Company Audit Final
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Transcript of Company Audit Final
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COMPANYCOMPANYAUDITAUDIT
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COMPANY AUDITCOMPANY AUDIT
Appointment of Auditor
Qualifications of Auditor
Disqualifications of Auditor
Remuneration of Auditor
Rights/Powers of Auditor
Duties of Auditor
Audit Report
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APPOINTMENT OF AUDITORAPPOINTMENT OF AUDITOR
Section 224Section 224 of Companies Act, 1956
Appointment by Shareholders only
Board of DirectorsCentral Government
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FIRST AUDITORFIRST AUDITOR
APPOINTMENT OF AUDITORAPPOINTMENT OF AUDITOR
Section 224 (5)Section 224 (5)
Appointed by Board of Directors
WithinONE month from the date of REGISTRATION
Tenure from the DATE of APPOINTMENT till conclusionof FIRST AGM
If Board fails
Appointed by Shareholders in a General Meeting
Removed at General Meeting
Eligible for Reappointment
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APPOINTMENT OF AUDITORAPPOINTMENT OF AUDITOR
SUBSEQUENT AUDITORSSUBSEQUENT AUDITORSSection 224 (1)Section 224 (1)
(1) Company has to appoint Auditor at each AGM(2) Intimation to Auditor within SEVEN of days of his appointment
(3) Auditor has to intimate REGISTRAR OF COMPANIES about
Acceptance or Non-Acceptance within
THIRTY days from receipt of Intimation(4) Auditor holds office from the date of Appointment till
CONCLUSION of AGM
(5) Generally appointment is by an ORDINARY resolution
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APPOINTMENT OF AUDITORAPPOINTMENT OF AUDITOR
(6) Certain cases SPECIAL resolution
Conditions
A company in which not LESS THAN 25% of the subscribed sharecapital is held by
A Public Financial Co. or Govt. Co. or Central or State Govt.
Any financial or other institution established by an Act in which
not Less than 51% of subscribed capital is held by State Govt. Nationalized Bank or Insurance Co. carrying on GeneralInsurance business
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APPOINTMENT OF AUDITORAPPOINTMENT OF AUDITOR
REAPPOINTMENTOF RETIRING AUDITORREAPPOINTMENTOF RETIRING AUDITORSection 224 (2)Section 224 (2)
Retiring Auditor, appointed by any Authority, is eligible for
reappointment at any AGM, except in following circumstances: Retiring auditor not qualified for reappointment
Given notice of his unwillingness for reappointment
Resolution is passed appointing another person as auditor
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APPOINTMENT OF AUDITORAPPOINTMENT OF AUDITOR
APPOINTMENT BY CENTRAL GOVERNMENTAPPOINTMENT BY CENTRAL GOVERNMENT
1. If no auditor is appointed or reappointed at an AGM
2. Section 224 (4) Company should give notice to Central Govt. ofnon-appointment
3. Notice to be given within SEVEN days from the date the powerbecomes exercisable
4. Failure to give notice Co. & every officer in default arepunishable with fine
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APPOINTMENTINCASUAL VACANCYAPPOINTMENTINCASUAL VACANCY
APPOINTMENT OF AUDITORAPPOINTMENT OF AUDITOR
Caused by RESIGNATION
Can be filled ONLY BY COMPANY in General Meeting
Caused by reasons other than resignation
Board of Directors
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QUALIFICATIONS OF AUDITORQUALIFICATIONS OF AUDITOR
Section 226Section 226
1. Only a CHARTERED ACCOUNTANT or a FIRM of CHARTEREDACCOUNTANTS
2. Only a C.A. holding a certificate of practice granted by ICAI canengage themselves in practice of accountancy
3. Only a C.A. in practice can act as an AUDITOR of a co.4. Section 226 (1) A firm whereof all partners practising in India arequalified for appointment
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DISQUALIFICATIONSDISQUALIFICATIONS
Section 226 (3)Section 226 (3)
Persons not qualified to be Auditor of a Company:
i. A Body Corporateii. An Officer or Employee of the company
iii. A person who is a partner of an officer or employee of thecompany, or who is in employment of such officer or employee
iv. A person who is indebted to the company for an amountexceeding Rs.1,000 or who has given any guarantee or providedany security in connection with the indebtness of any third personto the company for an amount exceeding Rs.1,000
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CEILING ON NUMBER OFCEILING ON NUMBER OF
AUDITSAUDITSSection 224 (1B)Section 224 (1B)
1. Firm of C.A.where each partner is not whole-time employer
TWENTY Companiesout of which not more than TEN co.s should have paid-up capitalof Rs.25 Lakh or more
2. An individual C.A. who is in whole-time employment
TWENTY Companiesout of which not more than TEN co.s should have paid-up capitalof Rs.25 Lakh or more
3. An individual C.A. who is not in whole-time employment
Any number of companies
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REMOVALREMOVAL
FIRST AUDITORFIRST AUDITOR Can be removed by the Company at a General Meeting beforeexpiry of his term.
Company can appoint any other person in his place according to theprescribed procedure applicable for appointment of new auditor inplace of retiring auditor
AUDITOR OTHER THANFIRST AUDITORAUDITOR OTHER THANFIRST AUDITOR
Can be removed by the Company at a General Meeting before expiryof his term with the previous approval of Central Govt.
Same procedure as applicable for appointment of new auditor inplace of retiring auditor
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REMUNERATIONREMUNERATION
Section 224 (8)Section 224 (8)
Fixed by the APPOINTINGAUTHORITY
1. Shareholders :
Fixed by Shareholders in AGM
2. Board Of Directors :Fixed in case of First Auditor & in Casual Vacancy
other than resignation3. Central Govt. :
Fixed by Central Govt.
4. Remuneration includes EXPENSES incurred in the course of audit
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5. Remuneration of Retiring Auditor:
If not fixed, same as previous year
6. Other Remuneration :
Separate Remuneration for other services rendered
REMUNERATIONREMUNERATION
7. Disclosure in Accounts:
All amounts paid to the Auditor in any capacity should
be disclosed in P & L A/c under Schedule VI
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RIGHTS/POWERSRIGHTS/POWERS
1. Right to Examine Books, Accounts and Vouchers
2. Right to obtain Information and Explanations
3. Right to visit branch offices
4. Right to Attend General Meeting
Section 227 (1)
Section 231
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RIGHTS/POWERSRIGHTS/POWERS
OTHER RIGHTSOTHER RIGHTS
To receive intimation of appointment
To make written representation when threatened with removal
To seek opinion of an expert, if required
To receive remuneration
To be indemnified against any liability incurred by him indefending himself against any civil or criminal liability
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RIGHTS/POWERSRIGHTS/POWERS
RIGHTOF LIENRIGHTOF LIEN
A lien is the right of one person to satisfy a claim against another byholding the others property as security
If not paid Audit fees, it is possible to have lien on
- Books of accounts and vouchers of the company
- Working papers
NO
LIEN
ON
BOOKS
OF
ACCO
UNTS
Kept at Registered office
Open for inspection by directors, shareholders, officers ofGovt. etc.
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RIGHTS/POWERSRIGHTS/POWERS
RIGHTOF LIENRIGHTOF LIEN
LIENON WORKING PAPERS
Audit Working Papers :
-Various statements & Schedules prepared by the auditor fromthe records & documents of the company
- Property of the auditor
- Can retain them with himself
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DUTIESDUTIES
I . Duty to Report on Accounts
(i) To report whether accounts show TRUE & FAIR view (u/s 227)
(ii) To report whether accounts give required information [u/s 227(2)](iii) To report whether necessary information is obtained [u/s 227(3)]
(iv) To report whether proper books of accounts are kept [u/s 227(3)]
(vi) To report compliance with Accounting Standards
(vii) To give reasons for qualified report
(v) To report whether financial statements are in conformity with law
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DUTIESDUTIES
II . Duty to make enquiries on matters u/s 227 (1A)
(i) Loans & Advances given :
- whether made against security
- whether these terms & conditions do affect interest of companyor shareholders
(ii) Sale of investment :- when sold at cost price
(iii) Loans & Advances as Deposits :
- whether treated as deposits
(iv) Personal Expenses
- whether debited to profit & loss account
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DUTIESDUTIES
(v) Allotment of shares for cash
- whether cash has been actually received or not
III . Duty to Certify Prospectus
Section 56
Disclosure of income, expenditure, assets & liabilities
Certified by the auditor
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DUTIESDUTIES
IV . Duty to Certify Statutory Report
Section 165 StatutoryMeeting
- to be held only by Public Ltd. Co. & not Pvt. Ltd. Co- Meeting of shareholders
- within a period of not less than ONE month & not more thanSIX months from the date of commencement of business
- held only once in the life time of the company
Statutory Report
- to be sent to shareholders at least before 21 days of the meeting
- signed by two directors of whom one should be M.D.
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DUTIESDUTIES
- Particulars of shares allotted
- Class of shares issued
- Money Received
- Money spent on the issue
V . Duty to Certify Solvency Report
- Voluntary liquidation by directors
- solvency report
- verified & certified by company auditor
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DUTIESDUTIES
VI . Duty to Assist Investigator
Appointment of Investigator by Central Govt.
Section 240
Assist such investigator by furnishing records, documents & otherparticulars
If fails
Imprisonment of 6 months
Fine Rs. 2000/-
VII . Duty to Sign Audit Report
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POSITION OF AUDITORPOSITION OF AUDITORNot Employee of CompanyAn Agent of Shareholders
- Appointed by shareholders
- Even appointed by BOD/CG report to Shareholders
AnOfficer of Company
- Power of the Court in winding up to summon persons
- Public Examination of persons guilty of fraud etc.
- Penalty for falsifying books
- Power of the Court to assess damages to Company out misfeasance
- Prosecution of delinquent officers
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JOINT AUDITORSJOINT AUDITORS
Large organizations Smooth conduct & timely completion of work
Separate audit reports by each auditor
Compilation in one audit report
Liabilities/Responsibility Recommendations of ICAI Division of work as far practicable
- Communicated to client
- Liable for portion of work as per agreement
Work not specifically divided
- Some other basis time / sales
- Communicated to client
One final report disagreement separate reports
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BRANCH AUDITORBRANCH AUDITORSection 228(1)
Branch Office in India
Company Auditor or any other person qualified to be appointed
Branch Office outside India
Accountant qualified as per rules of that country
Appointment
- Company in General Meeting
- BOD in consultation with Company Auditor
Report
Report based on work done by him & forward to Co. Auditor
Remuneration Section 228(3)
- Company in General Meeting
- BOD in accordance with decision of Co. in Gen. Meetin
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BRANCH AUDITORBRANCH AUDITOR
Rights & Duties of Statutory Auditor
- Assist in Appointment
- Deal with branch audit report
- Right to visit branch offices
- Right to access accounts/vouchers at branch office
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LIABILITIES OF AN AUDITORLIABILITIES OF AN AUDITOR
To Whom? Appointment by Shareholders Direct Contractual Relationship
Privity of Contract
Auditor Liable to third parties like bankers, tax authorities etc. (?)
Commissioner of Tax Vs. G.M. Dandekar Not liable
USA & UK Liable
Past in India Not liable i.e. No Privy No Liability
Now Liable to all those who rely on his opinion
Liable only when suffer losses
NOTONLY LIABLETOCLIENTS BUT ALSOTOTHIRD PARTIES
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LIABILITIES OF AN AUDITORLIABILITIES OF AN AUDITOR
1)Civil Liability for Negligence
2)Civil Liability under Statute (Misfeasance)
3)Criminal Liability under Companies Act, 1956
4)Liabilities under Income Tax Act, 1961
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CIVIL LIABILITY FORCIVIL LIABILITY FOR
NEGLIGENCENEGLIGENCE Appointed by Shareholders Safeguarding of their interests
Reasonable degree of skill & care
Fails to perform duties liable for losses suffered
Make good loss if financial loss due to his negligence
No loss no liability
Compensatory damage or Action against him
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CIVIL LIABILITY UNDERCIVIL LIABILITY UNDER
STATUTE (MISFEASANCE)STATUTE (MISFEASANCE)
Misfeasance Breach of Trust or Duty imposed by Law
It is a simple procedure under Companies Act, 1956 of bringing
Action against persons who have misapplied or wrongfully
Retained property of the company or are guilty of breach of duty
Liability Make good the loss
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CIVIL LIABILITY UNDERCIVIL LIABILITY UNDER
STATUTE (MISFEASANCE)STATUTE (MISFEASANCE)Misstatements in Prospectus Section 62
Auditor liable Every person
No Liability if proves
Without knowledge
Becoming aware withdrawal in writing
Withdrawal before delivery for registration
Allowed after delivery but before allotment
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CRIMINAL LIABILITY UNDERCRIMINAL LIABILITY UNDER
COMPANIES ACT, 1956COMPANIES ACT, 1956Section 63 Misstatements in Prospectus
Imprisonment upto 2 years
Fine Rs.5000 or both
Section 569 Criminally Liable
With intention to defraud or deceive any person
Destroys, manipulates or alters or
is privy to ______________ of any books, papers or securities or
Makes or
Privy to making fraudulent entries in any register or books
Fine
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CRIMINAL LIABILITY UNDERCRIMINAL LIABILITY UNDER
COMPANIES ACT, 1956COMPANIES ACT, 1956Section 545
Prosecuted if guilty of an offence in relation to the Company
Section 628
Criminally Liable
He makes in any certificate, B/S, prospectus a statement
False, knowing to be false
Omits, knowing it to be material
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LIABILITIES UNDER INCOMELIABILITIES UNDER INCOME
TAX ACT, 1961TAX ACT, 1961Section 288 Convicted in Income Tax Proceedings
Penalized in Income Tax Act
Professional Misconduct
No representing of Assessee for specified period
Section 278 - Liable
Gives or makes to give false info, A/cs, I/T Returns
Rule 12A - Intentionally False Report to I/T Dept.
Rigorous imprisonment upto 7 years or
Fine
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