Appointment and qualification of auditors

Every company has to mandatorily appoint statutory auditors for examining the true and fair view of the financial statements and to express an opinion on such financial statements. Apart from statutory auditors, there are other types of auditors to be appointed for monitoring the statutory compliances, risk / fraud management system, internal control system and for reviewing the overall performance of the management and various functions in an organisation. The webinar covers the aspects of provisions relating to appointment of statutory auditors/ internal auditors, qualification and eligibility criteria for appointment, statutory compliances and judicial precedents.

1. Appointment and qualification of A uditors CS Meenakshi Jayaraman

2. Credits and Acknowledgments Sundar Rajan S

3. Legends used in the Presentation Act Companies Act, 2013 AGM Annual General Meeting BOD Board of Directors C&AG Comptroller & Auditor General of India CG Central Government C.H.A.S.S C ompany, its H olding Company, its A ssociate Company, its S ubsidiary Company and S ubsidiary of such holding Company EGM Extra Ordinary General Meeting ICAI Institute of Chartered Accountants of India KMP Key Managerial Personnel LLP  Limited Liability Partnership  RD Regional Director ROC Registrar of Companies Rule Companies (Audit and Auditors) Rules, 2014

4. Presentation Schema

5. Who is an auditor?

6. Types of auditors

7. Audit Committee The following companies shall compulsorily have an audit committee: The Audit Committee shall consist of a minimum of 3 directors   with independent directors forming a majority Majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand, the financial statement

8. Eligibility, qualification and disqualification – Section 141 of the Act Who shall be eligible to become an auditor of a Company?

9. Contd. The following persons are disqualified to become an auditor of a Company:

10. Contd. * Relative may hold security in the Company of face value not exceeding Rs. 1 lakh If the relative holds security of face value exceeding the above limit , corrective action shall be taken by the auditor within 60 days of such acquisition or interest

11. Auditor not to render certain services – Section 144 Following services shall not be rendered by an auditor, whether directly or indirectly , to the Company or its holding or subsidiary Company: In case of auditor being individual , either himself or through his relative or any other person connected or associated with such individual or through any other entity, whatsoever, in which such individual has significant influence or control, or whose name or trade mark or brand is used by such individual Directly or indirectly shall include rendering of services by auditor, In case of auditor being a firm , either itself or through any of its partners or through its parent, subsidiary or associate entity or through any other entity, whatsoever, in which the firm or any partner of the firm has significant influence or control, or whose name/ trade mark/ brand is used by the firm or any of its partners

12. Appointment of First auditors In case of a Government Company: In case of other than Government Company: The first auditors shall hold office until the conclusion of first AGM

13. Appointment of subsequent auditors In case of a Government Company : In case of other than Government Company:

14. Procedure and manner of appointment – Rule 3

15. Contd. The auditor appointed under Rule 3 shall submit a certificate that, T he certificate shall also indicate whether the auditor satisfies the criteria provided in section 141 of the Act

16. Term and rotation of auditors N o audit firm having a common partner or partners to the other audit firm , whose tenure has expired in a Company immediately preceding the financial year , shall be appointed as auditor of the same Company for a period of five years

17. Manner of rotation of auditors – Rule 6

18. Casual vacancy C asual vacancy of an auditor shall be made after taking into account the recommendations of Audit committee where the Company is required to constitute an Audit Committee u/s 177 of the Act

19. Reappointment of retiring auditor Where at any AGM, no auditor is appointed or re-appointed , the existing auditor shall continue to be the auditor of the Company

20. Removal and resignation of auditor – Section 140

21. Appointing an auditor other than a retiring auditor – Section 140(4) The auditor shall require that the representation shall be read out at the meeting , if a copy of the representation is not sent as aforesaid If a copy of representation is not sent as aforesaid, a copy thereof shall be filed with the Registrar

22. Power of Tribunal or CG to appoint auditors – Section 140(5)

23. Appointment of internal auditor The following class of companies shall be required to appoint an internal auditor   : 1. E very listed Company 2. E very unlisted public Company satisfying any of the following conditions: paid up share capital is Rs. 50 crores or more during the preceding FY turnover is Rs. 200 crores or more during the preceding FY   outstanding loans or borrowings from banks or public financial institutions is Rs. 100 Crores or more   outstanding deposits is Rs. 25 Crores or more 3. E very private Company satisfying any of the following conditions : turnover of  Rs. 200 Crores or more during the preceding FY   outstanding loans or borrowings from banks or public financial institutions is Rs. 100 Crores or more at any point of time during the preceding financial year at any point of time during the preceding financial year

24. Contd.

25. Appointment of secretarial auditor – Section 204

26. Appointment of Cost auditor

27. Contd. Table – A: Regulated Sector Telecommunication services Generation, transmission, distribution and supply of electricity Petroleum products  Drugs and pharmaceuticals Fertilisers Sugar and industrial alcohol Table – B: Non-regulated Sector (List is not exhaustive) Machinery and mechanical appliances used in defence, space and atomic energy sectors Turbo jets and turbo propeller Arms and ammunitions Steel Coffee and tea Rubber and allied products Cement Ores and Mineral products Mineral fuels (other than Petroleum), mineral oils, etc Base metals Jute and Jute Products Edible Oil Construction Industry Milk powder Education services, other than such similar services falling under philanthropy or as part of social spend which do not form part of any business Insecticides Production, import and supply or trading of following medical devices, namely: Cardiac stents, Drug eluting stents, Catheters, Intra ocular lenses, Bone cements, Heart valves, Orthopaedic implants, Urethral stents, etc.

28. ROC filing requirements The above filing requirements is only for statutory auditors

29. Judicial Precedents Union of India, Ministry of Corporate Affairs vs. Mukesh Maneklal Choksi – [2019] 101 taxmann.com 98 (NCLT - Mum.)

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