The Companies Act, 2013 and various laws require the appointment of an auditor. The Companies Act, 2013 lays down the procedure of appointment of the auditor of the company and also the rights and duties of an auditor. Let us discuss the power and duties of an auditor in detail.
Power and Duties of an Auditor
- Every auditor has a right of access to the books of account and vouchers of the company at all times, whether they are at the registered office of the company or at any other place.
- The auditor of a holding company also has a right of access to the records of the subsidiary company if they are necessary for the purposes of the consolidation.
- An auditor also has a right to receive notice of any general meeting. He may attend it himself or through his authorized representative who is also qualified to be an auditor. He also has a right to be heard on any part of the business which concerns him.
- The auditor also has a right to receive information and explanation regarding the matters which are necessary for the performance of his duties. He needs to know whether:
- The company makes loans and advances against proper security and the terms of these are prejudicial to the interests of the company.
- Transactions that merely represent a book entry are prejudicial to the interests of the company.
- In the case of a company which is not an investment or banking company, it sells the assets. They are in the form of shares, debentures, and other securities at a price less than their purchase price.
- The company shows the loans and advances that it makes as deposits.
- It charges the personal expenses to revenue account.
- It states in the books and documents that where it has allotted the shares in cash, it has received the cash or not. Also, whether the position in the books and Balance Sheet is correct and not misleading.
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These are the duties of an auditor.
Remuneration of the Auditors
The company fixes the remuneration of the auditor in the general meeting. However, where the Board of Directors appoint the first auditors of the company they can fix his remuneration. The remuneration is in addition to the fees payable to him. It includes any expenses incurred by the auditor in relation to the audit and any facility given to him. However, this remuneration does not include any amount paid to him for the rendering of any services other than audit.
Solved Example For You:
Question: Explain the qualifications and the disqualifications of the auditor.
Following are the Qualifications of the Auditor:
- A person is eligible for the appointment as an auditor only if he is a Chartered Accountant.
- A firm is eligible for the appointment as an auditor only when the majority of its partners are Chartered Accountants practicing in India.
- In the case where a limited liability partnership firm is appointed as auditor, only the partners who are Chartered Accountants will be authorized to act and sign on behalf of the firm.
Disqualifications of the Auditor are:
The following persons are not eligible to act as an auditor of a company:
- A body corporate other than a partnership with limited liability.
- An employee or officer of the company.
- A person who is in employment or in partnership with an officer or employee of the company.
- A person who or his relative or partner, holds any security or interest in the company. It includes its holding, subsidiary or associate company. Or any other subsidiary of such holding company, not exceeding Rs. 1 lac.
- A person who or his relative or partner, is indebted to the company or its holding, subsidiary or associate company or another subsidiary of such holding company, not exceeding Rs. 5 lac.
- A person who or his relative or partner, has given any guarantee or provided any security regarding the indebtedness of any third party to the company or its holding, subsidiary or associate company or another subsidiary of such holding company, not exceeding Rs. 1 lac.
- A person or a firm who has a business relationship, directly or indirectly with the company or its holding, subsidiary or associate company or another subsidiary of such holding company.
- An individual who is the relative of a director or key managerial personnel.
- A person convicted by the court for an offence involving fraud and a period of 10 years has not elapsed from the date of conviction.
- A person in full-time employment elsewhere or a person or a partner of a firm holding an appointment as an auditor, when such person or partner is holding an appointment as an auditor for more than 20 companies at the date of appointment or re-appointment.
- Any person whose subsidiary or associate company is engaged in consulting and specialized services as mentioned in section 144, on the date of appointment.
When the auditor incurs any of the above disqualifications after his appointment, he needs to vacate his office. Such vacancy will fall under the category of casual vacancy.