Dept of Commerce Purnea - PowerPoint Presentation

1. Dept of Commerce Purnea College Purnia Subject: AuditingTopic:Appointment,Remuneration,Rights and Duties Of An Auditor Course: B.com Part-I (H)Dr. Ishtiaque Ahmed Dept. of Commerce Purnea College, Purnia Email:driahmedar@gmail.com

2. Department of Commmerce Purnea College Purnia Appointment,Remuneration, Rights and Duties Of An Auditor

3. The auditor of sole traderThe auditor of partnership firmSpecial point regarding the conduct of partnership firm’s auditThe auditor of a limited companyAppointment of companies auditorsRemoval,resignation of auditor etcEligibility,qualifications and disqualifications of auditors Contents

4. Rights of the company auditorAuditor’s lienDuties of a company auditorDuties under section 143Others duties under the company actContractual dutiesDuties of careJoint auditors Contents

5. Appointment,rights and duties of an auditor especially depend upon the form of organisation is such where the audit is not statutory requirement,the rights and duties of the auditor will depend upon the terms and conditions laid down in the letter of appointment. If the audit is governed by a statue, the provisions of the statue will play an important role. Introduction

6. A sole proprietor is not required,under any statue to get its accounts audited.But the audit is certainly adviseable,particularly where owner doesn’t have control over transactions. Although no law governs sole trader the audit for the purpose of income tax may become essential, depending upon the nature and volume of business. In the case of sole trader, the auditor generally act as an accountant who also prepares the accounts besides checking their accuracy. So accountant have a duty to carry out audit with care and diligence and to bring out the errors in notice which will enable to improve the upcoming future account.The Auditor Of A Sole Trader

7. Most of the partnership deeds provide for an audit of accounts of the firm by an independent auditor,although Indian Partnership Act 1932,does not provide for any compulsory audit. Following are the advantages of audit of a partnership firm:1.It helps in settling accounts between the partners and thereby dispute is avoided.2.It facilitate the settlement of account required on the retirement ,death and admission of a partner.3.Sleeping partners can get a reliable report on the account of the firm.The Auditor Of A Partnership Firm

8. The auditor of a partnership should carefully inspect the partnership deed and note down the various provisions. Where the deed is silent on some of the provisions, it will be desirable to keep in mind the important provisions of Partnership Act. The important provisions are :1.The profit and loss sharing ratio of all the partners should be equal.2. A partner is not entitled any remuneration .3.A partner is not entitled interest on capital but he can claim interest@ 6% p.a on any amount advanced by him to firm. 4.In settling the accounts of a firm after dissolution, the goodwill is to be include in the asset of the firm.Special Points Regarding The Conduct Of Partnership Firm’s Audit

9. The statue governing companies provides for compulsory audit of the companies accounts. Sections 139 to 148 of Indian companies act,2013 contain the specific provisions regarding audit. Similar provisions, existed in the earlier forms of companies Act. These sections deal with qualification, disqualification ,appointment,re-appointment ,removal,rights,duties and report of the auditor.The Auditor Of A Limited Company

10. The provision regarding appointment of the auditor are contained in section 139 of the company act 2013.1.Appointment of the first auditor of companyOther than government company: sec.139(6) The first auditor of a company other than a government company, shall be appointed by board of directors within 30 days of registration of company. If the board fails to appoint the first auditor,It shall inform the member of the company, who shall appoint the auditor within 90 days at extraordinary general meeting who shall hold office till the conclusion of first annual general meeting.Appointment of Companies Auditor

11. It shall be appointed by comptroller and audit general within 60 days of registration of company. In case of failure to appoint first auditor, The board of director shall appoint the auditor within next 30 days. The company inform the member, if board fails to appoint first auditor who shall appoint the auditor within 60 days at extra ordinary general meeting, holding office till conclusion of first annual general meeting.2.Appointment of first auditor In case of government company:sec 139(7)

12. A company shall appoint an individual or afirm as an auditor at the first annual general meeting and each subsequent 6th annual general meeting. Such an auditor shall hold office till conclusion of 6th annual general meeting. Such a an appointment should be placed before members a each annual general meeting for ratification. Before such appointment of auditor a written consent to appointment and a certificate from him that it is in accordance with conditions as may be prescribed, shall be obtained from the auditor.3.(i)appointment of subsequent auditor in case of non- government company:sec 139(1)

13. An individual can be appointed of a term not more than five years. An audit of firm can be appointed for a consecutive term not more than two terms of five years. An individual of the firm who has completed its term shall not be eligible for reappointment as auditor in the same company for five year from the completion of term.(ii)Period for which appointment is to be made:sec 139(2)

14. The members of the company may resolve the rotation of partner and his team after certain interval or audit to be conducted by more than one auditor. The central govt. may prescribe the rules regarding the manner in which companies shall rotate the auditors.(iii)Rotation of partner of auditor firm or conduct of audit by more than one auditor:sec 139(2)

15. In case of govt. company or any other company which is owned and controlled by state or central govt.,the comptroller and auditor general of India shall appoint an auditor duly qualified under this act within a period of 180 days from the commencement of financial year, who shall hold the office till the conclusion of annual general meeting.4.Appointment of subsequent auditor in case of government company sec :139(3)

16. The casual vacancy of an auditor, except in case of govt.company,shall be filled by board of directors within 30 days but if it arises as a result of resignation of the auditor it shall be approved by the company at general meeting convened within 3 months of recommen-dation of board. Such an auditor will hold the office till the conclusion of next annual general meeting.Casual vacancy in case of govt. company shall be filled by comptroller and auditor general within 30 days if he fails to fill the vacancy, the board shall fill the vacancy within next 30 days.In case the auditor has been resigned from the company he shall file statement in a prescribed form within 30 days of its resignation with the company and the registrar and in case of government company he shall also file such a statement with C&AG specifying the reasons and facts regarding his resignation. If he fails in this regard, he shall be punishable with fine not less than 50000 rs. Which may be extended to 500000 rs.5.Casual vacancies of auditor:sec 139(8)

17. Such auditor can be reappointed at general meeting if:(a)He is not disqualified foe reappointment.(b)He has not given notice to company of his unwillingness.(c)A special resolution has not been passed at annual general meeting appointing some other person or providing expressly that he shall not reappointed.6.Reappointment of retiring auditor:sec 139(9)

18. The existing auditor shall be the auditor of the company.8.Reccommendation of audit committee : sec 139(11) If auditor committee under section 177,is constituted, all appointments of auditor shall be made after considering recommendations of such committee.7.Where no auditor is appointed or reappointed at annual general meeting:sec 139(10)

19. 1.The auditor appointed under the section 139 may be removed from his office before the expiry of his term only by a special resolution of the company after obtaining the previous approval of the central govt. in that in a prescribed manner. Providing that before taking any action under this sub section, the auditor concern shall be given a reasonable opportunity of being heard.2.The auditor who resigned from the company shall file within a period of 30days from the date of resignation, a statement in prescribed form with the company and registrar or with C&AG,indicating the fact which may be relevant with his resignation.Removal, Resignation of Auditor etc.

20. 4.If the auditor of the company directly or indirectly, acted in a fraudulent manner or colluded in any fraud in relation to the company or its directors or officers, then central govt. can direct order to change its auditor.3.If the auditor does not comply with sub-section 2,he shall be punishable with fine which shall not be less than 50000rs which may extend upto 500000rs.

21. Qualifications of auditor1.A person shall be eligible for appointment as an auditor of a company only if he is C.A: Providing that a firm whereof majority of partners practicing in Indian are qualified for appointment as aforesaid may be appointed by its firm name to be auditor of a company.2.Where a firm including a limited liability partnership is appointed as an auditor of a company ,only the partners who are C.A’s shall be authorized to act and sign on behalf of firm.Eligibility,qualifications and disqualifications of auditors(sec 141)

22. 1.A body corporate other than limited liability partnership registered under the LLP act, 2008.2.An officer or employee of company.3.A person who or his relative or partner-(i)Is holding any security or interest in the company.(ii)Is indebted to the company or subsidiary.4.A person or a firm who has directly or indirectly has relation with the company.5.A person who relatively is director or is in the employment of company as a director.6.A person or a partner who is holding appointment as an auditor of more than 20 companies.7.A person who has been convicted by a court of an offence including fraud and a period of 10 years has not been lapsed from such conviction.Disqualification of auditor

23. Before appointing any auditor, A company shall obtain certificate from him that if he is appointed, it will not result in excess holding of company audit by him. As per company act a person shall not hold appointment as an auditor of more than 20 companies in a time. In case of firm of auditors, the ceiling of partner is 2o taking together all the firms in which he is partner or proprietor.Ceilings of number of audits: sec 141(3g)

24. 1.The remuneration of the auditor of a company shall be fixed in its general meeting or in such manner as may be determined therein.2.Thee remuneration under sub-section (1) shall, in addition to the fee payable to auditor, include the expenses, if any, incurred by the auditor in connection of audit of the facility extended to him but does not include any remuneration paid to him for any other service rendered by him on the request of company.Remuneration of Auditors sec:142

25. Anybody who is given a task to perform must get the rights which may be essential for the proper performance of the risk. To enable the auditor of a company to discharge his duties properly, the company Act, give him the following rights:1.Rights of access to books of accounts . Every auditor of a company has right to free and complete access at all times to the books, accounts and vouchers of the company. The term “voucher” includes all documents , correspondence, agreement etc., which supports any of the transactions or data disclosed In the financial statement directly or indirectly. The term “books” includes financial , accounting, statutory and statistical books. The term ‘all times’ means only during the normal business hours. The document are available to the auditor, wherever they kept by the company. 2.Rights to obtain information and explanation. An auditor is authorized “to require from the officers of the company such information and explanations as the auditor may think necessary for the performance of his duties as auditor.” To strengthen the position of auditor requires every officer of the company to furnish delay information to the auditor, whether or not such information is available from the accounts of the company RIGHTS OF THE COMPANY AUDITOR

26. 3. Right to inspect branch accounts. Where the accounts of any branch officer are audited by a person other than the company’s auditory, the company’s auditor shall ne entitled to visit the branch office, if he deems it necessary to do so for the performance of his duties as an auditor. He shall also have access at all times to the books, accounts and vouchers of the company maintained at the branch office. 4. Right to receive notice. All notices of the company and others communications relating to, any general meeting of a company, which any member of the company is entitles to have sent to him, shall also be forwarded to the auditor of the company . He is also authorized to attend the meeting and make any statement or explanation with regards to the accounts audited by him. However , he is under no duty to answer to any questions. 5.Right to sign the audit report. Only the person appointed as authors of the company, or where a firm is so appointed only a partner in the firm practicing in India , may sing the auditor’s report any other document of the company required by law to be signed by the auditor.6. Right to seek legal and technical advice. The auditor of a company is entitled to seek legal and technical advice which may be needed In the performance of conduct of audit or discharge of his duties. 7.Right to be indemnified. for many purposes, an auditor is considered to be an officer of the company. As an officer he has a right to be indemnified out of assets of the company against any liability incurred by him in defending himself against any civil or criminal proceedings by the company, if he is held not guilty by the law.

27. 8.Right to remuneration. On completion of his work an auditor is entitled to his remunerations. The rights of the auditor cannot be limited or abridged either by the articles or resolution of the members. Any provision or resolutions of this nature is ultravires and therefore void.’ AUDITOR’S LIEN The questions of author’s lien should explained separately for books of accounts, working papers, correspondence with clients and third parties.Books of Accounts etc. An auditor has got no lien on the books of accounts audited by him and papers and documents of the company. In Herbert-Alfred Burliegh vs Ingream Clark Ltd.(1901),the court observed that auditor has no such lien, but if he has worked as an accountant, he can exercise lien on such books as he has actually worked upon in respect of his proper remuneration for work upon those books only. Working papers. The working papers are the property of the auditor and he has the right to retain them. In Chantry Martine& Co vs Martin (1953) the court held that the following documents were the property of the company, auditors - working papers and schedules related to the audit, draft accounts of the company , the accountant’s office copy of the final typed accounts of the company, notes and calculations relating to these accounts made by a partner of the firm of accountants and the draft tax computation prepared by an employee of the firm of accountant.

28. Correspondence with clients. The correspondence between the client and the auditors i.e., letters written by either of one to each other is the property of auditors. He has the right to retain the letters received from client and copies of the letters written by him to the client. Correspondence with Third Parties. In relation of the correspondence with third parties, the answer will depend upon whether the auditor was acting as agent of the company or was acting in professional capacity ? Of the correspondence with the third parties is the outcome of auditor acting as the agent of his client the papers rightfully belong to the principal i.e., But , IF the accountant has obtained these documents for his own use in carrying out the duties in a professional capacity, the documents will be the property of the accountant notwithstanding that they have been brought into existence in connection with work done for the client (Chantrey Martine Co.Vs Martine (1953)

29. DUTIES OF A COMPANY AUDITORThe duties of an auditor of a company are discussed below:Duties under section 143 (1) An auditor is required to enquire(a) Whether loan and advances made by the company have been properly secured whether term and conditions there of are prejudicial to the interest of company or its members.(b)Whether transaction of the company merely by book entry or entry are prejudicial to the interests of the company (c)Where the company, not an investment or banking company, whether assets of the company being shares or debentures and other securities have been sold at a price less than at which these were purchased (d)Where loans and advances made by the company have been shown as deposits(e)Whether personal expenses have been charged to revenue accountsDuties under sec 143(2) To make reports or shareholders The auditors shall make a reports to the members of the company on the accounts examined by him and every financial statement to be laid before the company in general meeting. The shall take into account provision of this Act, the accounting and audit standards. The auditor shall state in his reports to the best of his information and knowledge, the said accounts and financial statements whether give a true and fair view or not, of the state of company’s affairs at the end of financial year and profit and loss account and case flow statement for the financial years and such matters as maybe prescribe

30. Duties under Sec.143(3)The auditor’s reports to state :(a) Whether audit reports of any branch office of the company audited by an other person has been sent to him.(b)Whether company’s balance sheet and profit and loss accounts dealt with in the report are in agreement with books of account and returns.(c)Whether in his, opinion financial statement comply with the accounting standards(d)Whether any director is disqualified from being appointed as director u/s 164(2)(e)any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith.(f)whether company has adequate internal financial control system in place and their operating effectiveness.Section 143 (4)Reasons for negative or with a qualification audit report If any matter required to be included in audit reports has been answered in negative or with qualification, it shall state reasons therefore.Section 143 (5)Duties of Auditor of Government Company

31. Section 143 (5)Duties of Auditor of Government CompanyThe auditor of such companies has to audit the accounts in the manner as directed by Comptroller and Auditor General and submit copy of audit report to Comptroller and Auditor-GeneralSection 143 (8) Duties of Branch AuditorWhen a company has a branch office (a) The accounts of branch office shall be audited by company’s manner or by any other person qualified for appointment as company auditor (b) Where branch office is situated outside India accounts ob branch office shall be audited by company’s auditor or any other person qualified to act as auditor in accordance to the law of that country.(c) The duties and powers of company’s auditor and branch auditor shall be such as may be prescribed. (d) The branch auditor shall prepare a report on accounts of the branch examined by him and send it to company’s auditor.Section 143 (9)Duty to company with auditing standards By every auditor

32. Sec 146 Auditor to attend general meeting The auditor shall attend, except exempted , either himself or through authorized representative any general meeting and shall have right t be heard at such meeting on any part of business which concerns him. CONTRACTUAL DUTIES A professional accountant may be hired by a company for purpose other than the statutory audit. In all such cases the duty of the auditor will depended upon the terms and condition of his appointment. JOINT AUDITORS The times two or more auditors may be appointed to conduct the audit of a company as in case of large companies like insurance and banking companies having wide geographical network. In such cases each auditor is jointly liable and responsible for entire audit. However where the work performed by the auditors by mutual agreement, it may be desirable for each auditors to avoid responsibility for the work he has not performed. This can be done by specify stating in his report the extent of audit work done by him.

33. Other Duties under The Companies Act:It is the statutory duty of the auditor, or a partner of the firm of accountants practicing in India to sign audit report (Section 145).Part II and III of schedule III of Companies Act, an auditor has the duty to report on certain matters included in the prospectus of the Company (Section 26).If a company goes into voluntary winding up, the directors are required to file a declaration of solvency. It is the duty of the auditor to give a report to be attached to such a declaration (section 305).It is the duty of an auditor “ to preserve and produce to an inspector or any other person authorized by him in this behalf with the previous approval of the Central Government all books and papers of, or relating to the company or, as the case may be, of or relating to other body corporate which are in their custody or power and otherwise to give to the inspector all assistance in connection with the investigation which they are reasonably able to give.

34. Duty Of CareAn auditor of a company must be honest and must exercise reasonable skill and care, otherwise he may be suede case for damages. On this aspect of his duties it was observed in Re Kingston Cotton Mills Case (1896) 2 ch. 279, that , “ it is the duty of an auditor to bring to bear on the work he has perform that skill, care and caution which is reasonably competent, careful and cautions auditor will use. What is reasonable skill care and cautions will depend on the particular circumstances of each case. An auditor is not bound to be a detective, or as was said to approach his work with suspicion, or wit a foregone conclusion that there is something wrong.Duties of Auditor in Relation to Mandatory Accounting StandardsAccording to the decision of council of the institute of chartered accountant of India, it has been resolved that while discharging their attest functions, it will be the duty of the members of the institutes, to ensure the accounting standards are implemented in the presentation of financial statements covered by their audit reports.

35. Duty to Know the Duties The auditors are duty bound to become aware of their duties under he companies act. They should understand the articles of associations of the company. Some times these may contain some additional duties. There ignorance will not be an excuse to avoid the liability on account of negligence.Professional DutiesEvery profession governs itself through code of conduct or ethics. The members of the profession of accounting are also excepted to observed ethics given to them by the institute of chartered accountants of India. For example when a person is appointed as auditor of company, he should correspond with the previous auditor before expecting the assignment.