by In India, the Companies Act, 2013 regulates the appointment, rights, duties, and removal of auditors of companies. The Act requires all companies registered under it to appoint a qualified auditor to audit their financial statements.
Company auditors in India play a crucial role in ensuring the accuracy and reliability of financial statements of companies registered under the Companies Act, 2013. They are appointed by the company’s board of directors, subject to approval by the shareholders, and have certain rights and duties, including the preparation of an audit report.
The following are some key points related to company auditors in India:
- Appointment: The auditor of a company is appointed by the company’s board of directors, subject to approval by the company’s shareholders. The appointment is for a period of one year and can be renewed for a maximum of five years.
- Eligibility: To be eligible for appointment as an auditor of a company in India, the person or firm must be a practicing chartered accountant and registered with the Institute of Chartered Accountants of India (ICAI).
- Rights and Duties: The auditor has the right to access all the company’s books, records, and vouchers, and to obtain information and explanations from the company’s officers. The auditor’s duties include examining and reporting on the company’s financial statements, evaluating internal control systems, and reporting any fraud or non-compliance with laws and regulations.
- Removal: The auditor can be removed by the company’s shareholders before the end of their term only through a special resolution and with prior approval from the Central Government.
- Audit Report: The auditor’s report includes an opinion on the true and fair view of the company’s financial statements, along with observations on any significant matters arising from the audit.
- Penalties: The Companies Act, 2013 provides for penalties in case of non-compliance with audit requirements, including fines and imprisonment for company officers.
Examples of sources of an auditor’s power are:
- Legal Provisions: The Companies Act, 2013 in India and other relevant laws provide auditors with the legal power to access company books and records, obtain information from company officers, and report on any non-compliance or fraud.
- Auditing Standards: Auditing standards issued by various professional bodies, such as the Institute of Chartered Accountants of India (ICAI) and the Institute of Internal Auditors (IIA), provide auditors with guidelines on how to carry out their work effectively and efficiently.
- Terms of Engagement: The terms of engagement or the audit engagement letter between the auditor and the company define the scope of the audit, the responsibilities of the auditor and the company, and the fees and expenses involved. These terms provide the auditor with the power to perform the audit within the agreed-upon scope and access the required information and resources.
Remuneration
The remuneration of a company auditor is determined by the Board of Directors or the Audit Committee of the company, based on the recommendations of the Statutory Auditors. The remuneration is subject to the approval of the shareholders of the company at the Annual General Meeting.
In India, the Companies Act, 2013 provides for the remuneration of the company auditor. Section 142 of the Act specifies that the remuneration of the auditor shall be determined by the company in a general meeting or by the Board of Directors or the Audit Committee, as may be decided by the company in the general meeting.
The Act further provides that the remuneration of the auditor may include reimbursement of expenses incurred by the auditor in connection with the audit, and also any fees paid to the auditor for any other services rendered by them to the company.
It is important to note that the remuneration of the auditor should be reasonable and commensurate with the services rendered by them. Excessive remuneration may create a conflict of interest and compromise the independence of the auditor, which is essential for carrying out an effective audit.
Duties:
- Expressing an opinion on the financial statements of the company based on the audit conducted.
- Ensuring compliance with the provisions of the Companies Act, 2013 and other applicable laws.
- Verifying and validating the books of accounts, records and other relevant documents of the company.
- Reporting to the members of the company on any fraud or suspected fraud committed in the company.
- Reporting to the members of the company on any material misstatement or omission in the financial statements of the company.
- Reporting to the members of the company on any deficiencies in the internal controls of the company.
Liabilities:
- The auditor is liable for any loss suffered by the company due to their negligence or misconduct in carrying out the audit.
- The auditor is also liable for any misstatement or omission in the audit report, which results in a loss to the company or its stakeholders.
- The auditor is required to disclose any conflict of interest that may affect their independence and objectivity in carrying out the audit.
- The auditor is required to maintain confidentiality of the information obtained during the course of the audit, and not disclose such information without the permission of the company or its management.
- The auditor is required to comply with the Code of Ethics issued by the Institute of Chartered Accountants of India (ICAI) and other relevant regulatory bodies.
