A company auditor is a person who is appointed to prepare an independent audit report for the company. They can be appointed by the company’s BOD (board of directors), shareholders, the federal government or, as necessary, the Indian comptroller and auditor general (C&AG). An individual must have expert knowledge and a practising certificate from the ICAI (Indian Institute of Chartered Accountants) to become a company auditor. The financial statements must be audited for every fiscal year a company is incorporated. Sections 139 to 142 of the 2013 Companies Act detail all provisions related to the company’s audit, whereas sections 128 to 132 detail the provisions related to the company’s account.
In this article, you will learn about:
- Must My Company Appoint an Auditor?
- How Does My Company Appoint an Auditor?
- Qualification and disqualification of a company auditor
- What is Required for an Auditor’s Report?
- Ways Of appointing of a company auditor
- Rights of company auditor
- Conclusion
Must My Company Appoint an Auditor?
For smaller companies, an audit might not be legally required. To qualify for exemption, a company must meet 2 out of the 3 criteria below:
- A balance sheet total not exceeding £5.1 million
- An annual turnover of no more than £10.2 million
- Fewer than 50 employees
In such cases, directors must state on the balance sheet that:
- The company is exempt from the statutory audit requirement.
- They accept responsibility for ensuring the accounts comply with the Companies Act 2006.
- No audit has been demanded by shareholders, who have the right under Section 476 of the Companies Act to request one.
Note: Dormant companies may also benefit from audit exemption if they meet specific conditions.
How Does My Company Appoint an Auditor?
A company must appoint an auditor for each fiscal year. However, if the directors determine an audit is unnecessary, they must ensure this decision is justified. Directors should consider how the lack of audited accounts might affect the company’s creditworthiness with banks.
- Initial Appointment: The Board of Directors appoints the first auditor within one month of registration.
- Subsequent Appointments: Shareholders appoint or reappoint an auditor each year, typically within 28 days after the accounts are issued. This can be done by a written or ordinary resolution.
If shareholders do not reappoint the auditor in a given year, the previous auditor remains in place unless the company’s articles of association specify otherwise or the members formally oppose reappointment.
Company auditor Qualification and Disqualification
The qualification and disqualification of a company auditor are regulated by the companies act, of 2013. These provisions are pertinent to all kinds of appointments.
- Qualification
- Chartered Accountant
According to section 141, (1) of the companies act, 2013 an individual that holds a practising certificate of a certified chartered accountant from the Indian Institute of Chartered Accountants (ICAI) is qualified as a company auditor.
CA firm where all partners are practising in India qualifies for being the company’s auditors. The company auditor, however, can be any partner of the firm acting on behalf of the firm.
- Confined State Auditor
The holder of the certificate authorised by law is in possession of the legal authority to act as a company auditor in India.
- Disqualification
The following individuals are ineligible to work as auditors for the company:
- Working employees or officers of the company
- Individuals holding securities of the company
- A corporate body has limited liability.
- A person barred from serving as a company auditor by any subsidiary company.
- Officers who work for the company’s partners.
- If one of the partners in a partnership firm is ineligible for any of the aforementioned reasons, the firm will also be ineligible to serve as the company auditor.
What is Required for an Auditor’s Report?
Before an audit report is signed, directors must formally approve the financial statements by signing the balance sheet. The auditor will then sign and date the report after completing the audit. Private companies are required to:
- Send the auditor’s report to all members
- File the accounts, including the auditor’s report, with Companies House within nine months of the relevant financial period’s end
Who Appoints the Company Primary Auditor
Ways to appoint a company auditor are as follows:
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Appointment by Shareholders
Whether a company is private or public, it is mandatory for them to appoint a company auditor at every annual general meeting (AGM). It’s important to keep in mind that the word “every” in this sentence is crucial because it must be passed at each annual general meeting in order to name a company auditor. In other words, the retired auditor won’t be reappointed automatically. The appointed auditor may continue to exercise his rights until the following company’s annual general meeting. It also applies to international businesses operating in India.
The appointment of the auditor must be announced within seven days of the company’s resolution being approved, and within thirty days of receiving notice, the auditor must accept or reject the appointment in writing. If he accepts, he will serve as an auditor for the company from the time of his appointment until the following annual general meeting.
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Appointment by the central government
To enable the central government’s powers, the company must notify the government in writing within seven days of its annual general meeting that no auditor has been appointed. Each officer of the company will be fined 500 yen if the company and its officers fail to serve the notice. If the central government has the authority to name an auditor for the corporation, then the shareholders of the corporation do not have the right to name an auditor by resolution at the annual general meetings. The central government-appointed auditor will serve as the sole auditor and cannot be questioned by the business or its officers.
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Appointment by the Board of Directors
The company’s Board of Directors appoints the first auditor by passing a resolution within one month of the date the company was registered. After that, the appointed auditor will serve as the company auditor until the first annual general meeting of the company appoints a new auditor. In the event that the Board of Directors fails to propose an auditor for the company, the shareholders may do so at their annual meeting (they do not need to wait for the annual general meeting for the first appointment of an auditor).
The company is not required to notify the auditor within seven days of the first auditor’s appointment. Both the auditor’s acceptance or denial must be communicated within 30 days, and the central government must grant permission before the company’s first auditor can be fired.
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Appointment by the Comptroller and the Auditor General of India
The auditor for government-owned corporations should be chosen by the Comptroller and Auditor General of India (C&AG). A “government company” is any business in which the federal, state, or local governments jointly or individually own more than 51% of the stock.” Also included are government subsidiaries.
Rights and Duties of an Auditor of a Company
The company auditor has the following rights:
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Right to examine books and vouchers
A company auditor has complete authority to request any company documents necessary for the performance of their duties. They can request any documents from the head office or check and prepare their audit report at any time during the company’s working hours. The company that is undergoing the audit cannot refuse to bring the document that was requested by the company auditor.
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Right to Acquire Information
The company auditor can ask the company’s officers for any information they need to perform their duties precisely and accurately. If the company auditor does not get the proper information, they have the right to report it to the other members of the company.
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Right to visit branches and access accounts
The company auditor has the right to visit the company’s branch and access their account if they want to. When necessary, the auditor has full access to the books and vouchers of the company’s branch accounts.
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Right to attend a general meeting
The company auditor has full rights to receive notices regarding the company’s general meeting. It is not the auditor’s duty to take part in the meeting, but they can give clarification on any part where their consent is required as auditors. The auditor cannot take responsibility for any omissions in their report.
Conclusion
A company auditor is a person who is appointed by the company to examine and verify the company’s fiscal records. A company auditor should have specialised and qualified in their field, as well as the expertise required to be an auditor. When performing the company’s audit and preparing the audit report, he should be honest, cautious, and careful.
