Professional Documents
Culture Documents
Emmanuel Johny
Auditing Of 6/2/2010
Companies
Provisions relating to audit of companies
Section 224 to 233 of the companies Act,1956 deals with provisions relating
to audit of companies .The provision relating to “audit’’ broadly deal with
who can appointed as an auditor under the Act, i.e., qualifications and
disqualifications, the manner of appointment and removal of an auditor and
rights and duties of an auditor
The Companies Act, 1956
Sec 224A - Auditor not to be appointed except withthe approval of the company by
special resolution in certain cases.
(1) In the case of a company in which not less than twenty-five per cent of the
subscribed share capital is held, whether singly or in any combination, by:
(a) a public financial institution or a Government company or Central
Government or any State Government, or
(b) any financial or other institution established by any Provincial or State Act
in which a State Government holds not less than fifty-one per cent of the
subscribed share capital, or
(c) a nationalised bank or an insurance company carrying on general insurance
business,
the appointment or re-appointment at each annual general meeting of an auditor or
auditors shall be made by a special resolution.
(2) Where any company referred to in sub-section (1) omits or fails to pass at its
annual general meeting any special resolution appointing an auditor or auditors, it
shall be deemed that no auditor or auditors had been appointed by the company at its
annual general meeting, and thereupon the provisions of sub-section (3) of section
224 shall become applicable in relation to such company.
Explanation: For the purposes of this section,
(a) " general insurance business " has the meaning assigned to it in the
General Insurance (Emergency Provisions) Act, 1971 (17 of 1971) ;
(b) " nationalised bank " means a corresponding new bank as defined in the
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5
of 1970) or in the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1980 (40 of 1980).
Provided that any shares held by such person as nominee or trustee for any
third person and in which the holder has no beneficial interest shall be
excluded in computing the percentage of shares held by him for the purpose of
this clause.
Explanation: References in this sub-section to an officer or employee shall
be construed as not including references to an auditor.
(4) A person shall also not be qualified for appointment as auditor of a company if he
is, by virtue of sub-section (3), disqualified for appointment as auditor of any other
body corporate which is that companys subsidiary or holding company or a subsidiary
of that companys holding company, or would be so disqualified if the body corporate
were a company.
(5) If an auditor becomes subject, after his appointment, to any of the
disqualifications specified in sub-sections (3) and (4), he shall be deemed to have
vacated his office as such.
(2) The auditor shall make a report to the membersof the company on the accounts examined
by him, and on every Balance Sheet andProfit and Loss Account and on every other
document declared by this Act to bepart of or annexed to the Balance Sheet or Profit and
Loss Account,which are laid before the company in general meeting during his tenure
ofoffice, and the report shall state whether, in his opinion and to the best ofhis information
and according to the explanations given to him, the saidaccounts give the information
required by this Act in the manner so required andgive a true and fair view :
(i) In the case of the balance-sheet, of the state of the companys affairs asat the end of
its financial year and
(ii) In the case of the profit and loss account, of the profit or loss for itsfinancial year.
(3) The auditors report shall alsostate :
(a) Whether he has obtained all the information and explanations which to thebest 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 havebeen 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 receivedfrom branches not visited by him.
(bb) whether the report on the accounts of any branch office audited undersection 228
by a person other than the companys auditor has been forwarded tohim as required by clause
(c) of sub-section (3) of that section and how he hasdealt with the same in preparing the
auditors report.
(c) whether the companys balance sheet and profit and loss account dealt withby the
report are in agreement with the books of account and returns.
(4) Where any of the mattersreferred to in clauses (i) and (ii) of sub-section (2) or in
clauses (a), (b),(bb) and (c) of sub-section (3) is answered in the negative or with
aqualification, the auditors report shall state the reason for the answer.
(4A) The Central Government may,by general or special order, direct that, in the case of
such class ordescription of companies as may be specified in the order, the auditors
reportshall also include a statement on such matters as may be specified therein :
Provided that before making any such order the Central Government may
consultthe Institute of Chartered Accountants of India constituted under the
CharteredAccountants Act, 1949, in regard to the class or description of companies andother
ancillary matters proposed to be specified therein unless the Governmentdecided that such
consultation is not necessary or expedient in thecircumstances of the case.
(5) The accounts of a company shallnot be deemed as not having been, and the auditors
report shall not state thatthose accounts have not been, properly drawn up on the ground
merely that thecompany has not disclosed certain matters if :
(a)those matters are such as the company is not required to disclose by virtue ofany
provisions contained in this or any other Act, and
(b) those provisions are specified in the balance sheet and profit and lossaccount of the
company.
Sec 228 - Audit of accounts of branch office of company.
(1) Where a company has a branch office, the accounts of that office shall be audited
by the companys auditor appointed under section 224 or by a person qualified for
appointment as auditor of the company under section 226, or where the branch office
is situate in a country outside India, either by the companys auditor or a person
qualified as aforesaid or by an accountant duly qualified to act as an auditor of the
accounts of the branch office in accordance with the laws of that country.
(2) Where the accounts of any branch office are audited by a person other than the
companys auditor the companys auditor:
(a) shall be entitled to visit the branch office, if he deems it necessary to do so
for the performance of his duties as auditor, and
(b) shall have a right of access at all times to the books and accounts and
vouchers of the company maintained at the branch office:
Provided that in the case of a banking company having a branch office outside
India, it shall be sufficient if the auditor is allowed access to such copies of,
and extracts from, the books and accounts of the branch as have been
transmitted to the principle office of the company in India.
(3)
(a) Where a company in general meeting decides to have the accounts of a
branch office audited otherwise than by the companys auditor, the company in
that meeting shall for the audit of those accounts appoint a person qualified
for appointment as auditor of the company under section 226, or where the
branch office is situate in a country outside India, a person who is either
qualified as aforesaid or an accountant duly qualified to act as an auditor of
the accounts of the branch office in accordance with the laws of the country,
or authorise the Board of directors to appoint such a person in consultation
with the companys auditor;
(b) the person so appointed (hereafter in this section referred to as the branch
auditor) shall have the same powers and duties in respect of audit of the
accounts of the branch office as the companys auditor has in respect of the
same;
(c) the branch auditor shall prepare a report on the accounts of the branch
office examined by him and forward the same to the companys auditor who
shall in preparing the auditors report, deal with the same in such manner as he
considers necessary;
(d) the branch auditor shall receive such remuneration and shall hold his
appointment subject to such terms and conditions as may be fixed either by
the company in general meeting or by the Board of directors if so authorised
by the company in general meeting.
(4) Notwithstanding anything contained in the foregoing provisions of this section,
the Central Government may make rules providing for the exemption of any branch
office from the provisions of this section to the extent specified in the rules and in
making such rules the Central Government shall have regard to all or any of the
following matters, namely:
(a) the arrangement made by the company for the audit of accounts of the
branch office by a person otherwise qualified for appointment as branch
auditor even though such person may be an officer or employee of the
company;
(b) the nature and quantum of activity carried on at the branch office during a
period of three years immediately preceding the date on which the branch
office is exempted from the provisions of this section;
(c) the availability at a reasonable cost of a branch auditor for the audit of
accounts of the branch office;
(d) any other matter which in the opinion of the Central Government justifies
the grant of exemption to the branch office from the provisions of this section.
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