Every Company Incorporated under the Companies Act 2013 or any previous company law are required to comply with the accounting & auditing compliances i.e., to get the books of accounts audited by a qualified Auditor.

The Companies Act, 2013 is focused on transparency and disclosure.

The audit is the examination or inspection of various books of accounts by an auditor followed by physical checking of inventory to make sure that all departments are following documented system of recording transactions. It is done to ascertain the accuracy of financial statements provided by the organization.

In India the Companies Act, 1913 made an audit of company accounts compulsory. With the increase in the size of the Companies and the volume of transactions, the main objective of the audit shifted to ascertaining whether the accounts were true and fair rather than true and correct.

WHO IS THE AUDITOR?

The auditor is a professional who is qualified to conduct an audit of the company, he evaluates the validity of the company’s financial statement.

To become eligible for Auditor’s Appointment, a person must be a Chartered accountant. If the Partnerships firm or an LLP is appointed as the auditor of the company, the partners who are chartered accountants are authorized to act as an auditor and have the authority to sign on behalf of the firm.

ADVANTAGES OF AN INDEPENDENT AUDIT

1. It safeguards the financial interest of persons who are not associated with the management of the entity, whether they are partners or shareholders.

2. It acts as a moral check on the employees from committing defalcations or embezzlement.

3. Audited statements of account are helpful in setting liability for taxes, negotiating loans, and determining the purchase consideration for a business.

 4. These are also used for settling trade disputes or higher wages or bonuses as well as claims in respect of damage suffered by the property, by fire, or some other calamity.

5. Government may require an audited and certificated statement before it gives assistance or issues a license for a particular trade.

PROCESS OF APPOINTMENT OF AN AUDITOR

The First Auditor of a company is appointed by the Board of directors of the company within 30 days of the date of Incorporation.

In case of failure to appoint the Auditor, the Board of directors shall intimate about the same to shareholders of the company.

The shareholders shall appoint the 1st Auditor at the Extraordinary General Meeting within a period of 90 days from the date of receiving intimation from the Board of Directors. Such Auditor shall hold office till the conclusion of 1st AGM.

In Government Company, the first auditor shall be appointed by the Comptroller and Auditor General of India within a period of 6o days from the date of registration/incorporation of the company.

In case of failure to appoint the Auditor, the Board of Directors by passing B/R appoint the 1st Auditor within a period of 30 days.

In case of failure to appoint the Auditor, the Board of directors shall intimate about the same to shareholders of the company.

The shareholders shall appoint such an Auditor at the Extraordinary General Meeting within a period of 60 days.

Such Auditor shall hold office till the conclusion of 1st AGM.

APPOINTMENT OF A SUBSEQUENT AUDITOR

The Subsequent Auditor shall be appointed at the 1st AGM by the shareholders of the company by passing O/R and such Auditor shall hold office for the next 5 years.

Chartered Accountant in Practice can become an Auditor of a company. Written consent of an auditor must be obtained along with a certificate from the Auditor that the appointment if made, shall be in accordance with the conditions as prescribed by the companies act, 2013 and the auditor must satisfy the criteria provided in Section 141 of the companies Act, 2013.

DUTIES AND ROLE OF AN AUDITOR IN A COMPANY

Auditor in a company is to help the business, maintain its financial reliability by reviewing and verifying its financial documents. When compared to an unaudited statements, audited financial documents boast a high degree of credibility and trust.

Let us now look at an auditor’s duties as per company law provided in Section 143 of the Companies Act, 2013.

  • Audit report preparation, which serve as an appraisal of company’s current financial position using its financial statement. Verified account book must be maintain by auditor as per relevant accounting standard. It should reflect an accurate depiction of the company’s financial position.
  • An auditor must provide true and accurate opinion, if an auditor feels the statements do not depict an accurate picture, then need to form an adverse opinion and state in the report. If auditor dissatisfied with the information provided, they may issue a disclaimer and refrain from expressing their opinion
  • As and when required an auditor must ensure to undertake an inquiry, regarding loans, advances, personal expenses charged to the revenue account and deposits made.
  • If the auditor is a branch auditor and not company auditor, then they must help with branch audit. An auditor must prepare audit report based on financial statement of the branch and send it to the company auditor.
  • According to standards provided by central government and National financial reporting authority, all auditors must follow these standards, it helps auditor in performing duties with accuracy and attain higher efficiency.
  • If the auditor finds or detect any suspicious activity or fraud taking place within the company, they must report to Audit committee as per section 177 by specifying the nature of the fraud, approximate amount involved and names and details of the parties. This is also applicable to cost auditors and secretarial auditors as per section 148 and section 204 of the companies act, 2013.
  • Auditor is a professional, he/she must adhere to codes regarding ethics and professional conduct. This includes maintaining confidentiality, perform all duties carefully and being alert to error and frauds, prerequisites incudes professional scepticism, having a mind and ensuring maximum accuracy.
  • If the company is under investigation, an auditor must provide assistance to the investigating officers.
ROLES OF AN AUDITOR AS PER COMPANY LAW IN INDIA.
Sr No.SectionSection Title
1Section 139Appointment of auditors in a company
2Section 140Removal and resignation of an auditor & giving of special notice
3Section 141Eligibility, qualifications, and disqualifications of auditors
4Section 142Remuneration of auditors 
5Section 143Powers and duties of auditors and auditing standards
6Section 144Auditor not to render certain services
7Section 145Auditor to sign audit reports, etc
8Section 146Auditors to attend general meeting
9Section 147Punishment for contravention
10Section 148Central Government to specify audit of items of cost in respect of certain companies

TYPES OF AUDITORS

INTERNAL AUDITOR:

An internal auditor is mandatory in certain classes of companies as per The Companies Act, 2013. An internal auditor is mainly used by management for their SWOT analysis i.e. Strength, Weakness, opportunity, and Threats of the companies. In order to achieve the long-term vision and mission of the company should do an Internal Audit. The internal auditor can be anyone for instance it can be Employees of the company, Chartered Accountants or any person who has knowledge of Accounting and operations of the companies.

STATUTORY AUDITOR:

Statutory Auditors are mandatory for all companies as per the Companies Act, 2013. Statutory auditors are appointed for framing an opinion on the financial statements whether they are showing the true and fair views as per the Generally Accepted Accounting Principles (GAAP). They are appointed by Shareholders in order to know that the management is running the company as per the Companies Act and the laws of the land. They have the powers to report in their Audit Report if any discrepancy is found during the audit. This Audit is only done by Chartered Accountants having Certificate of Practice.

CONCURRENT AUDITORS:

Concurrent Auditors are the auditors who are appointed on the daily basis and 100% check of the work perform by the Employees of the Company. This is mainly focused on the detection and prevention of frauds and errors in a timely and efficient manner. It is mainly done by the companies having a large volume of transactions and having a variety of products range and the very nature of the business.

INCOME TAX AUDITOR:

Income Tax Auditor is appointed by the Management for the entities who having Turnover exceeding the threshold limits laid down under the Income Tax Act, 1961 under Section 44AB. They are mainly appointed for verification of transactions and the Accounting Principles followed by the entities as per the GAAP and the provisions of the Income-tax Act, 1961. This Audit is only done by Chartered Accountants having Certificate of Practice.

GST AUDITORS:

GST Auditors are the auditors who are appointed by the Management in who having Turnover exceeding the threshold limits laid down under the CGST Act, 2017 and IGST Act, 2017. This is mainly done to check that company has followed the provisions of the said Acts and the Rules made thereunder by the GST council. This Audit is only done by Chartered Accountants having Certificate of Practice.

REMOVAL OF AN AUDITOR

If the company is not satisfied with work and services of the statutory auditor, then company can start process for removal of an auditor.

Following process is required to remove an auditor from company

·         Decide Board meeting with agenda to be discuss in meeting.

·         A reasonable opportunity has to be given to Auditor of being heard.

·         Holding a Board meeting. Considering the Petition.

·         When Regional Director give approval, fixing Board Meeting for taking note of same and approve as well as fix extra-ordinary general meeting of members / Annual general meeting for removal of auditor their term within sixty (60) days.

·         Holding of Extra-Ordinary general meeting of members, annual general meeting and passing a special resolution for the same.

·          Forms for intimating to Registrar of Companies about removal of an auditor.

o   MGT-14

o   ADT – 2

o   RD-1

 

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