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REMOVAL, RESIGNATION OF AUDITOR AND GIVING OF SPECIAL NOTICE

[SECTION 140]

A. Removal of auditor before the expiry of his term

1. The auditor appointed under section 139 may be removed from his office before
the expiry of his term if:-
✓ Special resolution has been passed by the company &
✓ The previous approval of the Central Government has been obtained by
making an application in Form ADT-2
2. The application shall be made to the Central Government within 30 days of the
resolution passed by the Board.

3. The Company shall hold the general meeting within 60 days of receipt of approval
of the Central Government for passing the special resolution.
Giving opportunity of being heard: Before taking any action for removal of auditor before
the expiry of his term, the auditor concerned shall be given a reasonable opportunity of
being heard.

B. Resignation by Auditor

1. If the Auditor has resigned from the company, he shall file a statement in the
form ADT-3 with the company and the Registrar within a period of 30 days from
the date of such resignation.
2. The auditor shall indicate the reasons and other facts as may be relevant with
regard to his resignation, in the statement.
3. In case of government companies or companies controlled by Central Government
or State Government, the auditor shall file such statement with the CAG along
with the company and the Registrar indicating the reasons and other facts as
may be relevant with regard to his resignation.

Penalty If the auditor does not comply with aforesaid provision, he or it shall be
liable to a penalty of R s . 5 0,000 or an amount equal to the remuneration of
the auditor, whichever is less, and in case of continuing failure, with a further
penalty of ₹ 500 for each day after the first during which such failure
continues, subject to a maximum of Rs. 2 lacs.

C. Auditor acts in a fraudulent manner

1. On satisfaction of Tribunal that the auditor of a company has acted in a

fraudulent manner it may, by order, direct the company to change its auditors.
2. Requirement for change of auditor: If the application is made by the Central
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Government and the Tribunal is satisfied that any change of the auditor is
required, it shall within 15 days of receipt of such application, make an
order that he shall not function as an auditor and the Central Government may
appoint another auditor in his place.

3. An auditor, whether individual or firm, against whom final order has been
passed by the Tribunal under this section shall not be eligible to be appointed
as an auditor of any company for a period of 5 years from the date of
passing of the order and the auditor shall also be liable for action under section
447 of the Companies Act 2013

REMUNERATION OF AUDITORS (Section 142)

✓ The remuneration of the auditors of a company shall be fixed by the

company in general meeting or in such manner as the company in general
meeting may determine.
✓ In the case of first auditor, remuneration may be fixed by the Board.
✓ The remuneration mentioned aforesaid shall, in addition to the fee
payable to an auditor, include the expenses, if any, incurred by the auditor in
connection with the audit of the company.

RIGHTS AND DUTIES OF COMPANY AUDITOR (Section 143)

Rights

1. Every auditor of a company has right of access at all times to the books
account and vouchers of the company.
2. He is entitled to require from the company’s officers such information and
explanation as he may consider necessary for the performance of his duties.
3. He has the right to inquire into the following matters:
a) Loans and advances made by the company on the basis of security have
been properly secured
b) Transactions of the company are not prejudicial to the interests of the
company.
c) Loans and advances made by the company have been shown as
deposits;
d) Personal expenses have been charged to revenue account;

4. The auditor of a holding company has the right of access to the records of all
its subsidiaries.

Duties

1. The auditor shall make a report to the members or the company on the
accounts and financial statements examined by him.
2. The auditor shall comply with the provisions of the companies Act, 2013.

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3. The auditor shall state that to the best of his information and knowledge, the
financial statements give a true and fair view.
4. Every auditor shall comply with the audition standards.
5. If in the course of the performance of his duties, the auditor has reason to
believe that an offence involving fraud is being or has been committed against
the company by officers or employees of the company, he shall immediately
report the matter to the central government within the prescribed time and
manner.
6. The auditor shall sign his report. He will also certify any other documents of
the company in accordance with the provisions of the companies Act, 2013.
7. The auditor shall, unless otherwise exempted attend either by himself or
through his authorized representative general meeting of the company.
8. The auditor shall not directly or indirectly, render the following services to the
client company or its subsidiaries:
a) Accounting and book – keeping series;
b) Internal audit;
c) Actuarial services;
d) Investment advisory services;
e) Investment banking services;
f) Rendering of outsourced financial services;
g) Management services; and

TYPES of Audit Report

1. Unqualified Report: In this type of report, the auditor states that the financial
statements give a true and fair view.
2. Qualified Report: When the auditor gives his opinion subject to certain
conditions, it is a qualified report. The Qualification or condition may be as to
limitation on the scope of audit work, disagreement with the management on
certain accounting policies practices and disclosures.
3. Disclaimer Report: It means the auditor does not express this opinion on
certain matters included in financial statements. It may arise when the client
has limited the scope of audit, or the audit evidence is inadequate or absent
e.g. the client not allowing the auditor to observe physical inventories or
confirm monies receivable from auditors.
4. Adverse Report: In such a report the auditor states that the financial
statements do not give a true and fair view. This occurs when the auditor has
not agreed with the client about accounting policies, manner of their
application or adequacy of disclosure.

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AUDITOR’S REPORT
Contents

The basic elements of the audit report are as under.

1. Title: The audit report should bear the title “Auditor’s Report”.
2. Respondent: It should address the persons or authority who appointed the
auditor.
3. Introductory Paragraph: The opening paragraph should refer to the financial
statements audited, the period covered, and the management’s responsibility
for preparation of these statements.
4. Scope Paragraph: This contains the following
a) Generally accepted auditing standards
b) Nature and description of work performed by the auditor
c) Statement that planning and performance of audit was to obtain
reasonable assurance, and
d) Statement to the effect that audit provides reasonable assurance, and
e) Statement to the effect that audit provides a reasonable basis for the
auditor's opinion.
5. Opinion Paragraph: It should report on the financial reporting framework, i.e.
the financial statements are according to the format prescribed by the
companies Act. It should also state that the financial statements provide a true
and fair view in accordance with law and accounting principles.
6. Date: The date on which the auditor signs the report should not be earlier
than the date on which the management approves the financial statements. It
also means that the auditor has taken into account the events and
transactions occurring up to the date of his signing the report, and their impact
on financial statements.
Signature: In case the auditor’s appointment is in his individual capacity, sign his
personal name. If the appointment is in the firm's name, sign as proprietor or partner,
along with a membership number issued by the ICAI.