AUDIT - COMPANY LAWS BASIC CONCEPTS-2

APPOINTMENT & REMUNERATION OF AUDITORS

[(1) Every company shall, at each annual general meeting, appoint an auditor
or auditors to hold office from the conclusion of that meeting until the
conclusion of the next annual general meeting and shall, within seven days of
the appointment, give intimation thereof to every auditor so appointed.
(1A) Every auditor appointed shall within thirty days of the receipt from the
company of the intimation of his appointment, inform the Registrar in
writing that he has accepted or refused to accept, the appointment.
(1B) No company or its Board of directors shall appoint or re-appoint any
person [who is in full-time employment elsewhere] or firm as its auditor if
such person or firm is, at the date of such appointment or re-appointment,
holding appointment as auditor of the specified number of companies or
more than the specified number of companies:

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
APPOINTMENT & REMUNERATION OF AUDITORS

At any annual general meeting, a retiring auditor, by whatsoever authority

appointed, shall be re-appointed, unless-

(a) he is not qualified for re-appointment;

(b) he has given the company notice in writing of his unwillingness to be re-
appointed;

(c) a resolution has been passed at that meeting appointing somebody instead
of him or providing expressly that he shall not be re-appointed; or

(d) where notice has been given of an intended resolution to appoint some
person or persons in the place of a retiring auditor, and by reason of the
death, incapacity or disqualification of that person or of all those persons, as
the case may be, the resolution cannot be proceeded with.

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
APPOINTMENT & REMUNERATION OF AUDITORS

(3) Where at an annual general meeting no auditors are appointed or re-

appointed, the Central Government may appoint a person to fill the vacancy.

(4) The company shall, within seven days of the Central Government's power
under sub-section (3), becoming exercisable, give notice of that fact to that
Government; and, if a company fails to give such notice, the company, and
every officer of the company who is in default, shall be punishable with fine
which my extend to five thousand rupees.

(5) The first auditor or auditors of a company shall be appointed by the

Board of directors within one month of the date of registration of the
company; and the auditor or auditors so appointed shall hold offices until the
conclusion of the first annual general meeting:

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
APPOINTMENT & REMUNERATION OF AUDITORS

(6) (a) The Board may fill any casual vacancy in the office of an auditor; but
while any such vacancy continues, the remaining auditor or auditors, if any,
may act:

Provided where such vacancy is caused by the resignation of an auditor, the

vacancy shall only be filled by the company in general meeting.

(b) Any auditor appointed in a casual vacancy shall hold office until the
conclusion of the next annual general meeting.

(7) Any auditor appointed under this section may be removed from office
before the expiry of his term only by the company in general meeting, after
obtaining the previous approval of the Central Government in that behalf.

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
REMUNERATION OF AUDITORS
(8) The remuneration of the auditors of a company-

(a) in the case of an auditor appointed by the Board or the Central

Government, may be fixed by the Board or the Central Government, as the
case may be; and

(aa) in the case of an auditor appointed under section 619 by the Comptroller
and Auditor-General of India, shall be fixed by the company in general
meeting or in such manner as the company in general meeting may
determine;

(b) subject to clause (a), shall be fixed by the company in general meeting or
in such manner as the company in general meeting may determine.

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
QUALIFICATIONS FOR APPOINTING OF AUDITORS

(1) A person shall not be qualified for appointment as

auditor of a company unless he is a chartered accountant
within the meaning of the Chartered Accountants Act,
1949 (38 of. 1949):

Provided that a firm whereof all the partners practicing

in India are qualified for appointment as aforesaid may
be appointed by its firm name to be auditor of a company,
in which case any partner so practicing may act in the
name of the firm.

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
QUALIFICATIONS FOR APPOINTING OF AUDITORS

(3) None of the following persons shall be qualified for appointment as auditor of a
company-

(a) a body corporate;

(b) an officer or employee of the company;

(c) a person who is a partner, or who is in the employment, of an officer or employee of

the company;

(d) a person who is indebted to the company for an amount exceeding one thousand
rupees, or who has given any guarantee or provided any security in connection with the
indebtedness of any third person to the company for an amount exceeding one
thousand rupees;

5[(e) a person holding any security of that company after a period of one year from the
date of commencement of the Companies (Amendment) Act, 2000.

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
POWERS & DUTIES OF AUDITORS

(1) Every auditor of a company shall have a right of

access at all times to the books and accounts and
vouchers of the company, whether kept at the head
office of the company or elsewhere, and shall be
entitled to require from the officers of the company
such information and explanations as the auditor
may think necessary for the performance of his
duties as auditor.

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
POWERS & DUTIES OF AUDITORS

(1) Every auditor of a company shall have a right of

access at all times to the books and accounts and
vouchers of the company, whether kept at the head
office of the company or elsewhere, and shall be
entitled to require from the officers of the company
such information and explanations as the auditor
may think necessary for the performance of his
duties as auditor.

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
POWERS & DUTIES OF AUDITORS

(lA) Without prejudice to the provisions of sub-section (1), the auditor

shall inquire-

(a) whether loans and advances made by the company on the basis
of security have been properly secured and whether the terms on
which they have been made are not prejudicial to the interest of the
company or its members;

(b) whether transactions of the company which are represented

merely by book entries are not prejudicial to the interests of the
company;

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
POWERS & DUTIES OF AUDITORS

(c) where the company is not an investment

company within the meaning of section 372 or a
banking company, whether so much of the assets of
the company as consist of shares, debentures and
other securities have been sold at a price less than
that at which they were purchased by the company;

(d) whether loans and advances made by the

company have been shown as deposits;

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
POWERS & DUTIES OF AUDITORS

(e) whether personal expenses have been charged to revenue

account;

(f) where it is stated in the books and papers of the company

that any shares have been allotted for cash, whether cash has
actually been received in respect of such allotment, and if no
cash has actually been so received, whether the position as
stated in the account books and the balance-sheet is correct,
regular and not misleading.

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
REPORT OF AUDITORS

(2) The auditor shall make a report to the members of the company
on the accounts examined by him, and on every balance-sheet and
profit and loss account and on every other document declared by this
Act to be part of or annexed to the balance-sheet or profit and loss
account which are laid before the company in general meeting during
his tenure of office, and the report shall state whether, in his opinion
and to the best of his information and according to the explanations
given to him, the said accounts give the information required by this
Act in the manner so required and give a true and fair view-
(i) in the case of the balance-sheet, of the state of the company's
affairs as at the end of its financial years; and
(ii) in the case of the profit and loss account, of the profit or loss for
its financial year.

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
REPORT OF AUDITORS

The auditor's report shall also state-

(a) whether he has obtained all the information and

explanations which to the best of his knowledge and belief
were necessary for the purposes of his audit;

(b) whether, in his opinion, proper books of account 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;

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
REPORT OF AUDITORS

(bb) whether the report on the accounts of any branch office audited
under section 228 by a person other than the company's auditor has
been awarded to him as enquired by clause (c) of sub-section (3) of
that section and how he has dealt with the same in preparing the
auditor's report;

(c) whether the company's balance-sheet and profit and loss account
dealt with by the report are in agreement with the books of account
and returns;

3(d) whether, in his opinion, the profit and loss account and balance-
sheet comply with the accounting standards referred to in sub-
section (3C) of section 211.

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
REPORT OF AUDITORS

[(e) in thick type or in italics the observations or comments of the

auditors which have any adverse effect on the functioning of the
company;

(f) whether any director is disqualified from being appointed as

director under clause (g) of sub-section (1) of section 274

5(g) whether the cess payable under section 441A has been paid and
if not, the details of amount of cess not so paid.

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
REPORT OF AUDITORS

(5) The accounts of a company shall not be deemed as not having

been, and the auditors report shall- not state that those accounts
have not been properly drawn up on the ground merely that the
company had not disclosed certain matters if-

(a) those matters are such as the company is not required to disclose
by virtue of any provisions contained in this or any other Act, and

(b) those provisions are specified in the balance-sheet and profit and
loss account of the company.

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
SIGNATURE OF AUDIT REPORT ETC

Only the person appointed as auditor of the

company, or where a firm is so appointed in
pursuance of the proviso to sub-section (1) of
section 226, only a partner in the firm practising in
India, may sign the auditor's report, or sign or
authenticate any other document of the company
required by law to be signed or authenticated by the
auditor.

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
READING AND INSPECTION OF AUDITOR’S REPORT

The auditor's report shall be read before the

company in general meeting and shall be open to
inspection by any member of the company

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
RIGHT OF AUDITOR TO ATTEND GENERAL MEETING

All notices of, and other communications relating

to, any general meting of a company which any
member of the company is entitled to have sent to
him shall also be forwarded to the auditor of the
company; and the auditor shall be entitled to attend
any general meeting and to be heard at any general
meeting which he attends on any part of the
business which concerns him as auditor.

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
PENALTY FOR NON-COMPLIANCE

If default is made by a company in complying with

any of the provisions contained in section 225 to
231, the company, and every officer of the company
who is in default, shall be punishable with fine
which may extend to five thousand rupees.

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
POWER OF CENTRAL GOVERNMENT TO DIRECT SPECIAL AUDIT IN
CERTAIN CASES

(1) Where the Central Government is of the opinion-

(a) that the affairs of any company are not being managed in
accordance with sound business principles or prudent commercial
practices; or

(b) that any company is being managed in a manner likely to cause

serious injury or damage to the interests of the trade, industry or
business to which it pertains; or

(c) that the financial position of any company is such as to endanger

its solvency;

the Central Government may at any time by order direct that a special
audit of the company's accounts for such period or periods as may
be specified in the order

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 AUDIT - COMPANY LAWS BASIC CONCEPTS-2
INVESTIGATION OF THE AFFAIRS OF A COMPANY

(1) The Central Government may, where a report has been made by
the Registrar under; sub-section (6) of section 234, or under sub-
section (7) of that section, read; with sub-section (6) thereof, appoint
one or more competent persons as inspectors to investigate the
affairs of a company and to report thereon in such manner as the
Central Government may direct.
(2) Where-

(a) in the case of a company having a share capital, an application

has been received from not less then two hundred members or from
members holding not less than one-tenth of the total voting power
therein, and

(b) in the case of a company having no share capital, an application

has been received from not less than one-fifth of the persons on the
company's register of members,

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