Company Audit Final

8/8/2019 Company Audit Final

1/39

COMPANYCOMPANYAUDITAUDIT


2/39

COMPANY AUDITCOMPANY AUDIT

Appointment of Auditor

Qualifications of Auditor

Disqualifications of Auditor

Remuneration of Auditor

Rights/Powers of Auditor

Duties of Auditor

Audit Report


3/39

APPOINTMENT OF AUDITORAPPOINTMENT OF AUDITOR

Section 224Section 224 of Companies Act, 1956

Appointment by Shareholders only

Board of DirectorsCentral Government


4/39

FIRST AUDITORFIRST AUDITOR


Section 224 (5)Section 224 (5)

Appointed by Board of Directors

WithinONE month from the date of REGISTRATION

Tenure from the DATE of APPOINTMENT till conclusionof FIRST AGM

If Board fails

Appointed by Shareholders in a General Meeting

Removed at General Meeting

Eligible for Reappointment


5/39


SUBSEQUENT AUDITORSSUBSEQUENT AUDITORSSection 224 (1)Section 224 (1)

(1) Company has to appoint Auditor at each AGM(2) Intimation to Auditor within SEVEN of days of his appointment

(3) Auditor has to intimate REGISTRAR OF COMPANIES about

Acceptance or Non-Acceptance within

THIRTY days from receipt of Intimation(4) Auditor holds office from the date of Appointment till

CONCLUSION of AGM

(5) Generally appointment is by an ORDINARY resolution


6/39


(6) Certain cases SPECIAL resolution

Conditions

A company in which not LESS THAN 25% of the subscribed sharecapital is held by

A Public Financial Co. or Govt. Co. or Central or State Govt.

Any financial or other institution established by an Act in which

not Less than 51% of subscribed capital is held by State Govt. Nationalized Bank or Insurance Co. carrying on GeneralInsurance business


7/39


REAPPOINTMENTOF RETIRING AUDITORREAPPOINTMENTOF RETIRING AUDITORSection 224 (2)Section 224 (2)

Retiring Auditor, appointed by any Authority, is eligible for

reappointment at any AGM, except in following circumstances: Retiring auditor not qualified for reappointment

Given notice of his unwillingness for reappointment

Resolution is passed appointing another person as auditor


8/39


APPOINTMENT BY CENTRAL GOVERNMENTAPPOINTMENT BY CENTRAL GOVERNMENT

1. If no auditor is appointed or reappointed at an AGM

2. Section 224 (4) Company should give notice to Central Govt. ofnon-appointment

3. Notice to be given within SEVEN days from the date the powerbecomes exercisable

4. Failure to give notice Co. & every officer in default arepunishable with fine


9/39

APPOINTMENTINCASUAL VACANCYAPPOINTMENTINCASUAL VACANCY


Caused by RESIGNATION

Can be filled ONLY BY COMPANY in General Meeting

Caused by reasons other than resignation

Board of Directors


10/39

QUALIFICATIONS OF AUDITORQUALIFICATIONS OF AUDITOR

Section 226Section 226

1. Only a CHARTERED ACCOUNTANT or a FIRM of CHARTEREDACCOUNTANTS

2. Only a C.A. holding a certificate of practice granted by ICAI canengage themselves in practice of accountancy

3. Only a C.A. in practice can act as an AUDITOR of a co.4. Section 226 (1) A firm whereof all partners practising in India arequalified for appointment


11/39

DISQUALIFICATIONSDISQUALIFICATIONS


Persons not qualified to be Auditor of a Company:

i. A Body Corporateii. An Officer or Employee of the company

iii. A person who is a partner of an officer or employee of thecompany, or who is in employment of such officer or employee

iv. A person who is indebted to the company for an amountexceeding Rs.1,000 or who has given any guarantee or providedany security in connection with the indebtness of any third personto the company for an amount exceeding Rs.1,000


12/39

CEILING ON NUMBER OFCEILING ON NUMBER OF

AUDITSAUDITSSection 224 (1B)Section 224 (1B)

1. Firm of C.A.where each partner is not whole-time employer

TWENTY Companiesout of which not more than TEN co.s should have paid-up capitalof Rs.25 Lakh or more

2. An individual C.A. who is in whole-time employment

TWENTY Companiesout of which not more than TEN co.s should have paid-up capitalof Rs.25 Lakh or more

3. An individual C.A. who is not in whole-time employment

Any number of companies


13/39

REMOVALREMOVAL

FIRST AUDITORFIRST AUDITOR Can be removed by the Company at a General Meeting beforeexpiry of his term.

Company can appoint any other person in his place according to theprescribed procedure applicable for appointment of new auditor inplace of retiring auditor

AUDITOR OTHER THANFIRST AUDITORAUDITOR OTHER THANFIRST AUDITOR

Can be removed by the Company at a General Meeting before expiryof his term with the previous approval of Central Govt.

Same procedure as applicable for appointment of new auditor inplace of retiring auditor


14/39

REMUNERATIONREMUNERATION


Fixed by the APPOINTINGAUTHORITY

1. Shareholders :

Fixed by Shareholders in AGM

2. Board Of Directors :Fixed in case of First Auditor & in Casual Vacancy

other than resignation3. Central Govt. :

Fixed by Central Govt.

4. Remuneration includes EXPENSES incurred in the course of audit


15/39

5. Remuneration of Retiring Auditor:

If not fixed, same as previous year

6. Other Remuneration :

Separate Remuneration for other services rendered

REMUNERATIONREMUNERATION

7. Disclosure in Accounts:

All amounts paid to the Auditor in any capacity should

be disclosed in P & L A/c under Schedule VI


16/39

RIGHTS/POWERSRIGHTS/POWERS

1. Right to Examine Books, Accounts and Vouchers

2. Right to obtain Information and Explanations

3. Right to visit branch offices

4. Right to Attend General Meeting

Section 227 (1)

Section 231


17/39


OTHER RIGHTSOTHER RIGHTS

To receive intimation of appointment

To make written representation when threatened with removal

To seek opinion of an expert, if required

To receive remuneration

To be indemnified against any liability incurred by him indefending himself against any civil or criminal liability


18/39


RIGHTOF LIENRIGHTOF LIEN

A lien is the right of one person to satisfy a claim against another byholding the others property as security

If not paid Audit fees, it is possible to have lien on

- Books of accounts and vouchers of the company

- Working papers

NO

LIEN

ON

BOOKS

OF

ACCO

UNTS

Kept at Registered office

Open for inspection by directors, shareholders, officers ofGovt. etc.


19/39


RIGHTOF LIENRIGHTOF LIEN

LIENON WORKING PAPERS

Audit Working Papers :

-Various statements & Schedules prepared by the auditor fromthe records & documents of the company

- Property of the auditor

- Can retain them with himself


20/39

DUTIESDUTIES

I . Duty to Report on Accounts

(i) To report whether accounts show TRUE & FAIR view (u/s 227)

(ii) To report whether accounts give required information [u/s 227(2)](iii) To report whether necessary information is obtained [u/s 227(3)]

(iv) To report whether proper books of accounts are kept [u/s 227(3)]

(vi) To report compliance with Accounting Standards

(vii) To give reasons for qualified report

(v) To report whether financial statements are in conformity with law


21/39

DUTIESDUTIES

II . Duty to make enquiries on matters u/s 227 (1A)

(i) Loans & Advances given :

- whether made against security

- whether these terms & conditions do affect interest of companyor shareholders

(ii) Sale of investment :- when sold at cost price

(iii) Loans & Advances as Deposits :

- whether treated as deposits

(iv) Personal Expenses

- whether debited to profit & loss account


22/39

DUTIESDUTIES

(v) Allotment of shares for cash

- whether cash has been actually received or not

III . Duty to Certify Prospectus

Section 56

Disclosure of income, expenditure, assets & liabilities

Certified by the auditor


23/39

DUTIESDUTIES

IV . Duty to Certify Statutory Report

Section 165 StatutoryMeeting

- to be held only by Public Ltd. Co. & not Pvt. Ltd. Co- Meeting of shareholders

- within a period of not less than ONE month & not more thanSIX months from the date of commencement of business

- held only once in the life time of the company

Statutory Report

- to be sent to shareholders at least before 21 days of the meeting

- signed by two directors of whom one should be M.D.


24/39

DUTIESDUTIES

- Particulars of shares allotted

- Class of shares issued

- Money Received

- Money spent on the issue

V . Duty to Certify Solvency Report

- Voluntary liquidation by directors

- solvency report

- verified & certified by company auditor


25/39

DUTIESDUTIES

VI . Duty to Assist Investigator

Appointment of Investigator by Central Govt.

Section 240

Assist such investigator by furnishing records, documents & otherparticulars

If fails

Imprisonment of 6 months

Fine Rs. 2000/-

VII . Duty to Sign Audit Report


26/39

POSITION OF AUDITORPOSITION OF AUDITORNot Employee of CompanyAn Agent of Shareholders

- Appointed by shareholders

- Even appointed by BOD/CG report to Shareholders

AnOfficer of Company

- Power of the Court in winding up to summon persons

- Public Examination of persons guilty of fraud etc.

- Penalty for falsifying books

- Power of the Court to assess damages to Company out misfeasance

- Prosecution of delinquent officers


27/39


28/39

JOINT AUDITORSJOINT AUDITORS

Large organizations Smooth conduct & timely completion of work

Separate audit reports by each auditor

Compilation in one audit report

Liabilities/Responsibility Recommendations of ICAI Division of work as far practicable

- Communicated to client

- Liable for portion of work as per agreement

Work not specifically divided

- Some other basis time / sales

- Communicated to client

One final report disagreement separate reports


29/39

BRANCH AUDITORBRANCH AUDITORSection 228(1)

Branch Office in India

Company Auditor or any other person qualified to be appointed

Branch Office outside India

Accountant qualified as per rules of that country

Appointment

- Company in General Meeting

- BOD in consultation with Company Auditor

Report

Report based on work done by him & forward to Co. Auditor

Remuneration Section 228(3)

- Company in General Meeting

- BOD in accordance with decision of Co. in Gen. Meetin


30/39

BRANCH AUDITORBRANCH AUDITOR

Rights & Duties of Statutory Auditor

- Assist in Appointment

- Deal with branch audit report

- Right to visit branch offices

- Right to access accounts/vouchers at branch office


31/39

LIABILITIES OF AN AUDITORLIABILITIES OF AN AUDITOR

To Whom? Appointment by Shareholders Direct Contractual Relationship

Privity of Contract

Auditor Liable to third parties like bankers, tax authorities etc. (?)

Commissioner of Tax Vs. G.M. Dandekar Not liable

USA & UK Liable

Past in India Not liable i.e. No Privy No Liability

Now Liable to all those who rely on his opinion

Liable only when suffer losses

NOTONLY LIABLETOCLIENTS BUT ALSOTOTHIRD PARTIES


32/39

LIABILITIES OF AN AUDITORLIABILITIES OF AN AUDITOR

1)Civil Liability for Negligence

2)Civil Liability under Statute (Misfeasance)

3)Criminal Liability under Companies Act, 1956

4)Liabilities under Income Tax Act, 1961


33/39

CIVIL LIABILITY FORCIVIL LIABILITY FOR

NEGLIGENCENEGLIGENCE Appointed by Shareholders Safeguarding of their interests

Reasonable degree of skill & care

Fails to perform duties liable for losses suffered

Make good loss if financial loss due to his negligence

No loss no liability

Compensatory damage or Action against him


34/39

CIVIL LIABILITY UNDERCIVIL LIABILITY UNDER

STATUTE (MISFEASANCE)STATUTE (MISFEASANCE)

Misfeasance Breach of Trust or Duty imposed by Law

It is a simple procedure under Companies Act, 1956 of bringing

Action against persons who have misapplied or wrongfully

Retained property of the company or are guilty of breach of duty

Liability Make good the loss


35/39

CIVIL LIABILITY UNDERCIVIL LIABILITY UNDER

STATUTE (MISFEASANCE)STATUTE (MISFEASANCE)Misstatements in Prospectus Section 62

Auditor liable Every person

No Liability if proves

Without knowledge

Becoming aware withdrawal in writing

Withdrawal before delivery for registration

Allowed after delivery but before allotment


36/39

CRIMINAL LIABILITY UNDERCRIMINAL LIABILITY UNDER

COMPANIES ACT, 1956COMPANIES ACT, 1956Section 63 Misstatements in Prospectus

Imprisonment upto 2 years

Fine Rs.5000 or both

Section 569 Criminally Liable

With intention to defraud or deceive any person

Destroys, manipulates or alters or

is privy to ______________ of any books, papers or securities or

Makes or

Privy to making fraudulent entries in any register or books

Fine


37/39

CRIMINAL LIABILITY UNDERCRIMINAL LIABILITY UNDER

COMPANIES ACT, 1956COMPANIES ACT, 1956Section 545

Prosecuted if guilty of an offence in relation to the Company

Section 628

Criminally Liable

He makes in any certificate, B/S, prospectus a statement

False, knowing to be false

Omits, knowing it to be material


38/39

LIABILITIES UNDER INCOMELIABILITIES UNDER INCOME

TAX ACT, 1961TAX ACT, 1961Section 288 Convicted in Income Tax Proceedings

Penalized in Income Tax Act

Professional Misconduct

No representing of Assessee for specified period

Section 278 - Liable

Gives or makes to give false info, A/cs, I/T Returns

Rule 12A - Intentionally False Report to I/T Dept.

Rigorous imprisonment upto 7 years or

Fine


39/39

Documents

Company Audit Final