The word ‘audit’ is derived from the Latin word audire, which means ‘to hear’ and the word ‘auditor’ means literally ‘hearer’, i.e., ‘one who hears’. Originally, it was customary for persons responsible for maintenance of accounts to go to some impartial and experienced persons, ordinarily, judges who used to hear these accounts and express their opinion about their correctness or otherwise. The word Auditor can be defined as an authorized person who can conduct a formal examination or financial operation of accounts that is, an examining book of accounts, documents, and vouchers verifying the accuracy of financial records, etc. The Auditor can be either appointed by the company’s Board of Directors, Shareholders, or Comptroller and Auditor General of India. An auditor should be a Chartered Accountant it means without obtaining the certificate of a Chartered Accountant; he cannot be appointed an auditor of a public company. The duties of an auditor are to check the arithmetical accuracy of the accounts, books of accounts with the help of all relevant vouchers, to verify the assets and liabilities shown in the Balance sheet.
Appointment of Company Auditor_
Section 139 of the Companies Act 2013 lays down the following important provision regarding the appointment of auditors:
Appointment and duration- The auditor shall be appointed at the first annual general meetings by every company. Such auditor holds office from the conclusion of that meeting till the conclusion of its 6 annual general meetings and thereafter till the conclusion of every sixth meeting. The manner and procedure of selection of auditors by the members of the company shall be such as may be prescribed.
In a Listed company- No listed company or a company belonging to such class of companies as may be prescribed, shall appoint or re-appoint –
An individual as auditor for more than one term of five consecutive years
An audit firm as auditor for more than two terms of five consecutive years. However, an individual auditor who has completed his term as aforesaid shall not be eligible for re-appointment as an auditor in the same company for five years from the completion of his term. Further, an audit firm that has completed its term as aforesaid shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such terms.
Rotations of auditors-The Central Government may be prescribed by rules how the companies shall rotate their auditors in pursuance of the provision under point (2) above.
In a Government Company- In case of a government company, the Comptroller and Auditor General of India owned or controlled, directly or indirectly by, the Central Government shall appoint in respect of a financial year an auditor duly qualified to be appointed as auditor of companies under this act, within of 180 days from the commencement of the financial year.
First Auditor-The first auditor of a company, except Government company, shall be appointed by the Board of Directors within 30 days from the date of registration of the company, in the case, if Board of Directors fails to appoint such auditor, it shall inform the members of the company.
Re-appointment of a retiring auditor- The rules are made thereunder, a retiring auditor may be re-appointed at an annual general meeting if he fulfilled the following conditions.
Casual Vacancy-The Directors of the Company are empowered to fill any casual vacancy in the office The auditor so appointed shall hold office until the conclusion of the Next Annual General Meeting. In General Meeting vacancy related to the auditor can be filled if it is caused by the resignation of an auditor.
Appointment of Auditor on the Recommendations of Audit Committee–
All appointments, including the filing of a casual vacancy of an auditor, shall be made after taking into consideration the recommendations of the Auditing Committee.
Role of an Auditor
• Ensure compliance with established internal core procedures by examining the book of accounts with the help of all the relevant vouchers, invoices, correspondence, etc.
• To verify assets and liabilities shown in the Balance Sheet by comparing items to documentation.
• Measuring the levels of financial risk within the organization.
• An Auditor role in a company requires them to make inquiries thoroughly such matters which arouse suspicion and doubt
• To report the client based on his findings
• An auditor is not a technical man, therefore he has to rely upon financial explanation from company staff
• Tallying of Profit and loss accounts and balance sheet to the books of accounts made by the company.
Removal of an Auditor
Section 139 describes the auditor which is appointed may be removed from his office before his expiry term only by a special resolution of the company, after obtaining the previous approval of the Central Government in that behalf in prescribed manner and the auditor who has resigned from the company shall file within of 30 days from the date of resignation, a statement in the prescribed form with the company (FORM ADT-3).
The removal of Auditors can be done in the following ways–
First Auditor(s) – When the Director appoints the first auditors of a limited company before the First Annual General Meeting, such auditor may be removed by the members in General Meeting. Any other member whose nomination notice has been given by any member, not less than 14 days before the date of the meeting can be appointed in their place in the General Meeting.
Removal before the expiry of the term- Any auditor who is appointed may be removed by the company from his office before the expiry term only by a resolution of the company after obtaining the previous approval by Central Government.
Removal if the auditor has acted fraudulently– If the auditor of a company directly or indirectly, has acted fraudulently or took part in any fraudulent activity then the Company Tribunal can order the company to change its auditor.
Resignation by Auditor- If any auditor wants to resign from the post then he has to file a statement in a prescribed form with the company and the Registrar. This has to be done within thirty days from the date of resignation.
Author: Divya Tripathi,
Shri Ramswaroop Memorial University LLB 3 Year ( 2 Semester)