STATUTORY AUDIT

CHAPTER-8 SESSION-16

INC
GUNTUR
PUTTU GURU PRASAD
STATUTORY AUDIT
• CONTENT AND CONCEPTS OF THE TOPIC:-
• APPOINMENT OF AUDITORS
• REMUNERATION OF AUDITORS
• RIGHTS AND DUTIES OF AUDITORS
• SPECIAL AUDIT
• QULIFICATION IN AUDITORS REPORT
QUALIFICATIIN OF AN
AUDITOR
• Sec 226 of companies act 1956 , that a person shall not be
qualified as an auditor of the company unless he/she is a
chartered accountant holding a certificate of practice with
in the meaning of the chartered accountants act 1949, and
also any firm in which all the partners practicing in India
are qualified for appointment as auditors of a company
Disqualification of an auditor
• The fallowing entities or persons have been declared
disqualified to be appointed as an auditor of a company
• A body corporate
• An officer or employee of the company
• A person who is a partner or who is in the employment of
an officer or employee of the company
• A person indebted to the company for an amount
exceeding Rs.1000
• Who has given any guarantee in connection with the indebt
ness of any third person
• A person holding any security of the a company after one
year from the date of commencement of the company
• A person not possessing the chartered accounting
certificate
Appointment of auditor
• The auditor of the company should be appointed by the
board of directors with in the month of the date of
registration of the company by passing a resolution such
auditor can hold office till the conclusion of the first annual
general meeting
• How ever the company has the power to remove the auditor
by giving 14 days notice and nominate another auditor at a
general meeting
• Where the board fails such an auditor the company in GM
may appoint the first auditor
Subsequent auditors
• Every company at each GM may appoint auditors to hold
office from the conclusion of the next annual GM . The
company should give intimation of the appointment to the
auditor with in 7 days of the appointment.
• Every auditor so appointed at an AMG should with in 30
days of the receipts the intimation from the company,
inform the registrar of companies in writing his acceptance
or refusal of appointment
• The board of directors is authorized to fill any casual
vacancy excepting a vacancy arriving out of resignation
which is to be filled only by the company in the Gm
Other appointments
• Sec 224 a, provides that a company in which 25% or more
share capital is held by government company or b
government it self the appointment of an auditor shall be
made by a special resolution. If the company fails by a pass
special resolution . It shall be deemed that no auditor had
been appointed by the company at its GM and the central
Government will be empowered to make the appointment
Appointment by central government
• In case no auditors are appointed or reappointed u/s
224a.at annual general meeting, the central government
may appoint a person to fill the vacancy . The central
government has the power to fix the remuneration of
auditor appointed by it and paid by the company. It is the
duty of the company to inform the central government
about the fact that no auditor has been appointed , with in 7
days of the AGM
• Failure to give notice to the Central Government will make
the company and every officer in default liable to a fine
extending to Rs.5000/-
Reappointment of an auditor
• As per sec 224(2) an auditor may be reappointed
at AGM , except in four cases namely
• 1. where he is not qualified for reappointment
• His unwillingness to re appointment
• Resolution passed at AGM to appoint someone instead of
him
• Death, incapacity, or disqualification of that person
Ceiling on audit
• According to 224 –propose o break the evil of continue
association of C.A”s prating as auditors singly or in firms,
with groups of companies so that they may not have any
temptation to shield the short coming s of the management
from the share holders
• An auditor of firm of auditors can be auditor for 20 public
companies sand also any number of private companies as
they may like
Removal of auditors
• The company is empowered to
remove him any time before the
expiry of this term by passing a
resolution at a general meeting and
with prior approval of the central
government (not applicable to first
auditor)
Tenure of appointment
• An auditor appointed at the AGM can
hold office from he conclusion of the
meeting to the conclusion of next
AGM . If AGM is adjourned he will
hold office until the conclusion of
such meeting
Remuneration of auditors
• The remuneration shall be fixed by
the company in AGM (except
appointed by the Central
Government and in all other cases)
• Remuneration classified
• As auditor
• As adviser
• Otrher amount paid in any other
manner
Rights of auditors
• Right to call for information and
explanation
• Right to have books of accounts
• Right to notices of and to attend
meetings
• Inspection of articles , other than
accounting books
• Right to remuneration
Duties of auditor
• Scrutinize loans and advances
• Securitize entries
• Scrutinize investments
• Scrutinize expenses
Auditors liability for negligence
• An auditor has to render his services
with care, skill and diligence and
according to GAAP, standards of
performance. He may be field liable
for any careless or reckless act done
by him
• Re, VS London and general bank
Leeds estates co vs. shepherded
Auditing of braches
• Only the company at gm can take a
decision whether the accounts of the
branch should be audited by the
companies auditor or by a person
other than the companies auditor
SPECIAL AUDIT (SEC 233A)
• If the opinion of the central government
• The affairs of the company are not being managed in
accordance with sound business principle or prudent
commercial practices
• Management of the company to cause serious injury or
damage to the interest of the trade, industry or business in
which it operates
• The financial position of the any company is such as to
endanger its solvency then it may order5 for a special audit
of the company's accounts for a special period
• the expenses incurred by the auditor will be determined
buy the CG and paid by the company
Qualification in auditor
• When an auditor gives an opinion
subject to certain reservations, he is
said to have given a qualified opinion
. In a qualified opinion , the auditors
states that the financial statements
reflect a trued and fair view subject
to certain reservations. A
qualification should always be
preceded by the words “subject to”