AUDITORS’ APPOINTMENT,
RESIGNATION ETC., UNDER
NEW COMPANIES BILL 2012
The
provisions relating to appointment of auditors and duties of the auditors are
modified by the New Companies Bill 2012 (hereinafter called New Companies Bill).
.Appointment of Auditors under New
Companies Bill
As per the Companies Act,
1956 the First Auditor or Auditors of a company including Government Company
shall be appointed by the Board of directors within one month of the
incorporation of the company and the Auditor or Auditors so appointed shall
hold offices until the conclusion of the first annual general meeting. Thereafter
every year he will be re-appointed at the annual general meeting.
Under the Companies Bill (
Clause 224 ) the First Auditor of the
company other than the government company shall be appointed by the Board
within 30 days of its incorporation and on failure to do so, the members shall
appoint the same within 90 days from the incorporation who shall hold office
till the conclusion of first annual general meeting.
Now under the New Companies Bill every Company shall, at its first Annual
General Meeting, appoint an individual or a firm as an auditor who shall hold
office from the conclusion of that meeting till the conclusion of its 6th
Annual General Meeting and thereafter till the conclusion of every 6th
meeting. However, the company shall
place the matter relating to such appointment for ratification by members at
every annual general meeting.
The company shall place the
matter relating to such appointment for ratification of member at every annual
general meeting.
Where a company is required
to constitute an Audit committee all appointments including the filling of
casual vacancy of an auditor shall be made after taking into account the
recommendations of such committee.
Now in
case of appointment of auditor, the company has to intimate both the auditor
and the Registrar within 15 days of the appointment. (As
against the Companies Act, 1956 the intimation of appointment was upon the
auditors in form 23B within 30 days from the date of appointment).
In case of Government company Controller and
Auditor General of India has to appoint the first auditor within sixty days
from the date of incorporation of the company and if not the Board of Directors
of the company shall appoint such auditor within next thirty days if not
Members of the company who shall within sixty days at an extraordinary general
meeting appoint such auditor.
Disqualifications for Appointment of Auditors
In addition to the disqualifications
prescribed under the Companies Act 1956, following new disqualifications have
been introduced by the New Companies Bill for appointment as an Auditor of the
Company:
i. a person
who by himself, or his relative or partner-
a) is
holding any security of the Company or its Subsidiary, or of its Holding
Associate Company or a Subsidiary of such
Holding Company:
Provided
that the relative may hold security or interest in the Company of
face
value not exceeding one thousand rupees or such sum as may be prescribed;
b) is indebted to the Company, or its
Subsidiary, or its Holding or Associate Company, or its Subsidiary, or its
Holding or Associate Company or a Subsidiary of such Holding Company in excess
of such amount as may be prescribed; or
c) has given a guarantee or provided any
security in connection with the indebtedness of any third person to the Company
or its Subsidiary, or its Holding or Associate Company or a Subsidiary of such
Holding Company, for such amount as may be prescribed;
ii. a person or a firm who, whether
directly or indirectly, has business relationship with the Company, or its
Subsidiary, or its Holding or Associate Company or Subsidiary of such holding
company or associate company, of such nature as may be prescribed;
iii. a person whose relative is a Director or
is the employment of the Company as a director or key Managerial Personnel;
iv. a person who has been convicted by a
Court of an offence involving fraud and a period of ten years has not elapsed
from the date of such conviction.
Now a firm whereof majority
and not all partners practicing in India are qualified for appointment as
aforesaid as provided under the Companies Act 1956, may be appointed by its
firm name to be auditor of a Company.
Further, as per new section
144, an auditor not to render certain services which are given below:
(a) accounting and book keeping services;
(b) internal audit;
(c) design and implementation of any
financial information system;
(d)
actuarial services;
(e) investment
advisory services;
(f) investment banking services;
(g) rendering of outsourced financial
services;
(h) management services; and
(i) any other kind of services as may be
prescribed.
A
transition period has been provided to Auditors to comply with the requirement
of this clause. Accordingly auditors or the audit firms providing non-audit
services before the commencement of this new act shall have to comply with
these provisions before the closure of the first financial year after the
commencement of the new Act.
.
An auditor cannot audit more than 20 companies including
private limited companies . In case of a firm, limit is applicable to each
Partner.
Powers
& Duties of Auditors - As per New
Companies Bill, the important new powers duties are given below:
I.
The auditor of the company shall now be allowed to have
access to records of the
subsidiaries.
II.
Auditor shall also comply
with Auditing Standards to be prescribed by the Central Government or
recommended by Institute of Chartered Accountants of India (ICAI).
III.
New Section 143 provides
for matters to be stated by the auditor
in the auditors’ report and where any of the matters required to be
included in the audit report under this section is answered in the negative or
with a qualification the report
shall state the
reasons therefor.
IV.
Apart from Balance Sheet
and Profit & Loss Account, he shall
also report on the Cash flow for the year.
V.
Now a duty
has been cast on the Auditor
to immediately report to the Central Government of any fraud committed by company or its officers which he comes
across during the course of performance as an auditor.
VI.
In case of Government
company the Comptroller and Auditor
General of India shall appoint the auditor and direct such auditor the manner in
which the accounts of the
Government company are required to be audited.
VII The Bill now provides that the Auditor in his report, apart from the Balance Sheet and Profit and Loss Account shall also report on the cash flow for the year and such other matter as may be prescribed .
VII The Bill now provides that the Auditor in his report, apart from the Balance Sheet and Profit and Loss Account shall also report on the cash flow for the year and such other matter as may be prescribed .
The most important duty cast on the auditor is now he has to
immediately report to the Central Government of any offence which he comes
across during the course of performance as an auditor. Thus the responsibility
of the auditor is to ensure any offence is reported forthwith.
Audit reports -New Points introduced with
reference to Audit Reports
I.
The
auditor shall make a report to the members any qualification or adverse remark
relating to the maintenance of accounts and other matters connected therewith.
II.
Every
auditor shall comply with auditing standards.
III.
Certain
classes of companies which the Central government in consultation with National
Financial Reporting Authority may specify additional statement in Auditor
Reports.
IV.
The Bill provides that the
Auditors shall comply with Accounting Standards.
V.
The Auditor to report on adequate internal control system
commensurate with the size of the company and the nature of its business.
VI.
Further, for certain violations of duties and
obligations, an auditor can be imprisoned and made liable to pay damages to the
company, statutory bodies or authorities, for loss arising out of incorrect or
misleading statements in the audit report.
VII.
The existing provisions relating
to giving the qualifications in bold and italics is dispensed with.
VIII.
Certain classes of companies with
the Central Government in consultation with the National Financial Reporting
Authority may specify will have to make additional prescribed statements in
their audit report.
IX.
Now a duty has been cast on the
Auditor, to immediately report to the Central Government, of any offence, which
he comes across during the course of performance of his duties as an auditor involving
fraud, which is being or has been committed against the Company by officers or
employees of the company.
Annual
General Meeting and Auditors
As per New Clause introduced by Companies Bill, the
following points are
with reference to annual general meeting.
i. Now it is required that the qualifications, observations ,or
comments on financial transactions or matters which have any adverse effect on
the functioning of the company mentioned in the Auditor’s Report shall be read
before the Company in General Meeting.
ii. All notices of and other communications relating to any general
meeting shall be forwarded to the auditor of the Company.
iii. All the General meetings shall now be mandatorily attended
by Auditor or through his representative who shall also be qualified by
the Auditor.
iv. Now Unqualified Auditor’s Report
need not be read out in the Annual General Meeting. (Previously it was required under the Companies Act, 1956).
Rotation of Auditors as per New Companies Bill
Under the Companies Act, 1956 there is no provision
for compulsory Rotation of Auditors and Rotation of auditor is first time introduced in the
Companies Bill. The Auditor shall be required to be rotated.
The New
Companies Bill, provides for the compulsory rotation of auditors as follows:
ü
An auditor will be
appointed in the first annual general meeting for a five-year term.
Thereafter, the auditor will be changed as per the members’ decisions.
ü For Listed companies states
that the same individual auditor cannot be appointed for a term
exceeding five consecutive years.
ü Secondly, an audit firm cannot be re-appointed for more than
two five-year terms. For re-appointment purposes for the individual auditor or
audit firm, there has to be a gap of five years. Moreover, for appointment or
re-appointment purposes, there should be no common partners between the new
firm and old audit firm.
Another interesting clause is that
members can resolve to ask the audit firm
to rotate the audit partner and team every year. These clauses will ensure that
auditors
rotate every five years in the listed companies.
A
transition period of 3 years from the commencement of the Act has been prescribed
for the company existing on or before the commencement of the new act to comply
with the provisions of the rotation of Auditor.
The
Bill also provides that a company can resolve for rotation of auditing partner
and his team within an auditor.
Resignation of Auditor
The
Auditor may vacate his office by tendering his resignation. When the Auditors resign
his office, the vacancy arising there from can be filled in the Annual General Meeting.
This will be treated as casual vacancy and the Board of Directors may appoint
new auditors in casual vacancy caused by the existing auditor.
As per
the New
Companies Bill, now where
the Auditor of company other than the Government Company
resigns from the company then it is required to file a statement in prescribed form within 30 days
with the company and the
resignation in case of government
company ,such statement shall be filed
with Comptroller and
Auditor-General of India.
A New provision has been introduced whereby the
Tribunal suo moto or an application
from Central government/person concerned ,can direct the Company to
change the Auditor if it is satisfied that the Auditor of a company has whether directly or indirectly acted in a fraudulent manner.
Punishment
for the company and the auditor
If any of the provision of Section 139 to 146 is contravened, the company
shall be
punishable with fine which shall
not be less than Rs.25000/- but which may extend to Rs.500000/- , and every officer
of the company who is in default shall
be punishable with
imprisonment. (Clause 147). If the auditor is guilty of any
offence punishable under the new provisions he may be prosecuted.
The Bill specifically
provides that if it is proved that the partner or
partners of Audit firm has or have
acted in fraudulent
manner than the partner or concerned
partners of the audit firm and the firm shall
be jointly and severally responsible for the liability.
Cost Auditor
Central Government may direct that the
audit of cost records of class of companies which are required to maintain cost
records and which have a net worth of such amount or a turnover of such amount
as may be prescribed shall be conducted in the manner specified in the order.
Further cost auditing standards have been mandated.
Changes
in the
Companies Bill
The changes made by the Companies Bill are given below for
easy reference.
Sections under
the Companies Act 1956
|
Clauses under the
Companies Bill 2012
|
Section 224- Appointment of Auditors
|
Clause 139- Appointment of Auditors
|
Section 225-Removal of auditors
|
Clause 140-Removal,
Resignation of Auditors.
|
Section-226-Qualification
and Disqualification
|
Clause 141-
Qualification, Disqualification.
|
Section 227-Powers and Duties of auditors
|
Clause 143- Powers
and duties of Auditors.
|
Section 229-Signature of Audit Report
|
Clause 145- Auditors to sign Audit Report.
|
Section 231- Rights of
Auditors to Attend General Meeting.
|
Clause 146- Auditors to attend General Meeting.
|
Section 233-Penalty for
non- Compliance by Auditor.
|
Clause 147-Punishment for
Contravention.
|
Deleted Sections under Companies Act 1956 in respect of Auditors appointment and
audit.
Section
224A – Auditor not to be appointed
except with the approval of the company by special resolution in certain cases.
Section
233A- Power of the Central Government to conduct special
Audit in certain cases.
The
Rules to be prescribed will provide many details on some of the procedural
aspects relating to audit and auditors.
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