Auditor and his role in a Company

Auditor and his role in a Company

Auditor and his role in a Company

Audit is a corporate governance practice that is conducted to put a check on an entity. It is the thorough examination of complete books of accounts, transactions entered into by the company, physical inspection of inventories, etc. to make sure all the departments within the organization follow the standards and systems to operate.

Audit is conducted by professionals who have expertise in relevant areas depending upon the category of the audit. Every public listed entity must get its accounts audited by an independent auditor before the declaration of result of any quarter.

For any audit, the sequence of steps is crucial to ensure easy and hustle-free. The following must be followed:

  • Decide the role & duties of the auditor.
  • Enlist the scope of the work and departments to be covered
  • Conduct the audit and compile the data and information

Process of Appointment of an Auditor

Every company whether is it private or public limited shall get its accounts audited and for that purpose, it must appoint auditor through the following steps:

  • The first auditor of the company is appointed by the board of directors within 30 days of the incorporation date and shall hold the office until the conclusion of the first AGM.
  • In case board fails to appoint within such time-limit, the company shall appoint its first auditor in general meeting
  • The company must appoint an auditor or ratify the appointment of auditor in every annual general meeting to hold the office from the conclusion of such AGM to the next AGM.
  • Within 7 days of appointment, the company must intimate the appointed auditor
  • The auditor shall confirm his appointment within 30 days of receipt of intimation from the company and shall inform the Registrar about his appointment
  • In case of government companies, such an appointment is made by Central Government on the advice of the Comptroller and Auditor General of India.
  • Company shall file Form ADT-1 to ROC within 15 days of such appointment

Appointment of Auditor by Special Resolution: Auditor shall be appointed by passing Special Resolution in all such Companies where 25% or more shareholding is held by these entities:

  • Public Financial Institution; or
  • Government Company; or
  • Central Government; or
  • Any financial institution established by provincial act and in such institute State Government holds 51% or more of the subscribed capital; or
  • Nationalized bank; or
  • Insurance Company

If these classes of the company fail to pass Special resolution for the appointment of an auditor, it will be deemed to be non-appointment and such company will be assumed to have no auditor and Central Government has the power to fill such vacancy.

Removal of Auditor

Removal of an auditor is classified into two categories – before or after the expiry of the tenure of the auditor. The process to remove the auditor is governed under the Companies Act.

  • If the company is not satisfied with the work of the auditor, it can remove him from the office before the expiry of his tenure.
  • The auditor is given a fair and reasonable chance of being heard and to show reasons for his inappropriate conducts
  • Approval of the Central Government is mandatory for the removal of the auditor before his tenure gets over.
  • The application to the Central Government for its approval is made through Form ADT-2
  • Within 30 days of passing the Board Resolution, such application to the central government shall be made
  • Once the approval to the effect for the removal of the auditor is granted, the company shall conduct a general meeting to pass a special resolution for the appointment of alternate auditor in place of the auditor being removed

Right, Duties, and Obligations of an Auditor

The auditor is appointed to scrutinize the books of accounts and in-depth inspection of the organization’s operation to ensure the validity and accuracy of the transactions contained therein. Thus, an auditor has specified rights, duties, and obligations while performing his audit.

  • The audit report is an appraisal of the financial position of the business. He must prepare a financial report based on true and accurate information and the same must be under the standards of the relevant law
  • The audit report is a reliable source of information since it consists of an auditor’s opinion about the company. An auditor must form the correct advice on the report and in cases even to give adverse remark if required
  • One of the most important duties of an auditor is to make inquiries and findings throughout the audit. For instance, whether the loan and advances are made by the company within the provisions of the Companies Act or whether the loans taken are shown as a deposit.
  • The auditor has to lend assistance if required for branch audit
  • Central Government in consultation with NFRA has issued Auditing Standards that must be adhered to by an auditor while performing the same
  • The auditor should conduct the audit within the scope as the board decides.

FAQs

What is the provision for the re-appointment of the auditor?

At the annual general meeting, the retiring auditor can be re-appointed provided the following conditions are satisfied with the effect:

  • He/she is not disqualified
  • The retiring auditor has given his consent in writing about their unwillingness to be re-appointed
  • Resolution is passed for the appointment of any other auditor
  • Resolution is passed to the effect that retiring auditor shall not be re-appointed in the firm

Who can be or cannot be appointed as an auditor of the company?

Qualification: following persons are eligible to be appointed as an auditor of the company:

  • Chartered Accountant
  • Practicing firm whose majority partners are CA with the authority of signing and acting lie upon those partner with CA qualification

Disqualification: The following list is disqualified from conducting an audit of the company:

  • Body corporate
  • An employee of the company or their relatives
  • Has provided a guarantee for any third party to the company exceeding INR 5 Lakhs
  • Partner or officer or employee of the company

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Post by Savvy Midha

Savvy Midha holds the degrees of Bachelor of Commerce(honors), LL.B and Company Secretary. She is an experienced Legal and Financial writer with expertise in research, drafting, and copy-writing.