Qualification and Disqualification of an
Auditor
According to Section 226(1) and 226(2) of the Companies Act, the
prescribed qualifications of an auditor are as follows:
a.Qualification [sec226 (1)]:
a. The
auditor of a co. may be either, an individual or a firm
b.In the case of an individual,
he should be a Chartered Accountant within the meaning of Chartered Accountants
Act 1949 i.e. he should be holding certificate of practice.
c. In
the case of firm of auditor’s all the partners of a firm shall be chartered accountants
practicing in India within chartered accountants Act 1949.
b.Qualification [Sec 226(2)]:
A person holding a certificate issued by
central govt. under restricted state auditors
rules prior to the enactment of
part B state laws 1951 can also be auditor of the co.
The central government
in empowered to frame rules relating to granting renewals, suspension or
cancellation of such certificates.
Disqualification of a Company
Auditor:
According to section 226(3) of the Companies Act, the following persons
shall not be appointed as auditors of a company:
i.
A
body corporate. A company cannot audit any other company,
ii.
An
officer or employee of the company.
iii.
A
person who is either a partner or employee of an officer or employee of the
company.
iv.
A
person who has taken debt from the company for amount exceeding Rs. 1,000.
v.
A
person who has taken guarantee of another person who has taken a loan exceeding
Rs. 1,000 from the company.
vi.
A
person who holds shares or debentures of the company cannot audit that company.
A person, who
is disqualified for being appointed as auditor of a company, is automatically
disqualified for being auditor of its holding company or its subsidiary company
or any other subsidiary of holding company.
Removal of Company Auditor U/S 224(7) Companies
Act, 1956
The removal of auditor
shall be authorized only by the shareholders in the General Meeting (GM).
Ordinary resolution is sufficient to remove an auditor. The removal may be of
the following types:
1. Removal
of first auditor
2. Removal
of regular auditor other than the first auditor
In case of removal of
auditor of first auditor, there is no need for central govt’s prior permission.
The removal of auditor
other than first auditor can be further classified as:
1. Before
the expiry of term of office
2. On
the expiry of term of office
Where the Co.
wishes to remove the auditor before the expiry of term of office the following
procedure shall be followed:
Step I: A
special notice of not less than 14 days is to be given by a shareholder to the
Company for removal of the Auditor and appointment of new auditor subsequent to
the removal of Auditor.
Step 2:
Obtaining a certificate in writing from the new auditor to the effect of his
eligibility to act as auditor, if appointed;
Step 3: Holding
a board meeting of the Company to pass the necessary resolutions to:
(i) consider the
special notice for removal of Auditor given by the shareholder and to decide the
day, time and place for calling the EGM;
(ii) to approve
the draft notice of EGM and explanatory statement thereof and to authorize the
company secretary or director of the Company to issue the notice;
(iii) to
authorize the director or manager of the Company to make an application to the
Central Government under Section 224(7) for removal of the Auditor; and(iv) to
authorize the company secretary or director of the Company to inform the Auditor
of the decision of the board of his removal.
Step 4: Intimate
the Auditor of his removal in writing along with a copy of the special notice
as given by the Shareholder.
Step 5: Holding
of EGM to pass the necessary resolutions to:
(i) approve
removal of the Auditor from the office of statutory auditors of the Company;
(ii) appointment
of new auditors subject to approval of regional director to hold office until
the conclusion of next AGM;
(iii) to
authorize the director, company secretary or manager of the Company to intimate
the new auditor of his appointment; and
(iv) to
authorize the director or manager of the Company to make an application to the
Central Government (Regional Director)under Section 224(7) of the Act for
removal of the Auditor.
Step 6: Making
application to the Regional Director(Central Government) in whose jurisdiction
the registered office of the Company falls in e-Form No. 24A along with the
following documents:
(i) Copy of
ordinary resolution;
(ii) Copy of
special notice under section 224(7) of the Act;
(iii) Copy of
the representation, if any, made by the Auditor.
(iv) Grounds of
making application for removal of Auditor.
Step 7: Upon
receipt of approval from regional director intimate the new auditor of his
appointment as an auditor of the Company to hold the office until the conclusion
of next Annual General Meeting.
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