Monday, November 30, 2009

Auditors provision under companies act 1956

AUDITORS - PROVISIONS UNDER COMPANIES ACT, 1956





QUALIFICATIONS: As per Sub Section (1) of Section 226 provides that member of Institute of Chartered Accountant of India and holding practicing certificate name as a Auditor of a Company.

Two or more chartered accountants can be appointed by its firm name as a Auditors of a company if

All the partners are members of Institute of Chartered Accountant of India

All of them practice in India.


DISQUALIFICATIONS: As per Sub section (3) of Section 226 , none of the following persons shall be qualified for appointment as Auditor of a Compny.

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 the officer or employees of the company
d) A person who indebted to the company for an amount of more than Rs.1000/-
e) A person who has given any guarantee or provided any security in connection with the indebtness of any third person to the company for an amount exceeding Rs,1000/-
f) 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)
For the purpose of security means an instrument which carried voting rights.

According to Sub section (4 ) of Section 226 provides that if a person disqualified as a Auditor for the reasons enumerated in sub section (3) of Section 226 then he cannot be appointed as Auditor of any body corporate which is

1) A subsidiary of that company or
2) Holding company of that company or
3) A subsidiary of that company’s holding company

The disqualification comes into effect immediately after the reasons enumerated in sub section (3) or Sub Section (4) of the Companies Act, 1956.


Appointment of First Auditor:

According to sub section 5 of Section 224, the board has vested with power to appoint first auditor within one month of incorporation of the company. The date of appointment to be within one month from the date mentioned in Certificate of incorporation issued by Registrar of Companies i.e. existence of the company from date i. e legal entity.

Certificate to be obtained under Section 224 (1B) : This provision will not be applicable to Private company on and after the commencement of Companies (Amendment) Act, 2000 . The public limited companies are supposed to receive the certificate from the Auditor before appointment that if they are appointed as a Auditor of the Companies the appointment will be within limits specified in sub section (1B) of Section 224 of the Companies Act, 1956.

Explanation to Specified number

There are two categories

a) A person or firm can audit twenty such companies have paid up capital of less than Rs.25 lakhs
b) In any other case in the specified limit, out of twenty companies not more than 10 shall be companies each of which has a paid up share capital of Rs.25 lakhs or more.

After the Board Meeting:

The company should give intimation to the appointment to the auditor that the Board of Directors of the company appointed them/him as their Auditors of the company.

The auditor in turn to file necessary intimation to ROC vide Form No.23B of his appointment.


FIRST AUDITORS NOT APPOINTED WITHIN ONE MONTH:-


Normally the first auditor to be appointed within one month from date of incorporations. In case if the first auditors not appointed within 30 days of it incorporation, the shareholders appoint him general meeting. The general meeting is expression extra ordinary general meeting. The resolution for appointment of auditors to be an ordinary resolution. In EGM, all business are transacted are to be taken as Special Business. Even though the auditor appointment at Annual General meeting the appointment of an auditor will be ordinary business and ordinary resolution.

In Public limited companies are supposed to obtain statutory report as well as to conduct statutory meeting. To meet this requirements, the Board of public limited companies necessarily appoint firs auditors within 30 days from the date of incorporation.

APPOINTMENT OF AUDITORS AT ANNAUL GENERAL MEETING:

After the appointment of first auditors in Board meeting, the auditor hold office upto the conclusion of first annual general meeting. After the first annual general meeting, every annual general meeting, the company must appoint him.

Before reappointing him, the company has to obtain an certificate from the auditors under Section 224 (1B) of the Companies Act, 1956. The limit prescribed under Section 224 (1B) will not be applicable to Private company.

Once the Annual General meeting will be over, the company has to intimate him within 7 days of the meeting that he has been reappointed or appointed. Thereafter the auditor has to file forms under 23B to filed within 30 days to Registrar of Companies.

FOLLOWING CIRCUMSTANCES THE RETIRING AUDITOR SHALL NOT BE REAPPOINTED

As per Sub section (2) of Section 224 , the following circumstances, the retiring auditor shall not be reappointed.

a) He is not qualified for reappointed
b) He has given the company notice in writing of his unwillingness to be reappointed.
c) A resolution has been passed at that Annual general meeting appointing somebody instead of him of providing expressly he shall not be reappointed.
d) A notice of the intended resolution to appoint some person or persons in the place of a retiring auditor, and by reasons of death, incapacity or disqualification of that person or of all those persons as the case may be, the resolution cannot be proceeded with.


AUDITOR NOT TO BE APPOINTED EXCEPT WITH THE APPROVAL OF THE COMPANY BY SPECIAL RESOLUTION IN CERTAIN CASES SECTION 224A OF THE COMPANIES ACT, 1956.

The auditor appointment through ordinary resolution to be passed at the Annual General Meeting of the company. In certain cases, the act provides that the said appointment of auditor to be passed through special resolution. A company whose subscribed capital not less than 25% is held singly or in any combination by :- ( Sub section (1) of Section 224A)

a) A Public Financial Institutions
b) A Government Company
c) Central Government
d) State Government
e) Any financial institution or any other institution established by Provincial of State Act in which a State Government holds not less than 51% of the subscribed capital.

As per sub section (2) of Section 224 A that any company referred to in sub section (1) fails or omits to pass at its general meeting any special resolution appointing an auditor or auditors , it shall be deemed that no auditor or auditors has been appointed by the company at its general meeting and thereupon the provisions of sub section (3) of Section 224 shall become applicable to such company.

CENTRAL GOVERNMENT TO APPOINT AUDITORS

Sub section (3) of Section 224 of the Companies Act, 1956 provides where at an annual general meeting no auditors are appointed or reappointed, the Central Government may appoint a person to fill the vacancy.

CASUAL VACANCY OF THE AUDITORS

Sub section 6 (a) of Section 224 of the Companies Act, 1956 provides that board may fill any causal vacancy in the office of an auditor. In case of joint auditors, if any such vacancies continues, the remaining auditor or auditors, if any may act.

In case of casual vacancy arises on account of resignation of the auditor, the resulting vacancy shall only be filled by the Company in general meeting.

The auditor appointed in a casual vacancy shall hold office until the conclusion of next annual general meeting.

APPOINTMENT OF AUDITORS IN JOINT VENUTURE COMPANIES: Joint venture companies both partners need a mutual consent to appoint an auditor of the company. Some of the joint venture company’s articles provide that certain items to be passed by special resolution. One of the items may be appointment or reappointment of auditors of the company. The idea behind that the consent of joint venture partner is also required for the said appointment. All major decisions are to be taken as special resolution to be passed by the company at their general meeting.

Rights of Auditors of the Company:

a) Rights to collect information to be given in Balance Sheet and Profit and Loss Account ( Section 211 of the Companies Act, 1956)
b) Right of access to books and vouchers (sub section (1) of Section 227 of the Companies act, 1956)
c) Right to obtain information and explanations (sub section (1) of Section 227 of the Companies act, 1956)
d) Right to visit branch office and access to branch accounts sub section (2) of Section 228 of the Companies Act, 1956
e) Right to signature for authentication ( Section 229 of the Companies Act, 1956)
f) Right to receive notice ( Section 231 of the Companies Act, 1956)
g) Right to attend general meeting ( Section 231 of the Companies Act, 1956)

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