CHAPTER X - AUDIT AND AUDITORS Highlights 1. Unlike annual appointment under the 1956 Act, Auditor(s) will henceforth be appointed for a period/term of 5 consecutive years subject to ratification of such appointment at each following AGM during the said five-year term. Limited Liability Partnership (LLP) may now be appointed as auditors. 2. Mandatory rotation of the office of Auditor (s in the case of listed companies and other class of companies prescribed): In such cases, an individual auditor may now hold office as auditor for a maximum period of five years ( one term) and a firm may hold such office for a maximum of 2 consecutive terms of 5 years each ( total 10 years); however ,such out-going/retiring auditor(s) will be eligible for reappointment in the same company after a break/gap of 5 years from such retirement. 3. In the case of a firm of auditors, the company has power to seek rotation of the Partner in charge of audit and his team during the period of office of the firm( 10 years) 4. In the case of Government companies and companies owned or controlled, directly or indirectly, by the Governments, CAG will appoint the auditor(s). ‘Indirect control’ includes control by public financial institutions like LIC, IDFC, IRBI, GIC, RCTFC, TFCI, PFCI, NHB, REC, IRFC, Various State FCs, NABARD etc which are in turn owned/controlled by Government(s) (notified by Central Government) 5. NCLT may, suo motu or on an application made to it, order removal of an auditor (in office) before the expiry of his term on grounds of his/its fraudulent action etc. 6. Casual vacancy in the office of an auditor now includes, in addition to resignation and death, any disqualification suffered/attracted by the auditor such as employment in the company, holding any security interest in, or indebtedness to, or business relationship with, the company or holding office as auditor in more than the permitted maximum of 20 companies or conviction for fraud, rendering prohibited services to the company etc. 7. The auditor is now mandated (a) to seek from the company the information needed by him for his audit ( as against information merely obtained by him, earlier) and (b)to state in his report whether the company has adequate internal financial controls system in place, and the operating effectiveness of such controls. (Sec. 143) 8. The auditor(s) has/have been mandated to comply with the (prescribed) ‘auditing’ standards (in addition to only accounting standards earlier) and to report promptly if and when he believes that an offence has been committed against the company by officers and employees of the company. (Sec. 143) 9. The auditor’s qualifications, adverse observations or comments on financial transactions shall be read before the company in general meeting 10. Unless specifically exempted by the company, the auditor (or his authorised representative who shall be qualified to be an auditor) shall attend every general meeting. (Sec.146) 11. Contravention of Sections 139 to 146 by the company attracts punishment of the company by way fine between Rs.25,000 and Rs. 5,00,000 and punishment of officer of the company in default by way of imprisonment for a term up to one year or with fine between Rs.10,000 and Rs. 100,000, or with both. 12. For contravention of Sections 139, 143,144 and 145, the statutory auditor ( also Cost auditor and Secretarial auditor) shall be punishable with fine of between Rs.25,000 and Rs.5,00,000; if committed knowingly and willfully with intention to deceive the company or its shareholders or creditors or tax authorities, the punishment will be imprisonment up to one year and fine between Rs.100,000 and Rs. 25,00,000 apart from the liability to refund the remuneration received as auditor from the company and payment of damages. (Sec.147) 13. If one of the partners of the statutory audit firm (also of the cost audit firm and of Secretarial audit firm) has been proved to have acted fraudulently or abetted or colluded in a fraud by the company or in relation to the company or its directors or officers, the liability for such act shall be of the partner concerned individually and of all the partners of the firm, jointly and severally. 14. Cost auditor of a company shall now comply with the Cost Auditing Standards issued by the ICWAI. 15. Secretarial Audit: Listed companies, Rs10 cr puc companies, Rs.25 cr outstanding loan/Rs.25 cr deposits companies shall annex with their Board’s report, a Secretarial audit report in the prescribed form. The provisions of Sec.143 (relating to statutory audit and the auditor) read with Sec.147 shall mutatis mutandis apply the Company Secretary in practice conducting the Secretarial audit. 16. Statutory recognition accorded to Audit committee of the Board to strengthen corporate Governance and taking the corporate professional management to a higher plane by recognizing the Chief Financial Officer (CFO. Company Secretary and Who-time Director as Key Managerial Personnel of the company. 17. Class Action Suits (by members or depositors seeking any damages or compensation or other suitable action from or against an audit firm) have been introduced on the lines existing abroad; the liability will now be of the firm as well as of each partner who was involved in making any improper or misleading statement of particulars in the audit report or who acted in a fraudulent, unlawful or wrongful manner.
Posted on: Tue, 04 Mar 2014 06:43:30 +0000
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