In any private enterprise, an auditor performs a momentous function. Every enterprise is needed to submit its audit records as the financial period advances. The revenue and expenditure account of any enterprise should be precisely monitored and evaluated before the presentation. If any peculiarities are established in the records of the enterprise, the auditor is held accountable.
Who is an Auditor?
All the government and non-government agencies must maintain the course of their accounts and audit records. The financial record of these organizations is required to be adequately evaluated and examined before presenting them to the approved administrations. The analysis of financial reports is commenced by an Auditor. In case of any inconsistencies in the records, the auditor is held liable. Thus, the necessity of an auditor is an obligation for every company.
Under Companies Act, 2013 sections 138 to 148 states about an audit, auditors and removal of auditors. An auditor is an autonomous proficient person eligible to present a study. An auditor is accountable for assessing the records and financial accounts which are required by the company, after which it becomes certain.
Selection of Auditor
Appointment should be within a month
Every organization must select its first auditor or an auditing company within one month of registration of the organization during the yearly prevailing meeting. The auditor appointed will take control of the office from the outcome of the conference. Therein, the auditor assortments are revised every sixth year.
Approval in writing:
Approval should be taken in writing from the auditor, with adequate evidence to prove that the individual (or company) is eligible under the criteria provided for appointment in Section 141 of the Act.
The enterprise must render an appointment notice to the auditor, and a Form, ADT- 1 is imperative to be presented with the registrar within fifteen days of the conference in which the auditor is appointed.
Conditions mentioned in Section 139:
The firms/companies mentioned in Section 139 (pertaining to the class or classes of firms/companies) and Rule 5 of the companies (audit and auditor) rules, 2014, will not:
- Appoint a person as auditor not more than for one consecutive five-year term.
- Select an auditing company not more than two terms of five consecutive years.
Given, the auditor who has completed his tenure will not qualify for reappointment in the same organization or the auditing firm who has completed a two-year tenure is not eligible for appointment in the same organization for five years.
A three-year term is rendered to observe with this need. However, according to the regulations, the five years computed with the retroactive effect.
Reappointment of an Auditor
Generally, at any briefing, the retiring auditor shall accordingly be reappointed. Neither the panel nor the stockholders can deny appointing him. In the subsequent circumstances, the retiring auditor shall not be appointed: If he is not eligible for reappointment, If the individual has rendered the organization a written notice about his reluctance to be reappointed If a settlement is acquired or resolution has been sanctioned at the conference to appoint other individual or to render expressly that he shall not be appointed or selection of the retiring auditor shall also not be done if he has already taken the responsibility of auditor-ship in the particular number of organisations.
Roles & Responsibilities of Auditor
The Companies Act, 2013 has reviewed and included brand new regulations under the Role and responsibilities of Auditors as against the regulations made in the Companies Act, 1956. Consequently, there are some very rigorous standards and regulations made to the Head to create business administration apparent and precise. The new standards also render an auditor a lot of extra obligations and functions, and, therefore, responsibilities under which, in the situation of any discrepancies observed in the financial accounts of the company, the auditor will come under the radium too.
Roles and responsibilities of an auditor as stated by the Act:
1. The Companies Act, 2013 rendered a variety of alterations in the functions and operations commenced by auditors throughout the nation. A qualified auditor can ingress the financial records and documents of the organization at any moment and can direct the officials to submit the official papers as and when asked for.
2. An auditor must be ensured that the credit and allowances have been procured in a systematic manner and are to the advantage of the organizations and members.
3. All the undertakings and accounts are honest and are not inimical to the organization and its regulations.
4. In case of any sharp practice or deviations in the organization’s accounts, the auditor should give an account of it to the top level with actual proof, if lacking, he can have the penalty for up to Rs.25 lakhs for the inaccuracy in judgment.
5. The auditor should not render services such as banking services, investment advisory internal audits or bookkeeping, and so on, to the enterprise wherein he takes on the place of ‘Auditor’ of annual record of statements.
6. He/she shall adhere to the auditing regulations and standards.
7. If the auditor, executive secretary, or the accountants fall short to conform to the standards, they shall be penalized with a charge that varies from Rs 1 lakh to Rs 25 lakhs.
8. The auditor must practice rights to ingress to all accounts in all subdivisions if needed.
9. He/she must ensure to have all the necessary details and facts, and have reinforcements for the same, in verified copies.
The Act stipulates various crucial duties for auditors and at the same time renders accountability and the part of the auditors present as per the regulations and rules mentioned by the Act.
Removal of Auditor
- The Companies Act, 2013 stipulates the regulations for the withdrawal, modifications, or removal of the auditor prior to the fulfilment of his term. This occurs in those situations where the company is not content with the serviceability of the auditor. The course of action of the removal of the auditor is stated in the sub-section (1) of Section 140 of the Act.
- Prior to being replaced or removed by the organization, the auditor receives a just and rational opportunity of stipulating causes for his unsuitable comportment.
- If the auditor is being removed prior to the accomplishment of his tenure, and acceptance from the central government is required prior to proceeding a proposition by the organization.
- The request application to the Central Government must be accomplished in the document of ADT-2 as stated in Rule 7 of the Companies (Audit & Auditors) Rules, 2014. A required fee mentioned under Section 12 of the Companies (Registration Offices and Fee) Rules, 2014 requires to be presented along with this document.
- The request application must be accomplished within thirty days of the proposition delivered and passed by the board.
- The organization can take on a general meeting within 60 days of voucher of the acceptance of the Central Government for proceeding the auditor selection proposition.
To employ an auditor for any organization, there is a requirement to have a vivid recapitulation of the parts to be played and duties of an auditor. The regulations linked to selection, reappointment, and change/removal of the auditor are particular aspects that are required to assess prior to declaring the recruitment.
Eligibility and Ineligibility of Auditors
A certified Chartered Accountant is assigned as Auditor of the Company. Where an organization is assigned as an auditor of a firm, only the associates who are chartered accountants shall be permitted to take action and indicate on behalf of the firm.
A person will not be considered eligible from being selected as an auditor if he is happening to appear under the following:
- An office-bearer or member of staff of the organization.
- If the head is linked to that individual or is in the business of the organization’s head.
- An individual who is an associate, or who is in business, of an office bearer or a member of staff of an organization.
- An individual who has been accused by a court of crime including fraud and a term of ten years has not concluded from the date of such judgment.
- An individual who is in full-time business elsewhere or an individual or an associate of the organization taking on a selection as its auditor, if such an association is taking on the appointment as auditor of more than 20 organizations as on such date of selection.
- Any individual whose division or subordinate organization or any other type of body, is involved as on the date of selection in conferring and broad services. etc.
Remuneration of Auditor
The payment of the Auditor shall be concluded by the partners at a general conference except for the payment of the first auditor whose remuneration shall be concluded by the Board.
The Power of Auditor
Holding Companies Auditors has the power to ingress to the accounts of all subordinate organizations so far it links to the integration of its financial records with that of its subdivisions.
An audit is crucial as it renders trustworthiness to an assortment of financial records and delivers the stockholders assurance that the records are honest and just. It can also aid to develop an organization’s central domination and framework. The Comptroller and Auditor General of India which is mentioned under Article 148 of the Constitution of India that audits all revenues and disbursement of the Government of India and the state governments, involving those of entities and powers significantly funded by the government. The current CAG of India is Rajiv Mehrishi.
Audits reassure the holder about the functioning of the employment business and the working of its diverse divisions. The audit aids in the search and stoppage of discrepancies and wrong practices. It assists in keeping the accounts and validation of the books of accounts. The autonomous judgement of the auditor is known through auditing which is significantly crucial for the administration of the organization. The audit creates moral monitoring on the employees of the organization so that they become enlightened of not perpetrating any deformities. This makes employees more vigorous and accountable.
- “THE COMPTROLLER AND AUDITOR-GENERAL’S (DUTIES, POWERS AND CONDITIONS OF SERVICE) ACT, 1971”. CAG India. Retrieved 7 September 2018.
- Practical Auditing, Kul Narsingh Shrestha, 2012, Nabin Prakashan, Nepal
Student, Chanakya National Law University Patna
Nitisha Bhardwaj is a writer, speaker, and researcher. She has an affinity for International Aviation and Corporate Law. She is a creative thinker and seeks for balance. For any Clarifications, feedback, and suggestion, you can reach her at Nitishabhardwaj1@gmail.com