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NORTHERN INDIA REGIONAL COUNCIL NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ACCOUNTANTS OF INDIA PRACTICAL ASPECTS IN PRACTICAL ASPECTS IN APPOINTMENT & REMOVAL APPOINTMENT & REMOVAL OF AUDITORS OF AUDITORS Vinod Jain, FCA, FCS, FCWA, Vinod Jain, FCA, FCS, FCWA, LLB, DISA LLB, DISA Former Central Council Member, Former Central Council Member, ICAI ICAI Mobile: 98110 40004 Mobile: 98110 40004 E mail: E mail:

NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

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Page 1: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

NORTHERN INDIA REGIONAL COUNCILNORTHERN INDIA REGIONAL COUNCIL of

THE INSTITUTE OF CHARTERED THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIAACCOUNTANTS OF INDIA

PRACTICAL ASPECTS IN PRACTICAL ASPECTS IN APPOINTMENT & REMOVAL APPOINTMENT & REMOVAL

OF AUDITORSOF AUDITORSVinod Jain, FCA, FCS, FCWA, LLB, DISAVinod Jain, FCA, FCS, FCWA, LLB, DISA

Former Central Council Member, ICAIFormer Central Council Member, ICAI

Mobile: 98110 40004Mobile: 98110 40004

E mail: [email protected] mail: [email protected]

Page 2: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

AUDITOR

First AuditorSubsequent

Auditor

Special Auditor

Branch Auditor

Cost Auditor

Auditor appointed by Central Govt.

Auditor of GovernmentCompanies

Page 3: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

Appointed by BOD within 1 month of registration of the Appointed by BOD within 1 month of registration of the company. company. `̀ Sec 224(5)Sec 224(5)

If BOD fails to appoint,the company may appoint at a If BOD fails to appoint,the company may appoint at a General Meeting.General Meeting.

Holds office until the conclusion of first AGM.Holds office until the conclusion of first AGM.

Members at any GM may remove such auditor and appoint Members at any GM may remove such auditor and appoint another one in his place,of whose nomination special another one in his place,of whose nomination special notice has been given.notice has been given.

Proviso to section 224(5Proviso to section 224(5))

Appointment of first auditors through the MOA &AOA -Appointment of first auditors through the MOA &AOA -not a valid appointment.not a valid appointment.

Appointment & Removal of First Auditor

Page 4: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

Appointed at each AGM to hold office until the conclusion of Appointed at each AGM to hold office until the conclusion of next AGM.next AGM.

Sec 224(1)Sec 224(1)

Intimation to the auditor within 7 days.Intimation to the auditor within 7 days.

Auditor to file form 23B to ROC within 30 days. Auditor to file form 23B to ROC within 30 days. Sec 224(1A)Sec 224(1A)

Appointment of auditor is mandatory in the AGM for the Appointment of auditor is mandatory in the AGM for the ensuing year.ensuing year.

ICAI v.J Saikia.ICAI v.J Saikia.

Appointment of Subsequent Auditors

Page 5: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

Tenure of Auditor is not for a particular Tenure of Auditor is not for a particular year or financial year.year or financial year.

Tenure-From one AGM to another AGM.Tenure-From one AGM to another AGM.

If AGM not held- will continue up to the If AGM not held- will continue up to the factual conclusion of the AGM.factual conclusion of the AGM.

Tenure of Auditor

Page 6: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

Obligatory on every company to appoint an Obligatory on every company to appoint an Auditor i.e. Auditor i.e. STATUTORY AUDITORSTATUTORY AUDITOR

The Auditor, if Individual, should be a Chartered The Auditor, if Individual, should be a Chartered Accountant.Accountant.

In case of Firm of Auditors,every Partner should In case of Firm of Auditors,every Partner should be qualified for appointment as an Auditor in the be qualified for appointment as an Auditor in the Firm’s name.Firm’s name.

Statutory auditor can not be internal auditor. Statutory auditor can not be internal auditor. DCA-Circular No.5/77[1/1/76-CL-V]dated 8-4-1977DCA-Circular No.5/77[1/1/76-CL-V]dated 8-4-1977

Appointment of Auditor

Page 7: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

Who can not be appointed as Auditor?Section 226(3)

A Body CorporateA Body Corporate

An Officer or Employee of the CompanyAn Officer or Employee of the Company

A Person who is a Partner,or in the employment,of an A Person who is a Partner,or in the employment,of an Officer or Employee of the Company.Officer or Employee of the Company.

A Person who is indebted to the Company for an A Person who is indebted to the Company for an amount exceeding Rs.1000.amount exceeding Rs.1000.

A Person holding any security of that Company after a A Person holding any security of that Company after a period of one year from the date of commencement of period of one year from the date of commencement of the Companies Amendment Act 2000.the Companies Amendment Act 2000.

Page 8: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

Restrictions Should not be in ‘FULL TIME EMPLOYMENT’Should not be in ‘FULL TIME EMPLOYMENT’

Auditor of max 20 Companies – only 10 can be Big Auditor of max 20 Companies – only 10 can be Big CompaniesCompanies

Big Companies - paid up capital of or exceeding 25 Big Companies - paid up capital of or exceeding 25 lacslacs

In a Firm of Auditors, the limit of 20 Companies is In a Firm of Auditors, the limit of 20 Companies is per Partner.per Partner.

As per Companies(Amendment)Act,2000, Private As per Companies(Amendment)Act,2000, Private Companies will not be taken into account for Companies will not be taken into account for counting the limit of 20 Companies.counting the limit of 20 Companies.

Page 9: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

Joint audit assignments - to be counted as one Joint audit assignments - to be counted as one

company.company.

Branch Audits – not includedBranch Audits – not included

DCA-Circular No.21 of 75 dated 24-9-1975DCA-Circular No.21 of 75 dated 24-9-1975

Guarantee companies having no share capital – also Guarantee companies having no share capital – also

excludedexcluded

DCA-Letter No.8/12/(224)/74-CL-V dated28-9-1974DCA-Letter No.8/12/(224)/74-CL-V dated28-9-1974

Foreign companies audit - not included Foreign companies audit - not included

DCA-Circular No.21 of 75 dated 24-9-1975DCA-Circular No.21 of 75 dated 24-9-1975

Page 10: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

Re-appointment of Retiring Auditors- Sec 224(2)

Normally, retiring Auditor is appointed for the next year.Normally, retiring Auditor is appointed for the next year.

He shall be re-appointed unless:He shall be re-appointed unless:

he is not qualified for re-appointment.he is not qualified for re-appointment.

he has given the Company notice of his unwillingness to be re-he has given the Company notice of his unwillingness to be re-appointed.appointed.

a resolution has been passed at that meeting appointing a resolution has been passed at that meeting appointing somebody instead of him or expressly providing that he shall not somebody instead of him or expressly providing that he shall not be re-appointed.be re-appointed.

notice has been given of an intended resolution to appoint some notice has been given of an intended resolution to appoint some other person but the resolution can not be proceeded with.other person but the resolution can not be proceeded with.

Page 11: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

‘‘AA retiring Auditor shall re-appointed except in retiring Auditor shall re-appointed except in

four types of cases referred in 224(2)’. But the four types of cases referred in 224(2)’. But the

passing of resolution is essential for the re-passing of resolution is essential for the re-

appointment of the retiring Auditor.appointment of the retiring Auditor.

Circular No.5/72,dated 21-2-1972Circular No.5/72,dated 21-2-1972

Page 12: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

Removal of Auditor Special notice required - Special notice required - Section 225(1)Section 225(1)

Auditor can be removed before expiry of his term by Auditor can be removed before expiry of his term by Company in GM after previous approval of Central Company in GM after previous approval of Central Govt Govt (powers delegated to Regional Director)(powers delegated to Regional Director)..

Section 224(5)Section 224(5)

Approval of Central Govt. not required for removal Approval of Central Govt. not required for removal of First Auditor.of First Auditor.

Prior approval of Central govt. require before Prior approval of Central govt. require before actually removing an Auditor. Though resolution for actually removing an Auditor. Though resolution for removal can be passed before.removal can be passed before.

Page 13: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

Filling up of Casual Vacancy

BOD may fill any casual vacancy. BOD may fill any casual vacancy. Sec 224(6)(a)Sec 224(6)(a)

Vacancy caused by resignation - filled by the Vacancy caused by resignation - filled by the company in GM.company in GM.

Such Auditor holds office till conclusion of next Such Auditor holds office till conclusion of next AGM. AGM. Sec 224(6)(b)Sec 224(6)(b)

A casual vacancy is not a vacancy created by a A casual vacancy is not a vacancy created by a deliberate omission on the part of the company to deliberate omission on the part of the company to appoint an auditor at its AGM.appoint an auditor at its AGM.

ICAI Vs.J.SakiaICAI Vs.J.Sakia

Where an auditor refuses to accept appointment or re-Where an auditor refuses to accept appointment or re-appointment – not resignation.appointment – not resignation.

Page 14: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

If one of the two joint Auditors resigns before the If one of the two joint Auditors resigns before the completion of the tenure - Casual Vacancy completion of the tenure - Casual Vacancy

If there is a complete change in the constitution of If there is a complete change in the constitution of the firm of Auditors i.e. all the earlier partners the firm of Auditors i.e. all the earlier partners retire and new partners joins - Casual Vacancy.retire and new partners joins - Casual Vacancy.

Page 15: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

Appointment of Auditor by Central Government

If no Auditor appointed at an AGM- Central Govt. If no Auditor appointed at an AGM- Central Govt. may appoint. may appoint. Sec 224(3)Sec 224(3)

Company to give notice to Central Govt within 7 days Company to give notice to Central Govt within 7 days after AGM that no auditor has been appointed.after AGM that no auditor has been appointed.

Sec 224(4)Sec 224(4)

Delay in giving such notice does not affect the Delay in giving such notice does not affect the

jurisdiction of the Central Govt. jurisdiction of the Central Govt.

Powers of Central Govt. - Delegated to Regional Powers of Central Govt. - Delegated to Regional Director.Director.

Page 16: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

Appointment of Auditor by Special Resolution -Sec 224A

Where not less than 25% of subscribed share capital is held byWhere not less than 25% of subscribed share capital is held by-Public Financial Institution/ Govt.Company/ Central Govt./ -Public Financial Institution/ Govt.Company/ Central Govt./ State Govt.State Govt.-any institution established under State/ Provincial Act in -any institution established under State/ Provincial Act in

which State Govt.holds not less than 51% of subscribed which State Govt.holds not less than 51% of subscribed share capital.share capital.

-Nationalised bank/ Insurance company.-Nationalised bank/ Insurance company.

DCA has clarified that the above three clauses are not DCA has clarified that the above three clauses are not mutually exclusive. It would apply to all cases of mutually exclusive. It would apply to all cases of

shareholding in any combinationshareholding in any combination.. DCA-Circular No.14 of 2001 dated 16-07-2001DCA-Circular No.14 of 2001 dated 16-07-2001

Page 17: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

Material date for 25% holding of subscribed share Material date for 25% holding of subscribed share capital - date of AGM at which Special Resolution is to capital - date of AGM at which Special Resolution is to be passed and not the date of notice of meeting.be passed and not the date of notice of meeting.

DCA-Circular No.2/76[1/1/76-CL-V] dated 5-6-1976DCA-Circular No.2/76[1/1/76-CL-V] dated 5-6-1976

Irrespective of the circumstances in which a nationalized Irrespective of the circumstances in which a nationalized bank is holding shares,if the name of the bank is entered bank is holding shares,if the name of the bank is entered in the register of members of the company,such holding in the register of members of the company,such holding of shares will have to be taken into account for the of shares will have to be taken into account for the purposes of sec 224A.purposes of sec 224A.

DCA-Circular No.18/74 dated 12-12-1974DCA-Circular No.18/74 dated 12-12-1974

Page 18: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

Auditor of Government Companies(Sec 619)

Appointed or re-appointed by the

C&AG

Submits a copy of report to C&AG

Page 19: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

Branch Auditor- Section 228

May be the Company’s Auditor or some other May be the Company’s Auditor or some other person qualified to be appointed as Auditor.person qualified to be appointed as Auditor.

Where Branch Auditor is different from Where Branch Auditor is different from Company’s Auditor, he is appointed by the Company’s Auditor, he is appointed by the Company in GM or BOD are authorised to appoint Company in GM or BOD are authorised to appoint him in consultation with Company’s Auditor.him in consultation with Company’s Auditor.

Same powers as Company’s Auditor.Same powers as Company’s Auditor.

Forwards his report to the Central Govt.Forwards his report to the Central Govt.

Page 20: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

COST AUDITOR(Sec 233B)

Appointed by the BOD with previous Approval of Central Government

Same powers & duties as that of Statutory Auditor

Submits report to Central Govt.& the Company

Statutory Auditor can not be appointed as Cost Auditor

Page 21: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

Special Auditor(Sec 233A)

Central Govt.may either Appoint C.A. or

Company’s Auditor

Same powers as Company’s Auditor

Makes his report to Central Govt.

Page 22: NORTHERN INDIA REGIONAL COUNCIL THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA NORTHERN INDIA REGIONAL COUNCIL of THE INSTITUTE OF CHARTERED ACCOUNTANTS

THANK YOU…THANK YOU…