunal agrees that a change is necessary, it can order the immediate removal of the auditor, and the CG may appoint a new one.
Example: If the Tribunal agrees with the CG's application, it can instruct the removal of an auditor involved in fraudulent activities and assign a replacement.
- Auditor's Ineligibility and Liability:
Outcome: An auditor against whom a final order is passed under this section can't be appointed by any company for 5 years. The auditor is also liable under Section 447.
Example: If an auditor is found to have colluded (सांठगांठ) in fraudulent activities, they may be barred (उन पर रोक लगाई जा सकती है) from serving as an auditor for a significant period.
1. Eligibility (Section 141(1)):
Criteria: Only a Chartered Accountant
- (CA) is eligible for appointment as an auditor.
- A firm with a majority of CA partners practicing in India is also eligible.
Example: ABC Ltd appoints a firm as its auditor. This firm has four partners, and three of them are practicing CAs in India. Hence, the firm is eligible.
2. Authorization in a Firm (Section 141(2)):
Authority: In a firm or Limited Liability Partnership (LLP) appointed as an auditor, only the partners who are CAs are authorized to act and sign on behalf of the firm.
Example: XYZ LLP is appointed as an auditor for a company. Only the two partners in the LLP who are practicing CAs can sign on behalf of the firm.
3. Disqualifications (Section 141(3)):
Conditions: Individuals or entities meeting specific criteria are disqualified from being appointed as auditors.
Disqualifications include individuals or entities:
- (a) Being a Body Corporate (other than LLP).
- (b) Being an officer or employee of the company.
- (c) Being a person who is a partner or employee of an officer or employee of the company.
Examples:
- (d) A person holding securities or indebted to the company or its subsidiaries, except if the securities' face value is not above Rs. 1 lakh.
- (e) A person or firm having a business relationship with the company or its subsidiaries, excluding permitted professional services.
- (f) A person whose relative is a director or employed by the company as a director or Key Managerial Personnel (KMP).
More Disqualifications:
(g) A person in full-time employment elsewhere or a partner with more than 20 company audits (excluding OPC, small co., dormant company, and private cos. with PUSC below Rs. 100 crores).
(h) A person convicted (अपराधी ठहराया हुआ) of fraud within the last 10 years.
(i) A person who renders services under Section 144 to the company, its holding, subsidiary, or associate.
4. Vacation of Office (Section 141(4)):
Outcome: If a person appointed as an auditor incurs any disqualifications mentioned in Section 141(3) after appointment, they must vacate the office, treated as a casual vacancy.
Example:
Mr. A, appointed as an auditor, later becomes a director of the audited company, leading to disqualification. He must vacate the office, creating a casual vacancy.
2. Remuneration of Auditors (Section 142(1)):
In summary, Section 141(4) emphasizes the consequences of disqualification for auditors, and Section 142 delves into the determination of auditor remuneration, including its components. Examples illustrate practical scenarios in these contexts.
- Determination: The remuneration of auditors is decided at the General Meeting (GM) or in a manner determined by the GM.
- For the first auditor, the Board of Directors (BoD) fixes the remuneration.
Example:
At the Annual General Meeting of XYZ Corp, shareholders agree to pay the auditing firm a specified remuneration for their services for the upcoming financial year.
- Additional Components (Section 142(2)):
- Components: Remuneration includes the auditor's fees, expenses related to the audit, and any extended facilities.
- However, it excludes fees for other services provided at the company's request.
Example:
ABC Ltd agrees to reimburse the audit firm not only for their professional fees but also for travel expenses incurred during the audit process.
Concept Clarity Check:
Q: Can an engagement letter be signed without stating fees and merely stating that fees shall be decided mutually?
A: Yes, such an engagement letter is valid.
Example:
Before starting the audit engagement, the audit firm and the company sign an engagement letter that outlines the scope of work, timelines, and explicitly mentions that the fees will be mutually decided at a later date.
1. Power of Auditors (Section 143(1)):
Rights and Entitlements: Auditors have the right to access the Books of Accounts (BoA) of the company, regardless of their location. They can request necessary information and explanations from officers. They also have access to records of subsidiary or associate companies concerning the consolidation of Financial Statements (FS).
Example:
The auditor of XYZ Ltd., based in Mumbai, has the right to access the company's BoA, whether stored at the Registered Office or another location, and inquire about relevant details for a thorough audit.
- Inquiry by Auditor:
Matters of Inquiry: Auditors are required to investigate various matters, including the proper security of loans and advances, the fairness of transactions represented only by book entries, and the accurate representation of assets, especially shares and debentures.
Example:
The auditor, during an inquiry, ensures that the loans extended by ABC Corp are backed by adequate security and that the recorded transactions are not misleading.
2. Auditor's Report (Section 143(2)):
Requirements: The auditor is mandated to prepare a report for the members of the company. This report considers the applicable Accounting Standards (AS) and Standards on Auditing (SAS) while expressing an opinion on whether the Financial Statements (FS) present a true and fair view.
Example:
The auditor of DEF Ltd. carefully examines the company's FS, applies relevant accounting and auditing standards, and then issues a report expressing their professional opinion on the accuracy and fairness of the financial representation.
Concept Clarity Check:
Matters to be Included in Auditor's Report:
Guidelines: The auditor's report should encompass a thorough examination of the accounts, adherence to legal provisions, and compliance with auditing standards.
Example:
In the auditor's report for LMN Co., the auditor covers aspects like compliance with accounting standards, the accuracy of financial records, and conformity with the provisions of the Companies Act.
In summary, Section 143 outlines the powers and duties of auditors, emphasizing their right of access and the necessary inquiries to ensure the integrity of financial information. It also highlights the key elements to be included in the auditor's report for effective communication with the company's members.
3. Additional Aspects in Auditor's Report (Section 143(3)):
Reporting Requirements: The auditor's report should include various details to provide a comprehensive view of the audit process.
(a) Information and Explanations (I & E):
Inquiry Completion: Confirm whether all necessary information and explanations were obtained for the audit. If not, disclose the details and explain the impact on the Financial Statements (FS).
Example:
The auditor of PQR Ltd. ensures that they have gathered all necessary information and explanations to conduct a thorough audit. If any details were not obtained, they explain the potential impact on the accuracy of the FS.
(b) Books of Accounts:
Compliance Check: Confirm whether proper Books of Accounts, as required by law, have been maintained by the company. Also, assess whether adequate returns were received from branches not visited.
Example:
The auditor of LMN Corp. examines the company's Books of Accounts to ensure they comply with legal requirements and that sufficient returns have been received from branches not personally visited.
(c) Branch Auditor's Report:
Inclusion of Branch Audit Details: If a branch office is audited by someone other than the company's auditor, confirm whether the branch auditor's report was received and how it was considered in preparing the main auditor's report.
(d) Agreement of Financial Statements:
Consistency Check: Verify whether the Balance Sheet (BS) and Profit and Loss (P&L) statement align with the Books of Accounts and returns.
(e) Compliance with Accounting Standards:
Adherence Check: Confirm whether the FS comply with the applicable Accounting Standards (AS).
(f) Observations on Financial Transactions:
Adverse Effect Assessment: Include any observations or comments on financial transactions that could adversely affect the company's functioning.
(g) Director Disqualification:
Verification: Check and report on whether (कि क्या) any director is disqualified under Section 164(2).
(h) Qualifications or Adverse Remarks:
Issues Disclosure: Report any qualifications, reservations, or adverse remarks related to the maintenance of accounts or other relevant matters.
(i) Internal Financial Controls (IFC):
Verification: Confirm whether the company has adequate Internal Financial Controls in place and assess their operating effectiveness.
- Other Matters and Prescribed Issues:
Additional Reporting: Include any other matters as prescribed. Rule 11 provides guidance on further aspects to be covered in the auditor's report.
Example:
The auditor of ABC Pvt. Ltd. reports on the disclosure of the impact of pending litigations, provisions for foreseeable losses, timely transfer of amounts to the Investor Education and Protection Fund (IEPF), and compliance with dividend payment regulations.
4. Rule 11: Other Matters in Auditor's Report:
- included in the auditor's report, covering various critical areas of the audit process,
- and Rule 11 provides further guidance on specific matters to be addressed.
Prescribed Inclusions: Rule 11 specifies additional matters that should be covered in the auditor's report, ensuring a comprehensive assessment of various aspects.
Example:
XYZ Ltd.'s auditor, following Rule 11, includes views and comments on the disclosure of the impact of pending litigations, provisions for foreseeable losses on long-term contracts, and the company's compliance with accounting software features.
(v) Ultimate Beneficiaries:
Funds Representation Verification: Verify whether the management has represented that funds haven't been advanced or lent to any intermediary with an understanding to benefit ultimate beneficiaries.
Example:
The auditor ensures that the management of LMN Co. accurately represents that no funds have been channeled through intermediaries for the benefit of ultimate beneficiaries.
(vi) Compliance with Section 123:
Dividend Declaration Verification: Confirm whether the dividend declared or paid during the year complies with Section 123.
(vii) Software Audit Trail Feature:
Software Compliance: For FY commencing on or after 1/4/22, assess whether the company's accounting software has a recording audit trail feature, has not been tampered with, and has been consistently operated throughout the year.
Example:
In the audit report for DEF Inc., the auditor verifies that the accounting software used by the company includes an audit trail feature, is free from tampering, and has been consistently operated.
4. Reasoning in Case of Negative or Qualified Answers (Section 143(4)):
Statement Requirement: If any matter in the audit report is answered negatively or with a qualification, the auditor's report must provide the reasons for such responses.
Example:
In the audit report for LMN Ltd., the auditor indicates a qualification regarding the valuation of certain assets. The report then elaborates on the reasons behind this qualification, providing clarity to stakeholders.
5. Audit in Government Companies (Section 143(5)):
C&AG Appointment: In the case of Government companies or those controlled by the Government, the Comptroller and Auditor General (C&AG) appoints auditors under Section 139(5) or 139(7). The appointed auditor follows C&AG directions and submits the audit report, including actions taken based on those directions.
Example:
ABC Government Company has its auditors appointed by the C&AG. The audit report encompasses (अंतर्गत कई) specific directions issued by the C&AG and outlines the actions taken in compliance with those directions.
6. Supplementary Audit by C&AG (Section 143(6)):
C&AG Authority: C&AG, within 60 days of receiving the audit report, has the authority to conduct a supplementary audit by an authorized person. This person may request additional information as directed by C&AG and may comment on or supplement the audit report.
Example:
Upon reviewing the audit report of XYZ Corp., the C&AG decides to conduct a supplementary audit to delve deeper into certain financial aspects. The authorized person may seek specific information to fulfill the supplementary audit requirements.
Short Form:
C&AG: Comptroller and Auditor General
7. Test Audit by C&AG (Section 143(7)):
C&AG Discretion: C&AG can order a test audit of the Books of Accounts (BoA) for companies covered under Section 139(5) or 139(7) if deemed necessary.
Example:
For LMN Government Company falling under Section 139(5), the C&AG decides to initiate a test audit of certain financial transactions to ensure accuracy and compliance.
8. Branch Office Auditing (Section 143(8)):
Branch in India: For companies with branch offices in India, the BoA of the branch is audited either by the company's auditor or another qualified person appointed specifically for branch audit.
Example:
DEF Ltd. has a branch in Bangalore. The company's auditor, after conducting the main audit, ensures that the branch audit is either handled by them or by a qualified professional designated for branch auditing.
Branch Outside India: For branches located outside India, the BoA is audited by the company's auditor or any other qualified professional according to the laws of that country.
Example:
LMN Corp. has a branch in London. The audit of the branch's BoA is either conducted by the company's auditor or by an accountant qualified to act as an auditor under the laws of the United Kingdom.
12. Reporting of Fraud by Auditor (Section 143(12)):
Duty of Auditor: The auditor must report any instance of fraud to the central government, providing details as per the prescribed rules.
Example:
In the audit of LMN Ltd., if the auditor uncovers fraudulent activities, they are obligated to report the details to the central government in accordance with Section 143(12).
Short Forms:
- BoA: Books of Accounts
- FS: Financial Statements
9. Compliance with Auditing Standards (Section 143(9)):
Mandatory Adherence: Every auditor must comply with the Auditing Standards (SAS) in conducting the audit.
Example:
The auditor of XYZ Ltd. ensures that the audit process aligns with the prescribed Auditing Standards to maintain a standardized and effective approach.
Short Form:
SAS: Auditing Standards
10. Prescription and Adoption of Auditing Standards (Section 143(10)):
Central Government Authority: The Central Government may prescribe Auditing Standards (SAS), or addendums, in consultation with the National Financial Reporting Authority (NFRA). Until then, the standards notified by the Institute of Chartered Accountants of India (ICAI) are considered.
Example:
The Central Government, in consultation with NFRA, may introduce additional Auditing Standards that auditors must follow. Until then, the SAS notified by ICAI are deemed applicable.
11. Inclusion of Additional Matters in Auditor's Report (Section 143(11)):
Government Direction: The Central Government, in consultation with NFRA, can direct auditors to include specific matters in their reports.
Example:
As per a directive from the Central Government, the auditor of ABC Ltd. includes additional information in the audit report concerning environmental impact and sustainability practices.
12. Reporting of Fraud by Auditor (Section 143(12)):
Mandatory Reporting:
The auditor must report any instance of fraud, amounting to or exceeding Rs. 1 crore, believed to be committed against the company by its officers or employees in the course of performing statutory audit duties.
Example:
During the audit of ABC Corporation, the auditor discovers a fraudulent activity involving misappropriation of funds by senior officers. If the amount exceeds Rs. 1 crore, the auditor is obligated to report this to the Central Government (CG).
Reporting Process:
The auditor initially reports the matter to the Audit Committee (AC) or the Board of Directors (BoD) immediately upon knowledge, seeking a reply within 45 days.
Example:
In the case of XYZ Ltd., the auditor uncovers a fraudulent scheme. The auditor promptly reports the matter to the Board of Directors, requesting an official response within 45 days.
Forwarding to CG:
On receipt of the reply, the auditor forwards their report, the AC/BoD's response, and the auditor's comments to the Central Government within 15 days.
Example:
In response to the auditor's discovery, the Board of Directors of LMN Inc. provides feedback. The auditor, in turn, submits the complete set of documents to the Central Government within the stipulated time frame.
Form of Report:
The report to the CG is submitted in Form ADT-4, on the auditor's letterhead, containing essential details and signed by the auditor. It should be sent via Registered Post with acknowledgment due or speed post, followed by an email confirmation.
Example:
The auditor of PQR Ltd. compiles the report on fraud in Form ADT-4, includes necessary details, signs it, and dispatches it to the Central Government through the appropriate postal service.
Reporting to AC or BoD:
Simultaneously, the auditor reports the fraud to the AC under Section 177 or the BoD immediately (within two days) after becoming aware of the situation.
Example:
Upon discovering irregularities in financial transactions at LMN Corporation, the auditor promptly notifies the Audit Committee and the Board of Directors.
13. Protection Against Contravention (Section 143(13)):
Non-Contravention of Duty:
The act of reporting fraud under Section 143(12) does not constitute a contravention of the auditor's duties, including confidentiality, as long as the report is made in good faith.
Example:
The auditor of LMN Ltd., while duty-bound to maintain confidentiality, reports a significant fraud in good faith. This action, according to Section 143(13), does not breach the duty of confidentiality.
Penalties for Non-Compliance:
Failure by auditors, cost accountants, or company secretaries to comply with the fraud reporting provisions may result in penalties.
- For listed companies, the penalty is Rs. 5 lakh,
- and for others, it is Rs. 1 lakh.
Example:
If the auditor of DEF Corporation fails to comply with the fraud reporting requirements, and the company is not listed, they may face a penalty of Rs. 1 lakh.
Concept Clarity Check:
Specificity of Auditor's Identification:
If fraudulent activity involving Rs. 10 crores is brought to the auditor's attention by company management, the auditor is not required to report it to the Central Government. Section 143(12) mandates reporting only when the auditor identifies fraud independently during the audit process.
Example Clarification:
LMN Ltd. management informs the auditor of an employee's fraudulent activity involving Rs. 10 crores. According to Section 143(12), the auditor only needs to report this to the Audit Committee or Board of Directors, not to the Central Government.
Short Forms:
- CG: Central Government
- AC: Audit Committee
- BoD: Board of Directors
- RPAD: Registered Post with Acknowledgment Due
14. Auditor's Restricted Services (Section 144):
Scope of Services:
An auditor, appointed under this Act, may offer only services approved by the Audit Committee (AC) or Board of Directors (BoD). However, certain services are expressly prohibited, directly or indirectly, to the Company and its Subsidiary, Associate, or Holding (CASH).
Example:
ABC Corporation's auditor, while offering approved services, refrains from providing internal audit or investment advisory services to the company and its subsidiaries.
Prohibited Services:
The auditor is restricted from rendering specific services, including accounting, internal audit, investment advisory, outsourcing banking services, and financial services.
Example:
XYZ Ltd.'s auditor, as per Section 144, avoids offering internal audit services to the company, ensuring compliance with statutory restrictions.
Explanation of "Directly or Indirectly":
The term encompasses services provided by the auditor, either personally or through relatives, connected persons, entities with significant influence or control, or the use of trademarks or brands.
Example:
If an auditor (individual or firm) utilizes a trademark, the services rendered through that trademark should align with the approved scope defined by AC/BoD.
15. Auditor's Signing Obligations (Section 145):
Mandatory Signing:
The auditor is required to sign the Auditor's Report or any document as per Section 141(2).
Example:
LMN Corporation's auditor signs the Auditor's Report, confirming the accuracy of the financial statements.
Concept Clarity Check:
Statutory Auditor and Additional Roles:
A statutory auditor can be appointed as GST or tax auditors, but not as cost auditors, as per Section 148.
Example Clarification:
The statutory auditor of PQR Ltd. is duly appointed as a GST auditor, ensuring compliance with the legal provisions.
16. Punishment for Contravention (Section 147):
Contravention Penalties:
For violations of Sections 139 to 146, the company and the officer in default face fines ranging from Rs. 10,000 to Rs. 5 lakhs and imprisonment for the officer in default. The penalty for auditors is Rs. 25,000 to the lower of Rs. 5 lakhs or four times the auditor's remuneration.
Example:
If DEF Ltd. knowingly contravenes statutory provisions, it could incur a fine, and the auditor may face penalties based on their remuneration.
Willful Deception Offense:
If a contravention is knowingly or willfully done to deceive stakeholders or tax authorities, the auditor may be imprisoned for up to 1 year, with a fine ranging from Rs. 50,000 to the lower of Rs. 25 lakhs or eight times the auditor's remuneration.
Example:
In a case where an auditor deliberately deceives shareholders, XYZ Corporation's auditor might face imprisonment and significant fines.
17. Auditor's Attendance at General Meeting (Section 146):
Attendance Requirement:
Auditors are required to attend general meetings unless specifically exempted by the company. They have the right to be heard on matters concerning them as auditors.
Example:
The auditor of LMN Ltd., unless exempted by the company, attends the general meeting to discuss pertinent matters.
Short Forms:
- AC: Audit Committee
- BoD: Board of Directors
- OID: Officer in Default
- CG: Central Government
- FS: Financial Statements
PQR Ltd.: A fictional company for illustrative purposes
18. Cost Audit by Central Government (Section 148):
Order for Cost Record Maintenance:
The Central Government (CG) has the authority to issue orders, irrespective of the provisions in the chapter, requiring companies engaged in the production of specific goods or services to include particulars of material, labor, and other cost items in their Books of Accounts (BoA).
Example:
The CG issues an order requiring manufacturing companies producing essential medicines to include detailed cost particulars in their financial records.
Consultation with Regulatory Body:
Before passing such orders for companies governed under a special act, CG must consult the relevant regulatory body. For instance, in the case of banking companies, CG may seek approval from the Reserve Bank of India (RBI) for such an order.
Example Scenario:
If the CG intends to issue a cost audit order for a banking company, prior approval from the RBI is mandatory.
Audit of Cost Records:
If CG deems it necessary, it can direct the audit of cost records for companies meeting prescribed net worth or turnover criteria.
Example:
The CG orders a cost audit for companies with a turnover exceeding Rs. 100 crores to ensure accurate reporting of cost-related details.
19. Appointment and Remuneration of Cost Auditor (Section 148):
Appointment Process:
The Board of Directors (BoD) appoints an individual or a firm of cost accountants in practice for companies not required to constitute an Audit Committee (AC). For companies with an AC, the appointment is based on the AC's recommendation.
Example:
ABC Ltd., following the recommendation of its AC, appoints a firm of cost accountants to conduct a cost audit.
Ineligibility of Company Auditor:
Auditors appointed under Section 139 of the Companies Act cannot simultaneously serve as cost auditors.
Example Clarification:
XYZ Corporation's statutory auditor is ineligible to be appointed as a cost auditor for the company.
20. Audit Compliance and Reporting (Section 148):
Compliance with Standards:
Cost audits, conducted under Section 148, must adhere to cost auditing standards issued by the Institute of Cost Accountants of India (ICAI) and the Central Government.
Example:
LMN Ltd.'s cost auditor ensures compliance with prescribed cost auditing standards during the audit process.
Submission of Report and Information:
The cost auditor submits the audit report to the Board of Directors (BoD). The company, within 30 days of receiving the cost audit report, provides the CG with a detailed report and explanations for any reservations or qualifications mentioned.
Example:
DEF Co. promptly submits its cost audit report to the BoD and furnishes comprehensive information to the CG within the specified timeline.
21. Government's Power to Seek Additional Information (Section 148):
CG's Authority:
The CG, upon reviewing the report and information submitted by the company, can demand further information if deemed necessary.
Example Scenario:
The CG, after reviewing the cost audit report of MNO Ltd., requests additional information related to specific cost elements for a comprehensive evaluation.
22. Default and Penalties (Section 148):
Penalties for Non-Compliance:
Any default by the company or the Officer in Default (OID) attracts penalties under Section 147.
Example Consequence:
If a company fails to comply with the provisions of Section 148, it could face financial penalties, and the cost auditor may also incur penalties.
Short Forms:
- CG: Central Government
- BoA: Books of Accounts
- OID: Officer in Default
- ICAI: Institute of Cost Accountants of India
ABC Ltd.: A fictional company for illustrative purposes