Important Questions of Appointment of Auditor
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The document discusses various questions related to the appointment of auditors under the Companies Act. It addresses whether certain individuals like a director, internal auditor, or tax auditor can be appointed as the auditor of a company. It also discusses issues like auditor independence, recovering audit fees, and the maximum number of audits a chartered accountant firm can take on. The responses provide references to relevant sections of the Companies Act and guidelines from regulatory authorities like ICAI to answer each question.
![QUESTIONS Miss Ani is a CA from the institute of England & Wales. Whether she can be appointed as an auditor of Indian company ? [Hint:- No, as per section 226(1)&(2)] Whether director can become auditor of the same company ? [Hint:- No, as per section 226(3)] Whether relative of director can be appointed as auditor of the company ? [Hint:- 1. Yes, as per section 226(3) 2. But in case of near relationship with director, if member is off the view that his independence would be effected then in the best interest of tradition of profession he shall refrain from accepting the post of auditor in the company.]](https://image.slidesharecdn.com/chapter1questions-101222005858-phpapp01/85/Important-Questions-of-Appointment-of-Auditor-1-320.jpg)
![Whether tax auditor can be appointed as company auditor ? [Hint:- If person is consultant professionally on income tax matters, he cannot be said an officer or employee of the company] Whether internal auditor can be appointed as auditor of company ? [Hint:- 1. Where he is an employee of the company than considering section 226(3) he cannot be appointed as auditor of the company. 2. Where an outsider is appointed as companies internal auditor even than he cannot be appointed as auditor of the company since it is not possible for him to give an objective & independent opinion on section 227(4A) clause (iv).]](https://image.slidesharecdn.com/chapter1questions-101222005858-phpapp01/85/Important-Questions-of-Appointment-of-Auditor-2-320.jpg)
![Whether auditor can recover audit fees on progressive basis ? [Hint:- An auditor can recover progressive fee only in accordance with resolution passes in general meeting, therefore he cannot be said to be indebted of the company.] Mr A has completed 30% of total audit worked assigned to him. He recovered 30% of audit fees after completion of such work. Whether he is indebted to the company ? Mr A has taken loan amounting Rs. 1001 from company in which he is auditor, whether he is disqualified. If he had taken amount to meet traveling expanses, whether disqualification will incur ? [Hint:- 1. Yes, as per section 226(3). 2. If auditor has commenced his work & than demanded for traveling Advance, he will not be indebted to the company. However if he had not commenced his work, position may be different.]](https://image.slidesharecdn.com/chapter1questions-101222005858-phpapp01/85/Important-Questions-of-Appointment-of-Auditor-3-320.jpg)
![Mr A is named in Article of Association as 1 st Auditor. Comment ? [Hint:- ICAI, compendium of opinions, Volume I, Edition IIIrd, 1986, Page 189, says that the only method for appointment of Ist auditor is layed down under section 224(5), and he cannot be appointed mearly because his name is specified in MOM/AOA. Mr A is appointed as auditor at AGM held in 2001. no AGM’s were held in 2002 & 2003. Mr A contends that he continues to be an auditor for 2002 & 2003. comment ? [Hint:- The auditor in the company holds the office from conclusion of AGM in which he is appointed till the conclusion of next AGM. Hence, he will continue as an auditor for 2002 & 2003.]](https://image.slidesharecdn.com/chapter1questions-101222005858-phpapp01/85/Important-Questions-of-Appointment-of-Auditor-4-320.jpg)
![XYZ Co. firm of CA was appointed as auditor in PQR Ltd. After some time one partner died & one new partner is added in the firm. Whether it is a casual vacancy in company PQR Ltd. [Hint:- Addition or death of any partner amounts to reconstitution of the firm & not the dissolution of the firm. Hence, firm will continue to act as auditor in PQR ltd.] A nationalized bank holds 26% subscribed share capital of company XYZ. Auditor of xyz is appointed by passing OR. comment ? [Hint:- 1. As per section 224A auditor should be appointed by passing SR and as OR is passed appointment of auditor is not valid. 2. In the present case section 224(3) would be attracted & company would require to give notice of the fact to CG within 7 days & on receipt of notice auditor shall be appointed by CG.]](https://image.slidesharecdn.com/chapter1questions-101222005858-phpapp01/85/Important-Questions-of-Appointment-of-Auditor-5-320.jpg)
![Company XYZ a nationalized bank holds 23% shares on date of Notice of AGM & till the date of AGM NB increased his share holding by 3% becoming 26% of share capital. Will the auditor appointed by passing OR or SR. [Hint:- 1. Date of recording share holding pattern for the purpose of section 224A is the date of AGM & not the date of notice. 2. In present situation company has 2 alternatives:- (I) Adjourn the meeting & give fresh notice as may be required by the law & appoint the auditor by passing SR. (II) Passing over the item of agenda of appointment of an auditor. In this case no auditor is appointed by the company & therefore 224(3) will be attracted & company would be required to give notice of the fact to CG within 7 days & on receipt of notice auditor shall be appointed by CG.]](https://image.slidesharecdn.com/chapter1questions-101222005858-phpapp01/85/Important-Questions-of-Appointment-of-Auditor-6-320.jpg)
![A firm having audits of 12 public companies & 20 private companies ? [Hint:- As per companies act – compliance As per ICAI notification – non compliance] A firm having audits of 21 public companies & 9 private companies ? [Hint:- As per companies act – non compliance As per ICAI notification – compliance Note :- Non observance of this ceiling would amount to professional misconduct.]](https://image.slidesharecdn.com/chapter1questions-101222005858-phpapp01/85/Important-Questions-of-Appointment-of-Auditor-7-320.jpg)
Important Questions of Appointment of Auditor
- 1. QUESTIONS Miss Ani is a CA from the institute of England & Wales. Whether she can be appointed as an auditor of Indian company ? [Hint:- No, as per section 226(1)&(2)] Whether director can become auditor of the same company ? [Hint:- No, as per section 226(3)] Whether relative of director can be appointed as auditor of the company ? [Hint:- 1. Yes, as per section 226(3) 2. But in case of near relationship with director, if member is off the view that his independence would be effected then in the best interest of tradition of profession he shall refrain from accepting the post of auditor in the company.]
- 2. Whether tax auditor can be appointed as company auditor ? [Hint:- If person is consultant professionally on income tax matters, he cannot be said an officer or employee of the company] Whether internal auditor can be appointed as auditor of company ? [Hint:- 1. Where he is an employee of the company than considering section 226(3) he cannot be appointed as auditor of the company. 2. Where an outsider is appointed as companies internal auditor even than he cannot be appointed as auditor of the company since it is not possible for him to give an objective & independent opinion on section 227(4A) clause (iv).]
- 3. Whether auditor can recover audit fees on progressive basis ? [Hint:- An auditor can recover progressive fee only in accordance with resolution passes in general meeting, therefore he cannot be said to be indebted of the company.] Mr A has completed 30% of total audit worked assigned to him. He recovered 30% of audit fees after completion of such work. Whether he is indebted to the company ? Mr A has taken loan amounting Rs. 1001 from company in which he is auditor, whether he is disqualified. If he had taken amount to meet traveling expanses, whether disqualification will incur ? [Hint:- 1. Yes, as per section 226(3). 2. If auditor has commenced his work & than demanded for traveling Advance, he will not be indebted to the company. However if he had not commenced his work, position may be different.]
- 4. Mr A is named in Article of Association as 1 st Auditor. Comment ? [Hint:- ICAI, compendium of opinions, Volume I, Edition IIIrd, 1986, Page 189, says that the only method for appointment of Ist auditor is layed down under section 224(5), and he cannot be appointed mearly because his name is specified in MOM/AOA. Mr A is appointed as auditor at AGM held in 2001. no AGM’s were held in 2002 & 2003. Mr A contends that he continues to be an auditor for 2002 & 2003. comment ? [Hint:- The auditor in the company holds the office from conclusion of AGM in which he is appointed till the conclusion of next AGM. Hence, he will continue as an auditor for 2002 & 2003.]
- 5. XYZ Co. firm of CA was appointed as auditor in PQR Ltd. After some time one partner died & one new partner is added in the firm. Whether it is a casual vacancy in company PQR Ltd. [Hint:- Addition or death of any partner amounts to reconstitution of the firm & not the dissolution of the firm. Hence, firm will continue to act as auditor in PQR ltd.] A nationalized bank holds 26% subscribed share capital of company XYZ. Auditor of xyz is appointed by passing OR. comment ? [Hint:- 1. As per section 224A auditor should be appointed by passing SR and as OR is passed appointment of auditor is not valid. 2. In the present case section 224(3) would be attracted & company would require to give notice of the fact to CG within 7 days & on receipt of notice auditor shall be appointed by CG.]
- 6. Company XYZ a nationalized bank holds 23% shares on date of Notice of AGM & till the date of AGM NB increased his share holding by 3% becoming 26% of share capital. Will the auditor appointed by passing OR or SR. [Hint:- 1. Date of recording share holding pattern for the purpose of section 224A is the date of AGM & not the date of notice. 2. In present situation company has 2 alternatives:- (I) Adjourn the meeting & give fresh notice as may be required by the law & appoint the auditor by passing SR. (II) Passing over the item of agenda of appointment of an auditor. In this case no auditor is appointed by the company & therefore 224(3) will be attracted & company would be required to give notice of the fact to CG within 7 days & on receipt of notice auditor shall be appointed by CG.]
- 7. A firm having audits of 12 public companies & 20 private companies ? [Hint:- As per companies act – compliance As per ICAI notification – non compliance] A firm having audits of 21 public companies & 9 private companies ? [Hint:- As per companies act – non compliance As per ICAI notification – compliance Note :- Non observance of this ceiling would amount to professional misconduct.]
- 8. M/S PQR is a chartered accountant firm having 3 partners P,Q & Rs Mr. R is an whole time employment some where else. Currently firm is holding 37 audits including audit of foreign company. Following proposals are before firm:- 1 public company & his 60 branches Audit of section 25 company 1 cost audit 1 audit of government company 1 audit of private company & 30 of its branches. Advice whether firm can except all the audits. [Hint:- 1. section 224(1B) places a ceiling on no. of audits, which is referred as specifies no. & specified no. is 20 in present case firm is having 3 partners & 1 partner is in full time employment some where else, there fore firm can validity hold 40 audits.
- 9. 2. Analysis & conclusion If firm accepts audit of 1 public company & 60 of its branches it should be included as 1 audit when computing total no. of audits. If firm accepts audit of section 25 company, it should be included in the limit when computing total no. of audit. If cost audit is accepted by the firm, it should be included in the overall limit. If firm accepts audit of government company, it should be included in the limit when computing total no of audits. If firm accepts audit of private company & 30 of its branches, it should not be excluded in the overall limit. If firm accepts all the audit, total no. of audits will be 40, which is within the limit specifies under section 224(1B) hence firm can accept all the audits.