Auditing Practical Question

Question: Ram & Hanuman Associates, Chartered Accountants, in practice have been appointed as Statutory Auditor of Krishna Ltd. for the accounting year 12-13. Mr. Hanuman holds 100 equity shares of Shiva Ltd., a subsidiary company of Krishna Ltd.

Auditing Practical Questions

Solution:

As per Sec.226, a person holding any security of the company is not qualified for appointment as auditor of that company. It is further given in Sec.226(4), that a person is not eligible for appointment as an auditor of any company, if he is disqualified from acting as auditor of that companys subsidiary or holding company or of any other subsidiary of the same holding company. It further provides that if an auditor, after his appointment, becomes subject to any disqualifications, he shall be deemed to have automatically vacated his office. A firm would also be disqualified to be appointed as an auditor even when one partner is disqualified u/s.226. In the present case, Mr. Hanuman, a partner of M/s Ram and Hanuman Associates, holds 100 equity shares of Shiva Ltd. which is a subsidiary of Krishna Ltd. As such, the firm, M/s Ram and Hanuman Associates would be disqualified to be appointed and it will be automatically vacated from its auditorship of Krishna Ltd.