Chapter X - Sec 139 to sec 148 of companies act 2013 - audit and auditors - appointment, qualification, disqualification, powers and duties of auditors explained here - casual vacancy - rotation of auditors

1. COMPANY AUDIT AND
COMPANY AUDITOR
SECTION 139 TO SECTION 148

2. APPOINTMENT OF AUDITORS AT
AGM (FIRST AGM AND THE
SUBSEQUENT AGMS)
SECTION 139(1)

3. APPLICABILITY
• The provision of section 139 1 is applicable to all companies except
1. Government companies
2. Any other company owned or controlled, directly or indirectly, by CG or SG or
partly by CG or partly by SG

4. APPOINTMENT AND REAPPOINTMENT OF
AUDITOR TILL 6TH AGM
• At first AGM – every company shall appoint an individual or firm as an auditor
• He will hold office from the conclusion of first AGM till the conclusion of sixth
AGM
• After first AGM, when any appointment of auditor is made at any AGM, such AGM
will be counted as the first AGM and the auditor will hold office till the conclusion
of 6th AGM from that AGM
• As per the latest amendment by companies amendment act 2017 there is no
requirement for ratifying the appointment of auditor

5. MANNER AND PROCEDURE OF SELECTION OF
AUDITOR - RULE 3
• While appointment, qualification and experience of auditor shall be considered by
board or audit committee
• Board & audit committee shall have due regard to order or proceedings for any
professional misconduct pending or passed against the proposed auditor
• make call for such other information from the proposed auditor as it may deem
fit
• If audit committee is not applicable then board shall consider and recommend an
individual or firm as auditor to the members in the AGM for appointment

6. In case the company is required to constitute the audit committee, following procedure shall be
adopted
• Audit committee shall recommend the name of auditor to board for consideration
• if board agrees it shall further recommend it to members in the AGM
• If board disagrees then it shall refer back to audit committee for reconsideration stating reasons
for such disagreement
• If audit committee refuses to reconsider and Board continues to disagree then what shall record
reasons for its disagreement with the committee and send its own recommendation for
consideration of the members in the AGM
• if audit committee refuses to reconsider and board agrees with the committee then it will
recommend the same auditor to members in AGM
MANNER AND PROCEDURE OF SELECTION OF
AUDITOR - RULE 3

7. CERTIFICATE AND CONSENT BY AUDITOR AND NOTICE
OF APPOINTMENT BY COMPANY – PROVISO TO
SECTION 139
• Certificate and consent to be given by auditor
• Before any appointment auditor shall furnish to the company is written consent and a certificate that appointment if made shall be in accordance
with conditions as may be prescribed and auditor satisfies the criteria provided in section 141
• Conditions prescribed for appointment and notice to register (rule 4)
• proposed auditor shall submit a certificate that it individual or form is eligible for appointment and not disqualified under companies act, CA act or
other regulations
• Appointment is as per the term provided under the act
• Appointment is within limits lay down by or under authorities of act
• List of proceedings against auditor pending with respect to professional misconduct as disclosed in the certificate is true and correct
• Notification of appointment to be given by company
• company shall inform auditor of their appointment and file a notice of such appointment with the registrar within 15 days from the date of
appointment (ADT 1)

8. REAPPOINTMENT OF RETIRING AUDITOR
SECTION 139 (9) & 139 (10)
• Reappointment of retiring auditor
• Retiring auditor may be reappointed at an AGM if he is not disqualified
• He has not given notice office unwillingness to be reappointed
• Special resolution not passed at meeting for appointing some other auditor for
providing expressly that the auditor cannot be reappointed
• No auditor is appointed at AGM
• existing auditor shall continue to be the auditor

9. ROTATION OF AUDITORS
SECTION 139(2) & 139 (4)

10. APPLICABILITY OF ROTATION OF AUDITORS
• Listed company
• Such class of companies as may be prescribed
1. Unlisted public companies having paid up share capital of rupees 10 crore or
more
2. All private limited companies having paid up share capital of rupees 50 crore or
more
3. All companies having public borrowings, public deposits of rupees 50 crore or
more
• The section not applicable to one person company or small company

11. MANNER OF ROTATION OF AUDITORS
• In case of individual as an auditor
• Not be appointed of more than one term for five consecutive years
• In case of a firm as an auditor
• Not be appointed for more than two terms of 5 consecutive years (10 years)

12. OTHER PROVISIONS RELATING TO ROTATION OF
AUDITORS
• If a firm has common partner to another firm whose tenure has expired, when both
the farms shall not be reappointed as the auditor of the same company for a period of
5 yrs
• Right of company to remove the auditor before the expiry of the term or right of
auditor to resign from the company as an auditor before expiry of the term shall not
be affected due to any provision contained in this section
• Members of a company resolve to provide that the auditing partner and his team be
rotated at such intervals in the audit firm appointed by it and the audit shall be
conducted by more than one auditor
• CG may prescribe rules for the manner of rotation of auditors

13. RULE 6 – MANNER OF ROTATION OF AUDITORS BY
THE COMPANIES ON EXPIRY OF THEIR TERM
• If company is required to constitute audit committee then procedure shall be:
1. The audit committee will recommend to the board the name of auditor to replace existing auditor
2. Board shall consider the recommendations of audit committee
3. What shall make its own recommendation to members in AGM
• if company is not required to constitute audit committee then procedure shall be:
1. Board shall consider the matter of rotation and make its own recommendation for appointment of next auditor to
members in AGM
• The incoming auditor not eligible for appointment if it is associated with outgoing auditor under the same network of audit
firms
• Break for a continuous period of 5 years is considered for rotation
• if a partner retires from outgoing firm and joins into the firm then such from shall also be ineligible to be appointed as auditor

14. APPOINTMENT OF FIRST AUDITOR
SECTION 139(6) AND 139(7)
• Government company
• Appointment by CAG within 60 days of incorporation
• If CAG fails board will a point within next 30 days
• If board says members will appoint within next 60 days at an EGM
• Other than government company
• Board will appoint within 30 days of incorporation
• If board fails members will appoint within 90 days at EGM
• first auditor will hold office till the conclusion of first AGM

15. APPOINTMENT OF SUBSEQUENT AUDITOR IN CASE
OF A GOVERNMENT COMPANY
• Applicable to government companies and other companies owned or controlled
directly or indirectly by CG or SG are partly by both
• Appointment and reappointment of auditor
• CAG will appoint auditor within 180 days from the commencement of the
financial year
• Such auditor hold office till the conclusion of the AGM

16. CASUAL VACANCY
• In case of company which is audited by CAG
• Casual vacancy filled with 30 days by CAG
• If fails board will appoint within next 30 days
• Any other company
• Casual vacancy filled within 30 days by board
• In case of vacancy due to resignation of auditor it shall be filled within 30 days by board and
shall be approved in a General meeting convened within 3 months of the recommendation by
board
• Auditor appointed to fill casual vacancy shall hold office till the conclusion of next AGM

17. REMOVAL, RESIGNATION OF
AUDITOR AND GIVING OF
SPECIAL NOTICE
SECTION 140

18. REMOVAL OF AUDITOR BEFORE EXPIRY OF HIS
TERM
• Removal requires special resolution
• Procedure
• Board shall pass resolution with respect to removal
• Board applied to CG within 30 days of passing resolution in form ADT 2
• Company hold General meeting within 60 days of receipt of approval from CG for
passing special resolution
• Before taking any action auditor shall be given a reasonable opportunity of being
heard

19. RESIGNATION OF AUDITOR
• If auditor wants to resign, he is required to file a statement in the prescribed
form
• The Statement shall include reasons and other facts with respect to resignation
• Statement filed with the company, register, CAG in case of government
company
• Statement shall be filed within 30 days from the date of resignation
• Fine for non filing
• Minimum rupees 50000 remuneration of auditor whichever is less
• Maximum rupees 500000

20. SPECIAL NOTICE FOR NOT REAPPOINTING THE
RETIRING AUDITOR
• Requirement of special notice
• At AGM, Special notice is required for appointing other than retiring person as auditor
for providing expressly that retiring auditor cannot be reappointed
• special notice is not required if a retiring auditor has completed consecutive tenure of
5 years or 10 years
• On receipt of notice of such resolution, a copy should be sent to the retiring auditor
• The retiring auditor is entitled to make representation in writing against his removal
and shall send to the company and request company to circulate the representation
to the members of the company

21. • Duties of company with respect to representation
• Companies and state the factor that retiring auditor has made a representation against his
removal in any notice of resolution given to members and a copy of representation to every
members to whom notice of meeting is sent
• If copy cannot be sent as because of delay then it should be read at the meeting and a copy
be filed with the registrar
• position where the right to make representation is abused by the auditor
• If the right to make representation is abused by the auditor then the tribunal may order, on
application made by the company on agreed person, copy of representation in not be sent or
without any meeting
SPECIAL NOTICE FOR NOT REAPPOINTING THE
RETIRING AUDITOR

22. POWER OF TRIBUNAL TO ORDER CHANGE OF
AUDITOR
• The tribunal on his own motion or an application made by CG to it, main order for
direct the company to change this order if it is satisfied that the auditor of the
company has indirectly or directly acted in a fraudulent manner or abetted or
colluded in any fraud or in relation to company or directors or officers
• If application is made by CG, the tribunal order the company that he should not
function as auditor Within 15 days from the date of order and the CG may appoint
another auditor
• in case of such order by tribunal then auditor shall not be eligible for appointment as
auditor for a period of 5 years from the date of order and auditor shall also be liable
for action under section 447
• In case of an audit firm, the liability shall be on both the firm and the auditors

23. ELIGIBILITY, QUALIFICATIONS AND
DISQUALIFICATIONS OF
AUDITORS
SECTION 141

24. ELIGIBILITY FOR APPOINTMENT AS AN AUDITOR
• An individual shall be appointed as an auditor only if he is a chartered
accountant in practice
• A firm shall be eligible for appointment only if the majority of the partners are
practicing in India
• Where a firm for LLP is an auditor, only partners who are chartered accountants
are authorised to sign and the act on behalf of the firm

25. DISQUALIFICATIONS OF AUDITOR
• Body corporate other than LLP
• Officer or employee of company
• Partner or employee of an officer or employee of company
• A person himself or his relative or his partner is holding any security in the company or
subsidiary or holding or associate forever face value exceeds rupees 100000
• A person himself or relative or partner has inductor to the company in excess of rupees 5 lacs to
the company or subsidiary or is holding or associate
• Person himself or his relative of partner given guarantee provided any security to company for a
sum of more than 100000 to the company or subsidiary or holding aur associate company

26. DISQUALIFICATIONS OF AUDITOR
• Person or firm directly or indirectly has business relationship of such nature as as may be prescribed
with company or its subsidiary or holding or associate
1. Business relationship – any transaction accept commercial transactions in nature of professional
services under companies act or chartered accountants act Or commercial transactions in the
ordinary course of business at arm’s length price
• Person whose relatives the director for in employment of company as a director or KMP
• Person who is in full time employment elsewhere
• Person who is already auditing more than 20 companies
• persons involved in offence involving fraud and period of penis has not lapsed from the date of
conviction
• person directly or indirectly renders any service under section 144 of the act

27. ADDITIONAL POINTS WITH RESPECT TO
QUALIFICATION
• If auditor purchase on credit, goods of company worth more than 5 lacs then he
shall be indebted to the company and he should be kept the office even if the
credit period allowed is same as to the other customers in the ordinary course of
business
• if an auditor course fees from company on progressive places key cannot be said
to be indebted by the company
• Anita can accept a maximum of 30 audit including the audit of private limited
companies

28. REMUNERATION OF AUDITORS
SECTION 142
• Remuneration shall be fixed in the AGM or in such manner as decided in AGM
• In case the first auditor appointed by the board then remuneration of first auditor
will be fixed by the board
• Remuneration includes
• Reimbursement of expenses done by the auditor
• Any facility extended to the auditor
• But not include any remuneration paid to him for any other services rendered by
him at the request of the company

29. • Right to access books of accounts
• Auditors access all the books including vouchers and other records relating to
financial information whether kept at registered office or any other place at all
times
• for consideration purposes auditor has right to access the records of subsidiaries
also
• right to require information
• Aaditya cell enquire from office search information and explanations necessary
for the performance of his duties
POWERS AND DUTIES OF THE AUDITOR
SECTION 143

30. • Duty to make enquiry
• Whether loans and advances given by company or properly secured anda terms or prejudicial
the interest of the company & its members
• Transactions represented nearly by book entries are pre judicial to the interest of the company
• Whether company has sold assets at less price then they purchased (not for investment and
banking company)
• Whether loans and advances given by company as shown as deposits
• Whether personal expenses are charged to revenue account
• In case of shares allotted for cash whether cash has been actually received by the company, if
not whether financial statement show correct and not misleading
POWERS AND DUTIES OF THE AUDITOR
SECTION 143

31. • Duty to make report
• Auditor shall make report to the company on accounts examined by him and
statement slide before the members at General meeting
• Auditor shall give a report that whether accounts examined by him and financial
statements so true and fair view of state of affairs of the company profit and loss of
the company cash flows of the company
• shall state any other medicine prescribed in his report
• Auditor salary per reports after taking into account provisions of this act and
accounting standard and auditing standards
POWERS AND DUTIES OF THE AUDITOR
SECTION 143

32. • Report on principal assertions
• Whether he has sought and obtained on information and explanations necessary and is not effect of such information on financial statements
• Whether proper books of accounts as required by law has been kept under proper returns for his audit has been received from branches not
by him
• Whether reports on accounts and manner of preparing such reports are sent by branch auditor to him
• Companies balance sheet and profit and loss are in agreement with the books of accounts
• Financial statements comply with accounting standards
• observations or comments have adverse effect on functioning of company
• Any director has been disqualified
• Qualifications, reservation summer advanced mark maintenance of accounts
• Whether company’s rnternal Financial control are adequate
POWERS AND DUTIES OF THE AUDITOR
SECTION 143

33. POWERS AND DUTIES OF AUDITOR
SECTION 143
• Other matters to be included auditors report
• company has any pending litigation and disclosed the same
• Provisions made by company for any material foreseeable losses on long term contracts
including derivative contracts
• Any delay in transferring amount to investor education and protection fund by the company
• Reasons to be given
• Where any matters required to be included in auditors report is answered in negative or with a
qualification, reports shall state the reasons thereof
• The audit report shall include a statement on such matters prescribed by CG (CARO
report) S.143(11)

34. SPECIAL PROVISIONS WITH RESPECT TO
GOVERNMENT COMPANIES – SEC.143(5),(6)&(7)
Directions by CAG to the auditor
• CAG shall direct the auditor the manner in which the accounts of government
company needs to be audited
• Auditor shall submit the copy of audit report to CAG
• audit report should contain any directions issued by CAG and actions taken
thereon and its impact on accounts and financial statements

35. Right of CAG to conduct supplementary audit
• CAG within 60 days of receipt of audit report has following rights:
• CG may order conduct of supplementary audit by such person authorised by CAG
obtain such information required for supplementary audit
• CG may comment upon the audit report on a supplement the report and such
comment shall be sent by the company to every person entitled to copies of
financial statements and placed before members in AGM
Test Audit
• CAG may, by order, cause test audit to be conducted of accounts of government
company
SPECIAL PROVISIONS WITH RESPECT TO
GOVERNMENT COMPANIES – SEC.143(5),(6)&(7)

36. BRANCH AUDIT
SECTION 143 (8)
• Account of any branch office in India shall be audited by companies auditor or any
other qualified person for appointment of auditor
• account of any branch office outside India shall be audited by the company auditor or
any other person qualified to be an auditor under the laws of that country
• Duties and powers of companies auditor with reference to plants and plants or detail
sheltie as such prescribed in (1) to (4) of the sectionunder provisions regarding
reporting of fraud by auditor shall also x 10 to the branch auditor as it relates to
concerned branch
• branch auditor shall prepare a report on account of branch and send it to the
company’s auditor

37. AUDITOR TO COMPLY WITH AUDITING STANDARDS
SECTION 143 (9) & (10)
• Every auditors shall comply with auditing standards
Stages in prescribing auditing standards
• ICAI requirement standards on auditing
• NFRA examines and also makes its recommendations
• CG examines the recommendations by NFRA may prescribe, after consultation
with NFRA, the auditing standards
• Until any auditing standards notified, the standard specified by ICAI will be
deemed to be auditing standards

39. AUDITOR NOT TO RENDER CERTAIN SERVICES
SECTION 144
1. Accounting and bookkeeping services
2. Internal audit
3. Design and implementation of any financial information system
4. Actuarial services
5. Investment advisory services
6. Investment banking services
7. Rendering of outsourced Financial services
8. Management services
9. Any other services as may be prescribed