CHAPTER-10 AUDIT AND

AUDITORS

Internal Audit [Sec. 138]

Statutory Audit [Sec. 139-147]

Cost Audit [Sec. 148]

Eligibility,
Qualification &
Signing Attending AGM
Disqualification
[Sec. 141] [Sec. 145] [Sec. 146]
-Prohibited Services
[Sec. 144]

Appointment Punishment
Powers & duties
[Sec. 139] [Sec. 147]
[Sec. 143]

Removal &
Remuneration
Resignation
[Sec. 142]
[Sec. 140]
APPOINTMENT OF AUDITORS AT AGM (SUBSEQUENT AUDITOR)-SEC 139(1)
Applicability
Not applicable to

Government companies [Sec. 2(45)] or any other company owned or controlled, directly or
indirectly, by CG / SG(s) / partly by CG & partly by SG(s).

Appointment & reappointment of auditor till 6th AGM

At the 1st AGM, every company shall appoint an individual or a firm as an auditor;
The auditor so appointed shall hold office from the conclusion of 1st AGM till the conclusion of 6th AGM.
Manner and procedure of selection of auditors (Rule 3)

The BOD/AC shall consider the qualifications and experience of the individual or the firm proposed.
shall have due regard to any order or any pending proceedings of professional misconduct.
may call for such other as it may deem fit.

Is the company is required to constitute AC?

Board shall recommend an

following procedure shall be adopted:
individual/firm as auditor to
the members in AGM AC shall recommend the name of
an individual/firm as auditor to
Board for consideration

Board agrees

BOD shall refer back the recommendation BOD shall further recommend individual
to AC for reconsideration citing reasons / firm as auditor to the members in AGM

If AC, after considering reasons given by the Board,

decides not to reconsider its original recommendation

Board agrees

Board shall record reasons for its Board shall recommend the name of
No Yes
disagreement & send its own recommendation individual / firm as recommended by
for consideration of the members in the AGM. AC to the members in the AGM.

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Audit Committee

[Sec. 177] Companies that require to constitute AC:

Listed companies - PUC>=10 Cr
Public Companies - T/O>=100 Cr
- Aggregate o/s loans, borrowings or debentures or deposits>50 Cr
Existing on date of last audited FS

Where a company ceases to fulfill conditions for 3 consecutive years, it shall not be required to keep AC until it
meets any of such conditions.
Certificate & Consent by auditor
Before any appointment of auditor is made, the auditor shall furnish to the company
(a) his written consent for such appointment; &
(b)a certificate that:
the appointment, if made, shall be in accordance with the prescribed conditions (Rule 4)-

Individual/firm is eligible
proposed appointment is as
for appointment & is not
per the term provided
disqualified under the CA
under the Act (5 yrs)
Act, 1949

list of proceedings against

proposed appointment is
the auditor/firm/partner
within the limits laid down
pending with respect to
under the Act (20
professional matters of
companies)
conduct

the auditor satisfies the criteria provided in Sec. 141.

Notice of appointment to be given by company
The company shall
inform the auditor concerned of his or its appointment; &
file a notice of such appointment with Registrar in Form No. ADT-1 within 15 days of AGM.

APPOINTMENT OF AUDITOR BY CAG (SUBSEQUENT AUDITOR)-SEC 139(5)

Applicability

Government companies [Sec. 2(45)] or any other company owned or controlled, directly or
indirectly, by CG / SG(s) / partly by CG & partly by SG(s).

Manner
CAG will appoint a duly qualified auditor within a period of 180 days from the commencement of the FY.
Tenure
The auditor appointed shall hold office till the conclusion of the AGM.

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ROTATION OF AUDITORS-SEC 139(2)-(4)
Applicability

Listed companies Prescribed companies (Rule 5)

All unlisted public companies having

PUSC of Rs. 10 crore or more

All Pvt. ltd. companies having PUSC of

Rs. 50 crore or more; OR
All companies having public borrowings
from financial institutions, banks or
public deposits of Rs. 50 crore or more
Shall NOT apply to-
OPC
Small companies
Manner of Rotation
In case, of Maximum Term 1 term of 5 consecutive years.
Individual auditor Cooling-off period 5 years from the completion of his term i.e. he shall not be
eligible for re-appointment as auditor in the company for a
period of 5 years.
In case, the auditor Maximum Term not more than 2 terms of 5 consecutive years (i.e.10 years).
is a firm Cooling-off period 5 years from the completion of the term i.e. firm shall not
be eligible for re-appointment as auditor in the company
for a period of 5 years.
Restrictions on firms having common partners
An audit firm having one or more common partner to the other audit firm, whose tenure has expired, shall not
be appointed as the auditor of the same company for a period of 5 years .
Time period for compliance for existing companies
Every company, existing on the commencement of this Act (viz. 1.04.2014), which is required to comply with
the provisions relating to rotation of auditors, shall comply with these requirements within a period which
shall not be later than the date of the first AGM of the company held, within the period specified u/s 96,
after 3 years from the date of commencement of this Act.
Right of removal or resignation not affected
The company may remove the auditor or the auditor may resign before the completion of 5 consecutive years.
Strict provisions may be imposed by members
In the audit firm, the auditing partner & his team shall he rotated at such intervals as may be resolved by
members; or
the audit shall be conducted by more than one auditor.
Rules for rotation of auditors (Rule 6)
The period for which the individual or the firm has held office as auditor prior to the commencement of
the Act shall be taken into account for calculating the period of 5/10 consecutive years.
The incoming auditor or audit firm shall not be eligible if such auditor/ audit firm is associated with the

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 outgoing auditor or audit firm under the same network of audit firms. Same network includes the firms
operating or functioning, under the same brand name, trade name or common control.
A break in the term for a continuous period of 5 years shall be considered as fulfilling the requirement of
rotation.
If a partner, who is in charge of an audit firm and also certifies the FS of the company, retires from the said
firm and joins another firm of chartered accountants, such other firm shall also be ineligible to be appointed
for a period of 5 years.
Where a company has appointed two or more individuals or firms or a combination thereof as joint auditors,
the company may follow the rotation of auditors in such a manner that both or all of the joint auditors, as
the case may be, do not complete their term in the same year.

Where company is required to constitute AC

AC will recommend name of auditor who may replace the incumbent auditor & BOD shall consider the
recommendation
However, where AC is not required u/s 177 but constituted by the company voluntarily, AC shall
recommend a name but Board may/may not consider the same.

Illustration explaining rotation in case of individual auditor

Column I Column II Column III

Number of consecutive years for which
an individual auditor has been
functioning as auditor in the same
company
5 years (or more than 5 years)
Maximum number of consecutive
years for which he may be
appointed in the same company
(transitional period or tenure left,
whichever is higher)
3 years
Aggregate period which the
auditor would complete in the
same company in view of
column I and II
8 years or more

4 years 3 years 7 years

3 years 3 years 6 years

2 years 3 years 5 years

1 year 4 years 5 years

Illustration explaining rotation in case of audit firm

10 years (or more than 10 years) 3 years 13 years or more

9 years 3 years 12 years

8 years 3 years 11 years

7 years 3 years 10 years

6 years 4 years 10 years

5 years 5 years 10 years

4 years 6 years 10 years

3 years 7 years 10 years

2 years 8 years 10 years

1 year 9 years 10 years

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APPOINTMENT OF FIRST AUDITOR-SEC 139(6)-(7)
Manner of appointment of first auditor

Sec. 139(7)
Sec. 139(6) Government company or any other company
owned or controlled, directly or indirectly, by
Other company
CG, or by one or more SG, or partly by CG &
partly by one or more SG.

The first auditor shall be appointed by the BOD The first auditor shall be appointed by CAG
within 30 days of registration of the company. within 60 days of registration of the company

If not, the Board shall inform the members of the If not, Board shall appoint the first auditor within
company who shall appoint the first auditor next 30 days.
within 90 days at an EGM. (30+90=120 days)

If not, Board shall inform the members of the

company who shall appoint the first auditor
within 60 days at an EGM. (60+30+60=150 days)

Tenure of first auditor

The first auditor shall hold office till the conclusion of the first AGM.

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FILLING OF CASUAL VACANCY-SEC 139(8)
Meaning of casual vacancy
Vacancy caused by the auditor ceasing to act as such after accepting a valid appointment, e.g. due to death,
disqualification, resignation, etc.
Manner of filling casual vacancy

Other
Govt. Co. company
filled within 30 filled within 30 days by the
days by CAG. Board.

If casual vacancy arose due to

If not, the Board resignation of auditor, it shall be
shall fill within filled within 30 days by the Board,
next 30 days. & shall be approved in a GM
convened within 3 months

(30+30=60 days)

Tenure of office
Any auditor appointed to fill a casual vacancy shall hold office till the conclusion of the next AGM

MISCELLANEOUS PROVISIONS WRT. APPOINTMENT OF AUDITORS-SEC 139

Reappointment of retiring auditor [Sec. 139(9)-(10)]
A retiring auditor may be re-appointed at an AGM, if

he is not disqualified for re-appointment;

he has not given to the company a notice in writing of his unwillingness to be reappointed; &

a SR has not been passed at the AGM

- appointing some other auditor; or
- providing expressly that he shall not be re-appointed.

No auditor is appointed or reappointed at AGM - consequences

Where at any AGM, no auditor is appointed or re-appointed the existing auditor shall continue to be the
auditor of the company.
Recommendation of the AC to be considered [Sec. 139(11)]
Where a company is required to constitute an AC u/s 177, all appointments, including the filling of a casual
vacancy of an auditor u/s 139(8) shall be made after taking into account the recommendations of the AC.

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REMOVAL OF AUDITOR BEFORE EXPIRY OF HIS TERM-SEC 140(1)
Steps for Removal (Rule 7)

30 days
CG Approval
BR in Form ADT-2 SR
(delegated to RD)
60 days
Specified IFSC Company
Where within a period of 60 days, no decision is communicated by CG to company, it would be deemed approval
& Company shall appoint new auditor at GM within 3 months from expiry of 60 days.
Opportunity of being heard (Audi Alteram Partem)
Before taking any action for removal, the auditor shall he given a reasonable OBH.

SPECIAL NOTICE FOR NOT APPOINTING THE RETIRING AUDITOR-SEC 140(4)

Requirement for special notice
At an AGM, special notice shall be required for

appointing as auditor
a person other than
the retiring auditor; or providing expressly that the
retiring auditor shall not be re-
appointed

Copy to be sent to retiring auditor

On receipt of notice of such a resolution, the company shall send a copy to the retiring auditor.
Right of auditor to make representation and to get it circulated
The retiring auditor is entitled to make a representation.
The representation (not exceeding a reasonable length) shall be in writing & shall be sent to the company.
He may request the company to circulate the representation to the members of the company.
In the AGM, the retiring auditor shall have a right to make an oral representation.
Duties of the company w.r.t representation

If a copy of the
representation is not
The company shall
The company shall sent because it was
send a copy of the
state the fact that received too late or
representation to
the retiring auditor because of the
every member of
has made a company's default,
the company whom
representation, in then the auditor may
notice of the
any notice of the require that the
meeting is sent
resolution that is representation shall be
(unless the
given to the read out at the
representation is
members of the meeting. A copy of
received by the
company the representation
company too late).
shall be filed with the
Registrar.

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Intervention by the Tribunal
If an application(Form NCLT-1) is sent to the Tribunal by the director on behalf of company or by any other
person who claims to be aggrieved-
the copies of the representation need not be sent to the members & need not be read out at the meeting if
the Tribunal is satisfied that the right of making representation is being abused by the auditor.
Non applicability
The provisions of Sec. 140(4) shall not apply where the retiring auditor has completed his tenure of 5
consecutive years / 10 consecutive years, as provided u/s 139(2).

A Special Notice is
Auditor shall be given a Auditor removal can be
received for Removal of
reasonable OBH done only through SR
auditor

A board meeting will be

After approval from CG,
held (To decide about
Special Notice to be
removal and then
sent for AGM within 60 Auditor will be removed
authorising the filing of
days of receipt of
application to CG through
approval
BR)

Application to CG (ADT-
Approval of CG received
2), within 30 days of BR

RESIGNATION BY AUDITOR-SEC 140(2)-(3)

Duty of auditor
When an auditor resigns, he is required to file a Statement in the prescribed form- ADT-3
Contents of the statement
The Statement shall indicate the reasons and other relevant facts.

Filing with whom?

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 CAG (in
the case of In case of a Govt. Company
Company a Govt.
company)

Registrar
In case of Other Company

Time limit for filing

The Statement shall be filed within 30 days from the date of resignation.
Consequences of Non-filing [Sec. 140(3)]
Minimum Fine Rs.50,000 or the remuneration of the auditor, whichever is less.
Continuing failure further penalty of Rs.500/day after the first during which the failure continues subject
to maximum- Rs.2,00,000.

POWER OF TRIBUNAL TO ORDER CHANGE OF AUDITOR-SEC 140(5)

Application to the tribunal

Application by

Tribunal
CG (suo Form
motu) to NCLT
NCLT-9

any other
person be satisfied that auditor has,
concerned. directly or indirectly, acted in a
fraudulent manner /abetted
by order, direct the company to change its auditors. /colluded in any fraud.

Appointment of auditor by CG
If the application is made by CG and
Tribunal is satisfied that any change of the auditor is required,
It shall within 15 days of receipt of application, make an order that such auditor shall not function and
CG may appoint another auditor in his place.

Consequences against auditor

An auditor (Individual/firm) against whom an order has been passed by the Tribunal u/s 140(5),

101
 shall not be
eligible to be
appointed as an shall be liable
auditor of any for action u/s
company for a 447.
period of 5
years;

ELIGIBILITY, QUALIFICATIONS AND DISQUALIFICATIONS OF AUDITORS-SEC 141

Eligibility for appointment as an auditor [Sec. 141(1)-(2)]
Individual Only if he is a CA who holds COP.
Firm Only if majority of its partners practicing in India are qualified for appointment.
Where a firm including a LLP is appointed as an auditor of a company, only the partners who
are CAs shall be authorised to act and sign on behalf of the firm.
Disqualifications of Auditor [Sec. 141(3)]

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Following persons shall not be eligible for appointment as an auditor of a company:
(a) A body corporate other than a LLP.
(b) An officer or employee of the company.
(c) A person who is
- a partner of an officer or employee of the company,
- in the employment of an officer or employee of the company.
(d) Person, or (i) Is holding any security in the company, or
Relative, or (ii) Is indebted, in excess of Rs. 5 lakhs, to its subsidiary company, or
Partner (iii) has given a guarantee/provided any its holding company or
(PPR) security in connection with indebtedness of associate company, or
any 3rd person, in excess of Rs. 1 lakh, to a subsidiary of such holding company.
(CHSA S of H)
Exception:
However, a person shall not be disqualified if his relative holds any security in the company of face
value not exceeding Rs. 1 lakh. (Holding of all relatives together shall be checked against the limit)
If a relative acquires any security exceeding Rs. 1 lakh, then, the auditor shall take the corrective
action within next 60 days so as to maintain the limit of Rs. 1 lakh.
Even if relative of one of the partners of firm hold securities exceeding 1 lakh, the entire firm is
disqualified.
(e) A person or a firm who, whether directly or indirectly, has business relationship of such nature
as may be prescribed with
- the company, or
- its subsidiary company, or
- its holding company, or
- associate company, or
- a subsidiary of such holding company, or
- a subsidiary of such associate company.
(CHSA S of H + S of A)
Rule 10- Exception
(i) commercial transactions which are in the nature of professional services permitted to be
rendered by an auditor or audit firm under the Companies Act, 2013 or the CA Act, 1949;
(ii)commercial transactions which are in the ordinary course of business of the company at arm's
length price like sale of products or services to the auditor, as customer, by companies engaged in
the business of telecommunications, airlines, hospitals, hotels & such other similar businesses.
(f) A person whose relative is a director or is in the employment of the company as a director or KMP.
(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 he is at the date of such
appointment or re-appointment holding appointment as auditor of more than 20 companies.
-
One person companies
Dormant companies,
Small companies and
Private companies having PUSC < Rs.100 crore,
if such companies have not defaulted in filing with Registrar FS u/s 137 or Annual return u/s 92.
(h) A person who has been convicted by a Court of an offence involving, fraud and a period of 10 years has
not elapsed from the date of such conviction.
(i) A person who, directly or indirectly, renders any service referred to in section 144 to
- the company or
- its holding company or
- its subsidiary company. (CHS)
Vacation of office (Sec. 141(4))
If after appointment, an auditor incurs any of the disqualifications mentioned in Sec. 141(3), he shall vacate
his office as such auditor, such vacation shall be deemed to be a casual vacancy in the office of auditor.

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AUDITOR NOT TO RENDER CERTAIN SERVICES-SEC 144
Services to be approved
An auditor shall provide to the company only such services which are approved by-
BOD
AC
Prohibited Services

(c) design and

(a) accounting and book implementation of any
(b) internal audit (d) actuarial services
keeping services financial information
system

(g) rendering of
(e) investment advisory (f) investment banking (h) management
outsourced financial
services services services
services

(i) any other kind of

services as may be
prescribed

Meaning of directly or indirectly

An auditor shall not provide any of the above services directly or indirectly to
the company or
its holding company or
subsidiary company (CHS)
The term 'directly or indirectly' shall include-
In case of an either himself or
individual auditor- through his relative or
any other person connected/associated with such individual or through any other
entity,
in which such individual has significant influence or control, or
whose name or trade mark or brand is used by such individual;
In case of auditor either itself or
being a firm- through any of its partners or
through its parent, subsidiary or associate entity or
through any other entity, in which the firm or any partner of the firm has
significant influence or control, or
whose name or trade mark or brand is used by the firm or any of its partners.

Discontinuation of existing audit services

An auditor or audit firm who or which has been performing any non-audit services on or before the
commencement of this Act shall comply with the provisions of this section before the closure of the 1 st FY after
the date of such commencement.

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REMUNERATION OF AUDITORS-SEC 142
Remuneration to be fixed in GM
The remuneration of the auditor of a company shall be fixed-

In the GM; or In such manner as

may be decided in
the GM

Remuneration in case of 1st Auditor

ln case, the first auditor is appointed by Board, remuneration of the first auditor shall be fixed by the Board.
Certain sums to be included in remuneration

The remuneration shall, in addition to However, the remuneration

the fee payable to an auditor, include-
- the expenses, if any, incurred by the
auditor in connection with the audit of
the company; &
- any facility extended to the auditor.
shall NOT include any
remuneration paid to the
auditor for any other
service rendered by him at
the request of the company.

POWERS AND DUTIES OF AUDITORS-SEC 143(1)

Rights of access to books
The auditor shall have access, at all times, to the
BOA & vouchers of the company, whether kept at registered office or at any other place,
Records of all the subsidiary & associate companies, in so far as is required for the purpose of CFS.
Right to require information
The auditor shall be entitled to require from the officers of the company such information and explanation as
he may consider necessary for the performance of his duties as auditor.
Duty to make inquiries

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 Whether loans & advances made by the company on the basis of security have been properly secured &
whether the terms on which they have been made are prejudicial to interests of company or its members.
Whether transactions of the company which are represented merely by book entries are prejudicial to the
interests of the company.
In case of any company other than an investment company or a banking company, whether so much of the
assets of the company as consist of shares, debentures & other securities have been sold at a price less
than that at which they were purchased by the company.
Whether loans and advances made by the company have been shown as deposits.
Whether personal expenses have been charged to revenue account.
Where it is stated in the books & documents of the company that any shares have been allotted for cash,
whether cash has actually been received in respect of such allotment, & if no cash has actually been so
received, whether position as stated in the account books & the B/S is correct, regular and not misleading.

REPORT BY AUDITORS-SEC 143(2)-(4)

Duty to make report [Sec. 143(2)]
The auditor shall make a report to the members of the company.
In his audit report, the auditor shall report on
- The accounts examined by him; &
- FS which are required to be laid before the company in GM.
The auditor shall state in his report as to whether the accounts examined by him and FS give a true and fair
view of
- at the end of its FY
- P/L of the year
- Cash flow for the year
The auditor shall state in his report such other prescribed matters. (CARO, 2020)
The auditor shall prepare his report after taking into account the provisions of this Act, AS & SAs.
Report on principal assertions [Sec. 143(3)]
(a) whether he has sought and obtained all the information and explanations which, to the best of his
knowledge & belief were necessary for the purpose of his audit and if not, the details thereof and
the effect of such information on the FS.
(b) whether, in his opinion, proper BOA as required by law have been kept by the company so far as
appears from his examination of those books and proper returns adequate for the purposes of his
audit have been received from branches not visited by him.
(c) whether the report on the accounts of any branch office of the company audited by a person other
than the company's auditor has been sent to him and the manner in which he has dealt with it in
preparing his report.
(d) whether the company's B/S & P/L A/c dealt with in the report are in agreement with the BOA & returns.
(e) whether, in his opinion, the FS comply with the AS.
(f) the observations or comments of the auditors on FS or matters which have any adverse effect
on the functioning of the company.
(g) whether any director is disqualified from being appointed as a director u/s 164(2)
(h) any qualification, reservation or adverse remark relating to the maintenance of accounts & other
matters connected therewith.
(i) whether the company has adequate internal financial controls with reference to FS in place & the
operating effectiveness of such controls.
This requirement shall not apply to a private company which
is OPC or a small company; or
has T/O < Rs. 50 cr as per latest audited FS and which has aggregate borrowings from banks or FI
or any BC at any point of time during the FY < Rs. 25 cr.

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 if no default in filing FS u/s 137 or Annual return u/s 92.
(j) such other matters as may be prescribed-
(a) Whether the company has disclosed the impact, if any, of pending litigations on its financial
position in its FS.
(b) Whether the company has made provision, as required under any law or AS, for material
foreseeable losses, if any, on long term contracts including derivative contracts.
(c) Whether there has been any delay in transferring amounts, required to be transferred, to the
IEPF Fund by the company.
(d) Omit
(e) (i) Whether the management has represented that, to the best of its knowledge and belief,
other than as disclosed in the notes to the accounts, no funds have been advanced or loaned or
invested (either from borrowed funds or share premium or any other sources or kind of funds)
by the company to or in any other person(s) or entity(ies), including foreign entities
(Intermediaries), with the understanding, whether recorded in writing or otherwise, that the
Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities
identified in any manner whatsoever by or on behalf of the company (Ultimate Beneficiaries) or
provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;
(ii) Whether the management has represented, that, to the best of its knowledge and belief,
other than as disclosed in the notes to the accounts, no funds have been received by the
company from any person(s) or entity(ies), including foreign entities (Funding Parties), with the
understanding, whether recorded in writing or otherwise, that the company shall, whether,
directly or indirectly, lend or invest in other persons or entities identified in any manner
whatsoever by or on behalf of the Funding Party (Ultimate Beneficiaries) or provide any
guarantee, security or the like on behalf of the Ultimate Beneficiaries; and
(iii) Based on such audit procedures that the auditor has considered reasonable and appropriate
in the circumstances, nothing has come to their notice that has caused them to believe that
the representations under sub-clause (i) and (ii) contain any material mis-statement.
(f) Whether the dividend declared or paid during the year by the company is in compliance with
section 123 of the Companies Act, 2013.
(g) Whether the company in respect of financial years commencing on or after the 1st April, 2022,
has used such accounting software for maintaining its books of account which has a feature of
recording audit trail (edit log) facility and the same has been operated throughout the year for
all transactions recorded in the software and the audit trail feature has not been tampered
with and the audit trail has been preserved by the company as per the statutory requirements
for record retention.

Reasons to be given [Sec. 143(4)]

Where any of the matters required to be included in the audit report is answered in the negative or he given
with a qualification, the report shall state the reasons thereof.

SPECIAL PROVISIONS W.R.T GOVT COMPANIES-SEC 143(5)-(7)

Directions by CAG to auditors [Sec. 143(5)]
In the case of a Government company or any other company owned or controlled, directly or indirectly,
by CG/SG(s) or partly by CG & SG(s), CAG shall direct the auditor the manner in which the accounts of
the Government company are required to be audited.
The auditor shall submit a copy of his audit report to CAG.
The audit report shall, among other things, include

Actions taken in pursuance The impact on the accounts

Directions if any issued by CAG
of directions issued by CAG and FS of company

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Right of CAG to conduct Supplementary audit [Sec. 143(6)]
CAG shall, within 60 days from the date of receipt of the audit report, have the following rights:
Supplementary order conduct of a supplementary audit of the FS of the company.
audit It shall be conducted by such person(s) as CAG may authorise in this behalf.
Supplement CAG may comment upon the audit report.
or comment CAG may supplement the audit report.
Any such comments or supplement shall be sent by the company to every person
entitled to copies of audited FS.
Any such comments or supplement shall also be placed before the members in
the AGM at the same time & in the same manner as the audit report.
Test audit [Sec. 143(7)]
CAG may, by an order, cause test audit to be conducted of the accounts of the company.

BRANCH AUDIT-SEC 143(8)

Who can be the auditor?

Branch in Branch o/s

India India

The duties and powers of the company's auditor with reference to the audit of the branch & the branch
auditor, if any, shall be as contained in sub-sections (1) to (4) of Sec. 143.
The provisions regarding reporting of fraud by the auditor shall also extend to such branch auditor to the
extent it relates to the concerned branch.
Report of Branch auditor
The branch auditor shall prepare a report on the accounts of the branch examined by him.
The branch auditor shall send his report to the auditor of the company.
The auditor of the company shall deal with the report of the branch auditor, in his report in such
manner as he considers necessary.

AUDITOR TO COMPLY WITH AUDITING STANDARDS-SEC 143(9)-(10) & ISSUE

STATEMENT ON PRESCRIBED MATTERS-SEC 143(11)
Nature of duty
Every auditor shall comply with the SA.

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Steps in formulating SA

ICAI recommends SA.

NFRA examines & also make its own recommendations

CG examines the recommendations made by NFRA.

Then, CG may prescribe SA, after consultation with NFRA

Audit report to include a statement on prescribed matters (CARO, 2020)

CG may, in consultation with NFRA, by general or special order, direct, in respect of such class or description
of companies, that auditor's report shall also include a statement on such matters as may be specified therein.

REPORTING OF FRAUD BY AN AUDITOR-SEC 143(12)-(15)+Rule 13

Reporting of fraud [Sec. 143(12)]

Fraud committed in the company by its

officers or employees

Amount < 1 Amount >= 1

Cr. Cr.

Report to Board/AC Report to

Board shall disclose in BR- Board/AC
within 2 days-
a) Nature of fraud with within 2 days
a) Nature of fraud with description;
description; Seek reply
b) Approximate amount
b) Approximate amount within 45 days
involved;
involved; &
c) Parties involved, if
c) Parties involved. remedial action is not taken; Reply recieved on
and within stipulated
d) Remedial actions taken. time?
Yes No
Forward to CG-
Forward to CG-
Report + Note
Report + Reply /
containing details
observation +
of report earlier
comments within
forwarded to
15 days
Board/AC.

Report to CG
To be sent to the MCA in a sealed cover by RPAD or by speed post.
On the letter-head of the auditor containing postal address, e-mail address & contact telephone number or
mobile number.
Signed by the auditor with his seal & shall indicate his Membership Number.
In the form of a statement as specified in Form ADT-4.
An e-mail shall also be sent to Secretary, MCA in confirmation.
No liability of auditor [Sec. 143(13)]

109
An auditor shall not be deemed to be guilty for breach of any of his duties by reason of his reporting any matter
to CG if such reporting is done in good faith.
Provisions applicable to other auditors [Sec. 143(14)]
The provisions w.r.t. reporting of fraud shall mutatis mutandis apply to
(a) the CMA conducting cost audit u/s 148; or
(b) the CS in practice conducting secretarial audit u/s 204.
Punishment for Non-compliance [Sec. 143(15)]
in case of a listed company 5 Lakhs
in case of any other company 1 Lakh

AUDITOR TO SIGN AUDIT REPORTS ETC-SEC 145

Signing and certification
The auditor's report shall be signed only by the person appointed as an auditor of the company.
Any other document of the company required to be signed or certified by the auditor, shall be signed or
certified only by the person appointed as an auditor of the company.
Qualification to be read in GM and inspection thereof
The qualifications, observations or comments on financial transactions or matters, which have any adverse
effect on the functioning of the company mentioned in the auditor's report shall be
read before the company in GM; and

open to inspection by any member of the company.

AUDITOR TO ATTEND GM-SEC 146

Right of auditor to receive notices of GM
All notices of, & other communications relating to any GM, shall be forwarded to the auditor.
Duty of the auditor to attend GM
The auditor shall attend the GMs.
The auditor may attend the GM
(a) himself; or
(b) through his authorised representative, who shall also be qualified to be an auditor.
The company may exempt an auditor from attending the GM.
Right of auditor to be heard at GM
Auditor shall have a right to be heard at GM on any part of the business which concerns him as the auditor.

PUNISHMENT FOR CONTRAVENTION-SEC 147

Company
Punishment for Contravention Minimum Fine Rs. 25,000
of Sec. 139 to 146 Maximum Fine Rs. 5,00,000

110
Officer in Default
Punishment for Contravention Minimum Fine Rs. 10,000
of Sec. 139 to 146 Maximum Fine Rs. 1,00,000
Auditor
Punishment Unintentional Contravention Knowingly/willfully with an intention to
for deceive the company or its shareholders
Contravention or creditors or tax authorities
of Sec. 139, Imprisonment - Upto 1 year
144 or 145 Minimum Fine Rs. 25,000 Rs.50,000
Maximum Fine Rs. 5,00,000 or 4 times the Rs.25,00,000 or 8 times the
remuneration, whichever is less remuneration, whichever is less

Payment of damages by the auditor

The auditor shall be liable to pay damages
to the company, statutory bodies or authorities or to members or creditors of the company
for loss arising out of incorrect or misleading statements of particulars made in his audit report.
Refund of Remuneration
Auditor shall be liable to refund the remuneration received by him to the company
Measures to ensure prompt payment of damages
For ensuring prompt payment of damages by the auditor, CG shall, by notification, specify any statutory
body or authority or an officer.
Such statutory body or authority or officer shall pay the damages to the persons entitled to damages.
Such statutory body or authority or officer shall file a report with CG containing particulars of damages.
Jointly and several liability of partners
In case of an audit firm, the liability (whether civil or criminal) shall be of the partner(s) concerned & of
the firm jointly and severally.
In case of criminal liability of an audit firm, in respect of liability other than fine, the concerned partner or
partners, who acted in a fraudulent manner or abetted or, colluded in any fraud shall only be liable.

COST AUDIT-SEC 148

Order by CG for maintenance of cost records
Maintenance of cost records is mandatory only if such an order is made by CG.
Order for companies- Rule 3
Class of companies as are engaged in the production of such goods or providing such services

Applicability of maintenance of Cost Records

Domestic or Foreign
Listed in Rule 3
company

Non-Regulated Regulated Telecom, Electricity, Petroleum & Gas,

Drugs & Pharma, Fertilizers, Sugar &
Table B (33) Table A (6) Industrial Alcohol.

Engaged in Production of goods or providing services where overall turnover from all products & services
>= 35 crores in PFY.

111
Exception: Company classified as a Micro or a Small enterprise under MSMED Act, 2006.
Nature of cost records to be maintained
Prescribed particulars relating to
the utilisation of material;
labour; and
other items of cost.
Maintenance of Cost Records: Rule 5
Every company under these rules including all units and branches thereof, shall, in respect of each of its FY, is
required to maintain cost records in Form CRA-1.
The cost records shall be maintained on regular basis in such manner as to facilitate calculation of per unit cost
of production or cost of operations, cost of sales and margin for each of its products and activities for every FY
on monthly or quarterly or half-yearly or annual basis.
Consultation before making order
Before issuing any such order
in respect of any class of companies regulated under a special Act,
CG shall consult the regulatory body constituted or established under such special Act.
Order by CG for conduct of cost audit
Conduct of cost audit is mandatory only if such an order is made by CG.
Order for Class of companies Rule 4
for which CG has made an order for maintenance of cost records; and
which have
Applicability of Cost Audit
Every company specified Every company specified
under 3A in Regulated under 3B in Non-
Sector Regulated Sector
From all products & services, or 50 crore or more 100 crore or more
From individual products or 25 crore or more 35 crore or more
Turnover
services specified for which cost
records are made under rule 3

112
Exception from cost audit:

Company whose revenue from

exports, in foreign exchange,
exceeds 75% of its total
revenue; or

Company which is operating

from a special economic
zone.

Company which is engaged in

generation of electricity for
captive consumption through
Captive Generating Plant.

Appointment and Remuneration of Cost Auditor:

in the case of companies which are required to
constitute an AC-
(i) the Board shall appoint an individual / firm of
cost accountants, as cost auditor on the
recommendations of the AC, which shall also
recommend remuneration for such cost auditor;
(ii) the remuneration recommended by the AC shall
be considered and approved by the BOD & ratified
subsequently by the shareholders;
in the case of other companies which are not
required to constitute an AC-
the Board shall appoint an individual / firm of cost
accountants as cost auditor & the remuneration of
such cost auditor shall be ratified by shareholders
subsequently.

113
 Company shall within 180 days of commencement of FY appoint cost auditor - Rule 6

File a notice of his Company shall inform

appointment with CG in cost auditor of
E-form CRA-2 appointment

Earlier of

30 days of BM in 180 days of

which commencement
appointment of FY
made

Auditor shall continue to hold his office till expiry of 180 days from closure of FY or till he submits his reports

Who can be cost auditor?

Cost audit shall be conducted by a Cost Accountant.
The Cost Auditor shall be appointed by the Board.
The auditor appointed u/s 139 shall not be appointed as the Cost Auditor.
auditor conducting the cost audit shall comply with the cost auditing standards
Qualifications, disqualifications, rights & duties applicable to auditor shall also apply to cost auditor.
The company shall give all assistance and facilities to the cost auditor.
Written consent & certificate same as statutory auditor
Filing of Casual vacancy
By BOD within 30 days
Inform CG in CRA-2 within 30 days of appointment
Submission of Cost Audit Report

Cost Auditor shall submit Cost Audit Report in Form CRA-3 Within 180 days of close of FY

Company shall file Cost Audit Report with full information and explanation on every reservation or
qualification contained therein in E-form CRA-4 with CG in Extensible Business Reporting Language (XBRL)
format within 30 days of receipt of report

If after considering the report CG is of opinion that further info & explanation is necessary, it may call for same
& company shall furnish within specified time

Penal Provisions in case of default

114
 the company
every officer
cost auditor
of the company who is in default shall be punishable u/s 147.

NFRA RULES
BC to file particulars of Auditor with NFRA
Every existing BC (other than a company) governed by NFRA rules, shall inform the NFRA in Form NFRA-1 the
particulars of the auditor:
as on the date of commencement of NFRA rules, within 30 days of the commencement of the NFRA rules.
appointed u/s 139(1) within 15 days of such appointment.
Auditor to file return with NFRA
Every auditor referred above shall file a return with the NFRA on or before 30th November every year in form
NFRA-2
Monitoring & enforcing compliance with SA
NFRA may:
review working papers (including audit plan & other audit documents) & communication related to audit;
evaluate the sufficiency of the quality control system of the auditor & the manner of documentation of
the system by the auditor; &
perform such other testing of the audit, supervisory, & quality control procedures of the auditor as may be
considered appropriate.
The NFRA may require an auditor to report on its governance practices and internal processes designed to
promote audit quality, protect its reputation and reduce risks including risk of failure of the auditor and may
take such action on the report as may be necessary.
The NFRA may seek additional information or may require the personal presence of the auditor for seeking
additional information or explanation in connection with the conduct of an audit.
The NFRA shall perform its monitoring and enforcement activities through its officers or experts with
sufficient experience in audit of the relevant industry.
The NFRA shall publish its findings relating to non-compliances on its website and in such other manner as it
considers fit, unless it has reasons not to do so in the public interest and it records the reasons in writing.
The NFRA shall not publish proprietary or confidential information, unless it has reasons to do so in the public
interest and it records the reasons in writing.
The NFRA may send a separate report containing proprietary or confidential information to the CG for its
information.
Where the NFRA finds or has reason to believe that any law or professional or other standard has or may have
been violated by an auditor, it may decide on the further course of investigation or enforcement action
through its concerned Division.
Overseeing the quality of service & suggesting measures for improvement
On the basis of its review, the NFRA may direct an auditor to take measures for improvement of audit quality
including changes in their audit processes, quality control, and audit reports and specify a detailed plan with
time-limits.
It shall be the duty of the auditor to make the required improvements and send a report to the NFRA
explaining how it has complied with the directions made by the NFRA.
The NFRA shall monitor the improvements made by the auditor and take such action as it deems fit depending
on the progress made by the auditor.
The NFRA may refer cases with regard to overseeing the quality of service of auditors of companies or BC to
the QRB constituted under the CA Act, 1949 (38 of 1949) or call for any report or information in respect of
such auditors or companies or BC from such Board as it may deem appropriate.
The NFRA may take the assistance of experts for its oversight and monitoring activities.

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116
 QUESTION BANK
CHAPTER 10 AUDIT & AUDITORS
1. (i) Rupa Limited, a listed company appointed M/s. VG &ASSOCIATES an audit firm as May 18
Company's auditor in the Annual General Meeting held on 30-09-2017. Explain the
provisions of the Companies Act, 2013 relating to the appointment or reappointment
of an auditor in relation to the tenure of an auditor
(ii) PKC Ltd., wants to appoint Mr. Praveen Kumar, a practicing Chartered Accountant
as the statutory auditor of the company and asked the proposed auditor to give a
certificate in this regard. What are the contents of the certificate to be issued in
accordance with the Companies (Audit & Auditors Rules, 2014)?

2. (i) CA. M is a partner in SM & Company (Chartered Accountants) and ML & Company Nov 18
(Chartered Accountants). SM & Company are statutory auditors of M/s. Global Ltd.
(listed) for past seven years as on 1-04-2018. Advice under relevant provisions of the
Companies Act, 2013:
(a) For how many more years SM & Company can continue as statutory auditors of
M/s. Global Ltd. (listed)?
(b) Can ML & Company be appointed as statutory auditor of M/s. Global Ltd. during
cooling off period for SM & Company?
(ii) Mr. Ram brother of CA. Shyam, a practicing-chartered accountant, acquired
securities of M/s. Cool Ltd. having market value of 1,20,000 (face value - 95,000).
State whether CA Shyam is qualified to be appointed as a statutory auditor of M/s.
Cool Ltd.

3. The Board of Directors of A Ltd. requested its Statutory Auditor to accept the assignment May19,
of designing and implementation of suitable financial information system to strengthen TB
the internal control mechanism of the Company. How will you approach to this proposal, RTP May 21
as an Statutory Auditor of A Ltd., taking into account the consequences, if any, of MTP April 23
accepting this proposal? (6 Marks)

4. Examine whether the following persons are eligible for being appointed as auditor under Nov 19, TB
the provisions of the Companies Act, 2013:
(i) "Mr. Prakash" is a practicing Chartered Accountant and "Mr. Aakash", who is a
relative of "Mr. Prakash" is holding securities of "ABC Ltd." having face value of
70,000/- (market value 1, 10,000/-). Directors of ABC Ltd. want to appoint Mr.
Prakash as an auditor of the company.
(ii) Mr. Ramesh is a practicing Chartered Accountant indebted to MNP Ltd. for 76 lacs.
Directors of MNP Ltd. want to appoint Mr. Ramesh as an auditor of the company.
(iii) Mrs. KVJ spouse of Mr. Kumar, a Chartered Accountant, is the store keeper of PRC
Ltd. Directors of PRC Ltd. want to appoint Mr. Kumar as an auditor of the company.

5. The Board of Directors of Moon Light Limited, a listed company appointed Mr. Tel, SA Nov 20
Chartered Accountant as its first auditor within 30 days of the date of registration of MTP March 22
the Company to hold office from the date of incorporation to conclusion of the first (5 Marks)
Annual General Meeting (AGM). At the first AGM, Mr. Tel was re-appointed to hold office MTP March 23
from the conclusion of its first AGM till the conclusion of 6th AGM. In the light of the (6 Marks)
provisions of the NOV 20 Companies Act, 2013, examine the validity of appointment /
reappointment in the following cases:
(i) Appointment of Mr. Tel by the Board of Directors.
(ii) Re-appointment of Mr. Tel at the first AGM in the above situation.

117
 (iii) In case Mr. Bell, Chartered Accountant, was appointed as auditor at the first AGM
to hold office from the conclusion of its first AGM till the conclusion of 5th AGM,

6. Three chartered accountants, Mr. Robert, Mr. Ram and Mrs. Rohini, formed a Limited SA Jan 21
Liability Partnership under the Limited Liability Partnership Act, 2008 in the name of 'R 3 Marks
& Associates LLP', practicing chartered accountants. SR Ltd. intends to appoint 'R &
Associates LLP as auditors of the company
Examine the validity of the proposal of SR Ltd. to appoint 'R & Associates LLP, a body
corporate, as an auditor of the company as per the provisions of the Companies Act,
2013.

7. Explain how the auditor will be appointed in the following cases: RTP May 18
(i) A Government Company within the meaning of section 2(45) of the Companies Act,
2013
(ii) The Auditor of the company (other than government company) has resigned on 31st
December, 2016, while the Financial year of the company ends on 31st March, 2017

8. Lemon & Company, Chartered Accountants a Limited Liability Partnership firm with CA. RTP Nov18
L, CA. M and CA. N as partners, is the statutory auditor of a listed company M/s Big
Limited for past 6 years as on 01.04.2014. CA.M is also a partner in other Chartered
Accountant Firm Dew & Company, Chartered Accountants. Advise under the provisions
of the Companies Act, 2013:
(i) Upto how many years can Lemon & Company continue as statutory auditors of M/s
Big Limited
(ii) What shall be the cooling-off period for Lemon & Company with respect to M/s Big
Limited?

(iii)Can Dew & Company; be appointed as statutory auditors of M/s Big Limited and it's
another listed subsidiary M/s Dark Limited during such cooling-off period?
(iv) Can Lemon & Company be appointed as internal auditors of M/s Big Limited and it's
another listed subsidiary M/s Dark Limited, during such cooling-off period?

9. Mrs. Sita, wife of CA. 'Arjun' the statutory auditor of Stellar Builders Limited, acquired RTP Nov 18
shares in the company for a face value of Rs. 75000/- on 15h March, 2018. CA. 'Arjun',
issued his audit report on 25th April, 2018. Examine the validity of this transaction under
the Companies Act, 2013. Would your answer be different if face value of the shares
have been Rs. 150000/- (market value Rs. 95000/-)?

10. Examine the following situations in the light of the Companies Act, 2013 RTP May 19
(i) Mr. Ayush, a Chartered accountant has been appointed as an auditor of X Ltd. in the MTP May 19
Annual General Meeting of the company held in September, 2018, in which he accepted TB
the assignment. Subsequently, in January, 2019 he joined B, as a partner for the
consultancy firm of Mr. B. Mr. B is working also working as a Finance Executive of X Ltd.
(ii) "Mr. Abhi", a practicing Chartered Accountant, is holding securities of "Abhiman Ltd."
having face value of 1000/-. Whether Mr. Abhi is qualified for appointment as an Auditor
of Abhiman Ltd."?

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11. Shekhar Limited appointed an individual firm, Suresh & Company, Chartered RTP Nov 20
Accountants, as Auditors of the company at the Annual General Meeting held on 30th MTP April 19
September, 2019. Mrs. Kamala, wife of Mr. Suresh, invested in the equity shares having RTP May 20
face value of 1 lakh of Shekhar Limited on 15th October, 2019. But Suresh & Company TB
continues to function as statutory auditors of the company. Advice.

12. One-fourth of the subscribed capital of AMC Limited was held by the Government of MTP Oct 20
Rajasthan. Mr. Vikas, a Chartered Accountant, was appointed as an auditor of the TB
Company at the Annual General Meeting held on 30th April, 2020 by an ordinary
resolution. Mr. Mukesh, a shareholder of the Company, objects to the manner of
appointment of Mr. Vikas on the ground of violation of the Companies Act, 2013. Decide
whether the objection of Mr. Mukesh is tenable? Also examine the consequences of the
above appointment under the said Act

13. (i) The Auditor of the company (other than government company) has resigned on 31st MTP Oct 19
December, 2018, while the Financial year of the company ends on 31st March, 2019.
Discuss as per the provisions of the Companies Act, 2013, how the auditor will be
appointed in this case. (ii) A company includes the following shareholders also: (I) Bank
of Baroda (A Nationalized Bank) holding 12% of the subscribed capital in the company.
(II) National Insurance Company Limited (carrying on General Insurance Business)
holding 10% of the subscribed capital in the company. (III) Maharashtra State Financial
Corporation (A Public Financial Institution) holding 8% of the subscribed capital in the

auditor
provisions of the Companies Act, 2013.

14. Explain how the auditor will be appointed in the following cases: MTP May 19
(i) A Government Company within the meaning of section 2(45) of the Companies TB
Act,2013.
(ii) A Public Company whose shareholders include XYZ Bank (a nationalized bank)
holding 18% of the subscribed capital of the company

15. Examine the validity of the following with reference to the provisions of the Companies MTP Oct 18
Act, 2013: -
(i)
having face value of Rs. 900/-. Whether Mr. A is qualified for appointment as an

(ii)
-

16. Examine the validity of the following with reference to the provisions of the Companies MTP Aug 18
Act, 2013: -
(i) DON Limited appointed an individual firm, Nat & Company, Chartered Accountants,
as Auditors of the company at the Annual General Meeting held on 30th September,
2017. Mrs. Kat, wife of Mr. Nat, invested in the equity shares face value of Rs. 1 lakh
of DON Limited on 15th October, 2017. But Nat & Company continues to function as
statutory auditors of the company.
(ii) Mr. Suresh, a Chartered Accountant, was appointed by the Board of Directors of AB
Limited as the First Auditor. The company in General Meeting removed Mr. Suresh

119
 without seeking the approval of the Central Government and appointed Mr. Gupta
as Auditor in his place?

17. Mr. Honest, an auditor of MM company ltd. has colluded with the company for a fraud. MTP Aug 18
The Central Government has applied to Tribunal about the said fraud by Mr. Honest.
State the provisions of the Companies Act, 2013 regarding the steps that can be taken
by Tribunal when it finds that the auditor of a company has acted in a fraudulent manner

18. State the procedure for the following, explaining the relevant provisions of the TB
Companies Act, 2013
(i) Appointment of First Auditor, when the Board of directors did not appoint the First
Auditor within one month from the date of registration of the company.
(ii) Removal of Statutory Auditor (appointed in last Annual General Meeting) before the
expiry of his term

19. Yellow Private Limited is engaged in the business of manufacturing premium quality RTP Nov 23
rattle toys. They have a huge market for their toys all over India. The company has
appointed its statutory auditors for the financial year 2022-2023. The engagement letter
of the auditors was signed with a clause that fee to be mutually decided. Directors of
the company have approached you to seek your advice for provisions related to
remuneration of auditors as per the provisions of the Companies Act, 2013.

20. State the provisions of the Companies Act, 2013 relating to appointment of First Auditor SA July 21
of a Government Company. (3 Marks)

21. AB & Associates, a firm of Chartered Accountants was re-appointed as auditors at the SA July 21
Annual General Meeting of X Ltd. held on 30-09-2019. However, the Board of Directors (5 Marks)
recommended to remove them before expiry of their term by passing a resolution in the MTP Oct 22
Board Meeting held on 31-03-2020. Subsequently, having given consideration to the (5 Marks)
Board recommendation, AB & Associates were removed at the general meeting held on
25-05-2020 by passing a special resolution subject to approval of the Central
Government. Explaining the provisions for removal of second and subsequent auditors,
examine the validity of removal of AB & Associates by X Ltd. under the provisions of the
Companies Act, 2013.

22. (i) Mr. Raman, a Chartered Accountant, was appointed as an auditor of Surya SA Dec 21
Distributors Ltd., in the AGM of the company held in August, 2020, in which he (4 Marks)
accepted the assignment. Later on, in November, 2020, he joined as a partner in
the Consultancy firm where Mr. Som is also a partner. Mr. Som is also working as a
Finance executive of Surya Distributors Ltd. Explaining the provisions of the
Companies Act, 2013, decide whether Mr. Raman is required to vacate the office as
an auditor.
(ii) Managing Director of ABC Ltd. himself appointed Mr. Aakash, a practicing chartered
accountant as first auditor of the company. Is it a valid appointment? Also explain
the provisions of the Companies Act, 2013, in this regard?

23. Referring the provisions of the Companies Act, 2013, regarding appointment of auditors, SA Dec 21
answer the following: (5 Marks)
(i) XYZ Ltd. is a newly established company owned by the Central Government. State
the provisions regarding appointment of its first auditor.
(ii) Mr. Kamal is the auditor of XYZ Limited, which is a Government company. He has
resigned on 31st December, 2020 while the financial year of the company ends on
31st March, 2021. Explain the provisions regarding filling or such vacancy. Would
your answer differ if it is other than a Government company?

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24. HD Software Private Limited is engaged in the business of providing software services. SA May 22
The company appointed its statutory auditors. The engagement letter was signed with (5 Marks)
a clause that fee to be mutually decided. However, the remuneration was not finalized.
Directors of the company seeks your advice for, provisions related to remuneration of
directors1 as per the provisions of the Companies Act, 2013.

OR
ABC & Co., Chartered Accountants, are statutory auditors of Moon Exports Limited. In
an inquiry, it is proved that 'A', one of the partners of the firm has acted in fraudulent
manner and colluded in fraud to its partners. Explain the consequences of such act under
the provisions of the Companies Act, 2013.

25. P Limited appointed "XYZ & Co.", an audit firm, as Auditor of the company at the Annual SA Nov 22
General Meeting held on 30th September, 2021. Mr. X, Y and Z are partners in XYZ & (6 Marks)
Co.
With reference to the Companies Act, 2013, examine, the validity of appointment of
the XYZ & Co. in each of the following cases separately:
(i) Mrs. Q, wife of Mr. X has invested in the equity shares of P Limited having face
value of Rs. 1 lakh.
(ii) Mrs. Q, wife of Mr. X has given guarantee in relation to a loan taken by G from P
Limited of an amount worth Rs. 1,50,000.
(iii) Mrs. Q, wife of Mr. X is indebted to Z Limited for Rs. 10,00,000 (P Limited holds
one fourth of the paid-up Equity Share Capital of Z Ltd.)

26. Shivam Limited is incorporated on 1.1.2020. The company wants to appoint its first MTP March 21
auditor. Please enumerate to the company the relevant provisions of the Companies (3 Marks)
Act, 2013 with respect to the appointment of first auditor.

27. Shiv Limited is incorporated on 3.10.2020. The company is having a paid- up share MTP April 21
capital of Rs. 5 crores. Following are key shareholders of the company: (6 Marks)
Name of the Party holding shares Amount (in
Rs.)
Central Government 1.50
Punjab Government 1.23
Others 2.27
The first auditor of the company has been appointed by the Board of Directors on
31.10.2020. The members of the company have objected to such an appointment by the
Board of Directors. According to the members its only the members who can appoint the
first auditor.
Advise the company on the validity of such appointment as per the provisions of the
Companies Act, 2013. Also, advise whether the contention of members of the company
is correct.

28. Maya Limited is a public company. Maharashtra Bank (a nationalized bank) is a MTP April 21
shareholder holding 18% of the subscribed capital of the company. Explain how the (6 Marks)
following shall be appointed:
(i) First auditor (ii) Subsequent auditor

29. Mr. R brother of CA. Sana, a practicing chartered accountant, acquired securities of Hot MTP Oct 21
Ltd. having market value of Rs. 1,20,000 (face value Rs. 95,000). State whether CA. (3 Marks)
Sana is qualified to be appointed as a statutory auditor of Hot Ltd.

30. The Auditor of the company (other than government company) has resigned on 31st MTP Oct 21
December, 2020, while the Financial year of the company ends on 31st March, 2021. (3 Marks)
Discuss as per the provisions of the Companies Act, 2013, how the auditor will be
appointed in this case.

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31. Mr. Yash is a partner and in charge of PQR firm. The firm is appointed as an auditor firm MTP Oct 21
of A. K. Company limited (listed company). Mr. Yash retires from PQR firm and after (5 Marks)
some time join Gupta & Gupta firm as a partner, on 20/05/21. In the general meeting
of the company held on 15/06/21, the company appointed Gupta & Gupta firm as next
auditor of the company. Do you think the company has adhered to the provision of
appointing Gupta & Gupta as auditor for the company, under the Company Act 2013.
Explain?

32. Examine whether the following persons are eligible for being appointed as auditor under MTP Nov 21
the provisions of the Companies Act, 2013: (5 Marks)
(i) Mr. Ray is a practicing Chartered Accountant indebted to ABC Ltd. for rupees 6 lakh.
Directors of ABC Ltd. want to appoint Mr. Ray as an auditor of the company. Can
ABC Ltd. do so?
(ii) Mrs. Kavita spouse of Mr. Kumar, a Chartered Accountant, is the store- keeper of
PRC Ltd. Directors of PRC Ltd. want to appoint Mr. Kumar as an auditor of the
company.

33. Advise as per the provisions of the Companies Act, 2013, with regard to appointment of MTP March 22
auditor: (6 Marks)
(i) Mr. Shepra is a practising Chartered Accountant. He holds shares in X Limited. The
nominal value of these shares is Rs. 50,000. Whether X Limited can appoint Mr.
Shepra as auditor?
(ii) Mr. Showik, a practising Chartered Accountant has business relationship with Primus
Hotels Limited. The hotel used to provide services to Mr. Showik frequently, on the
same price as charged from other customers. Whether Primus Hotels Limited can
appoint Mr. Showik as its auditor?

34. Gajendra Ltd. was incorporated in 1995 in the town of Alwar. Its main business is MTP April 22
manufacturing tiles. It is in the process of appointing statutory auditors for the financial (6 Marks)
year 2021 -22. Advise whether the following persons are qualified to be appointed as
statutory auditor of the Gajendra Ltd:
(i) Maninder, a qualified Chartered Accountant, holds equity shares of nominal value
of Rs. 2,00,000 of Narender Ltd., which is an associate company of Gajendra Ltd.
(ii) Dinesh, a qualified Chartered Accountant, whose son owes Gajendra Ltd. a sum of
Rs. 99,000
(iii) Rajender, a qualified Chartered Accountant, who has been convicted in the year
2005 by a Court for an offence involving fraud.

35. Gizmo Limited was incorporated in 1990 in the town of Alwar. Its main business is MTP Sep 22
manufacturing high quality bangles. It is in the process of appointing statutory auditors (5 Marks)
for the financial year 2021- 22. Advise whether the following persons are qualified to be
appointed as statutory auditor of the Gizmo Limited:
(i) Priyansh, a qualified chartered accountant, is an employee of Gizmo Limited.
(ii) Vinod is a practicing Chartered Accountant indebted to Gizmo Limited for rupees 2
lakh.

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Self Notes and Imp Points

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