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Company Audit - 1 Notes

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7. COMPANY AUDIT - I

Indian Companies Act, 1956


SECTION

PROVISION / CONTENTS
MAIN
SUB

224
224
224
224
224
224
224

224
224
224
224
224
224


Head
(1)
(1A)
(1B)
(2)
(3)
(4)

(5)
(6)
(6A)
(6B)
(7)
(8)


Appointment & Remuneration of an Auditor
Appointment by Shareholders at an AGM.
Intimation to ROC within 30 days through Form No. 23B.
Ceiling on number of Audit assignments.
Re-appointment of an Auditor.
Appointment by Central Government.
Intimation to ROC for non-appointment within 7 days from the date of an AGM.
Appointment of the First Auditor within 1 month of Reg.
Filling of Casual Vacancy.
Filling of Casual Vacancy by Board of Directors.
Tenure of such appointment till conclusion of next AGM.
Removal of an Auditor before expiry of his term.
Remuneration of an auditor.

224A







Head

Appointment of an Auditor By passing Special Resolution
All those companies in which not less than 25% of the Subscribed Share Capital is held by:
(a) A public financial institution or a government company or         
      Central government or any of the state government;
(b) Any financial or other institution established by any   
      provincial or  state Act in which a state govt. holds not less
      than 51% of the subscribed share capital;
(c) A Nationalised Bank or any Insurance Company carrying
      General Insurance Business;
(d) Any of the above combinations.


225

225


225
225



Head

(1)


(2)
(3)

Provisions as to appointing/removing Auditor
(Removal of an Auditor after expiry of his Term)
Special 14 days notice is to be given to all the members-
Ø  Appointing another person as an auditor;
Ø  Proposing that retiring auditor shall not be reappointed.
A copy of such notice is to be given to the retiring auditor also.
Procedure for such a removal and for forwarding the copy of
representation from the retiring auditor in an AGM.


226
226

226
226









226


226



Head
(1)

(2)
(3)









(4)


(5)

Qualifications and Disqualifications of an Auditor
An auditor should be a Chartered Accountant defined under ‘The Chartered Accountant Act of 1949’
Restricted State Auditors
Disqualifications:
(a)           a body corporate;
(b)           an officer or an employee of the company;
(c)           a person who is a partner, or who is in employment of an officer or employee of the company;
(d)           a person who is indebted to the company for more than Rs.1,000 or who have provided any security or guarantee against a third person who is indebted to the company for more than Rs.1,000; and
(e)           A person who holds the security of the company.
  If a person is disqualified to be an auditor of a subsidiary company, then he is disqualified to be auditor of its Holding Company and its other subsidiaries
If a person is disqualified to be an auditor under sub-sections (3) and (4), then he have to vacant his office


227
227


















227

227



227






















227


Head
(1)

(1A)
















(2)

(2bb)



(3)






















 (4A)

Powers and Duties of an Auditor
Right of access to books of accounts & right to require information and explanation from officers.
Duties of an Auditor:
(a) Loans & Advances made by the company secured &
prejudicial to the interest of the company,
(b) Whether transactions of the company which are represented merely by book entries are not prejudicial to the interests of the company.
(c) Where the company is not an Investment Company as defined in Sec.372 or Banking Company, which sells its assets & securities at the price less than its purchase price.
(d) Loans & Advances have been shown as deposits.
(e) Whether personal expenses have been charged to revenue account.
(f) If no cash has been received in respect of shares then whether the position stated in balance sheet is correct, regular and not misleading.
(Auditor have to give reason for both negative & positive remarks)
Auditor should report whether the said accounts complies with all the compliances of The Companies Act, 1956.
If proper returns as required by auditor of the branches not visited by him are not received by him then he must state this fact in his audit report.

The auditor should report on the following matters:
(a) Whether he has obtained all the information and explanations which to the best of his knowledge and belief were necessary for his audit.
(b)  Whether in his opinion proper books of accounts as required by law are kept by the company and proper returns have been received by him of the branches not visited by him.
(bb)Whether the reports on accounts of any branch offices audited u/s 228 have been forwarded to him as required u/s 228(3)(c) & the manner in which he have dealt with it for preparing auditor’s report.
(c)        Whether the companies Balance Sheet & P/L Account are in agreement with the books of accounts & returns.
(d)        Whether in his opinion Balance Sheet & P/L A/c complies with the accounting standards u/s 211(3c).
(e)        The auditor has highlighted adverse effects in companies functioning by thick or italic type.
(f)           Whether any director has been disqualified from being appointed as director u/s 274(1) (g).
(g)        Whether cess payable u/s 441A (levy & collection of cess on turnover or gross receipts of the company) has been paid, if not, details of amount not so paid.
Issuance of Companies (Auditor’s Report) Order, 2003,   (CARO, 2003) vide notification no. G.S.R 480(E) dated June 12th, 2003.
(Auditor must state the reasons only for negative remarks made by him in his report).


228
228




228






228




228




Head
(1)




(2)






(3)




(4)

Audit of Accounts of Branch Office of the company
Audit of accounts of branch office of the company can be conducted by the person appointed u/s 224 or the person qualified u/s 226 or, if branch is in foreign country then by any competent person qualified to do the audit as per the rules of that nation.
If the accounts of the branch office are audited by the person other than the companies auditor, then the latter have right to visit the branch office & to access to the books of accounts, except in case of the banking companies having foreign branch offices, the accounts of such branches may be transmitted to the head office in India for the auditor’s inspection.
It will be duty of the branch auditor to prepare the audit report for that branch & forward it to the company’s auditor, who
shall while preparing his repost del with the same in the manner

 he considers necessary.
Power of Central Government to exempt the branch offices from audit to the extent as specified in rules, entitled “The Companies (Branch Audit Exemption) Rules, 1961”.

229


Head


Signing of the Audit Report
Ø  When a single C.A is practising, there can’t be any question of any firm name.
Ø  When a firm of a C.A is appointed as an auditor, then only a partner may sign the report.


230


Head

Reading and Inspection of the Auditor’s Report
Audit report of the company must be read out before the shareholders at an annual General Meeting and should be kept for inspection at the company’s registered office for the inspection of every member of the company.


231


Head


Right of an auditor to attend an Annual General Meeting
The auditor can attend any Annual General Meeting of the company (not restricted to those at which the accounts audited by them are to be discussed) and is entitled to all the notices and other communications related to the general meeting for which a member of that company is entitled, but it is not obligatory at his part to attend the AGM. He can hear in the meeting but cant take part in the discussions.


232


Head


Penalty for non-compliance with Sections 225-231
For non-compliance of Sections 225-231, the company, and every officer of the company who is in default, will be liable to the fine which may extend up to Rs.5,000/-.


233


Head

Penalty for non-compliance by the auditor with Section 227 and 229
An auditor may be penalised at the extent of Rs.10,000/- for non-compliance of the Sections 227 and 229.


233A
233A

233A


233A


233A

233A

Head
(1)(2)

(3)


(4)


(5)

(6)

Powers of Central Govt. to direct special audit in certain cases
The audit may be conducted by the company’s auditor or by any C.A, who may or may not be engaged in practising.
Auditor so appointed is conferred with all those powers as

 mentioned u/s 227, except he have to report to the Central Government instead of the members of the company.
Special auditor’s report must include all the matter that is contained in the normal audit report & also the statement on any matters as required by the government.
Auditor will be penalised for Rs.500/- for non-compliance of the order that is issued by the central government.
All the expenses for conducting such special audit along with the auditor’s remuneration should be paid by the company and if the company fails to make such payment then such amount can be recovered from the company as arrears of land revenue.


233B
233B

233B


233B



Head(1)

(2)


(4)

Audit of Cost Accounts in certain cases
An auditor is expected to conduct the audit in manner as may be specified in the order issued by the Central Government.
Cost auditor shall be appointed by the Board of Directors with the prior approval of the Central Government.
The cost auditor must forward his report to the Central Government and the respective company within 120 days of completion of his audit.


617


Head

Appointment of an auditor by ‘Comptroller and Auditor General of India for any government company defined u/s 619 and for all those companies defined u/s 619B.
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