STATUTORY AUDIT

INC
GUNTUR
PUTTU GURU PRASAD
 CHAPTER-8 SESSION-16

 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
 Disqualification of an auditor
 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 a 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 to appoint 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 by government it self the appointment of an
auditor shall be made by a special resolution. If the
company fails to 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

224 A,at AGM, the C.G may appoint a person to fill
the vacancy The C.G 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 C.G about the fact that no auditor has been
appointed , with in 7 days of the AGM
 Failure to give notice to the C.G 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
 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 SEC 224 –proposes ‘break the evil’ of
continue association of C.A’s practicing as auditors
singly or in firms, with groups of companies so that
they may not have any temptation to shield the short
comings of the management from the share holders

 An auditor of firm of auditors can be auditor for 20

public companies and also any number of private
companies as they may like
 Removal of auditors

 Thecompany 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 the 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 into
 As auditor
 As adviser
 Other 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 (1895)
Leeds estate building & investment co Vs.
Shepherd (1887)
 Auditing of braches

 Onlythe company at General Meeting 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 order for a
special audit of the company's accounts for a special
period
 The expenses incurred by the auditor will be
determined by the CG and paid by the company
 Qualified opinion

 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 true and fair view of
accounts subject to certain reservations. A
qualification should always be preceded by
the words “subject to”
 Thank YOU
 “You have to do your own growing no matter how tall
your grandfather was.” --Abraham Lincoln (1809-
1865)
 “What the mind of man can conceive and believe,
the mind of man can achieve.” --Napoleon Hill author
of Think and Grow Rich

 "A pessimist is one who makes difficulties of his

opportunities and an optimist is one who makes
opportunities of his difficulties." -- Harry Truman