Sunday, August 18, 2013

Auditors and Audit provisions as per new Companies Bill 2012


on Sunday, August 18, 2013

PROVISION OF AUDIT AND AUDITORS AS PER NEW COMPANIES BILLS PASSED BY PARLIAMENT 

Appointment of auditors:Every company shall, at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting and
thereafter till the conclusion of every sixth meeting.

Compulsory rotation :Provisions for compulsory rotation of individual auditors in every five years and of audit firm every 10 years in the listed company & certain other class of companies, as may be prescribed.

A transition period of 3 years from the commencement of this Act has been prescribed for the Company existing on or before the commencement of this Act to comply with the provision of the rotation of auditor.

The members of a company can resolve for rotation of auditing partner and also for audit to be conducted by more than auditor. (Clause 139)

Where a company constitutes an Audit Committee, all appointments including the filling of a casual vacancy of an auditor shall be made after taking into account the recommendations of Audit Committee.

Appointment is done once for 5 years

  • Ratification done every year
  • confusion between “ratification” and “reappointment” taken as these two expressions to mean the same
  • Mandatory retirement after 5 years in case of individual and 10 years in case of firms
  •  no auditor/audit firm/ audit firms having common partners, shall take audit for a consecutive term of 5 years after 5 years have been completed 
  • Provision applicable to all listed companies, and companies of such class as may be prescribed

No of audit limit :A person at the time of appointment or reappointment holding appointment as auditor of more than twenty companies shall not be eligible for appointment. (Clause 141 (3) (g))

In case, LLP is appointed as auditor only chartered Accountants is allowed to act and sign on behalf of the firm. Clause 141(2) Multidisciplinary partnership is allowed. Proviso to Clause 141(1)

Fraud reporting- A duty has been casted on the auditor, to immediately report to the central government, any offence involving fraud which is being or has been committed against the company by officers or employees of the company, which he believes to be committed during the course of performance of his duties as an auditor.

The Auditor shall also comply with auditing standards. The Central Government will prescribe the standards of auditing or any addendum thereto, as recommended by the ICAI, in consultation with and after examination of the recommendations made by the NFRA. (Clause 143)

Auditor shall attend AGM : The Auditor unless otherwise exempted by the company shall attend any general meeting by himself or through his representative. (Clause 146)

Auditors not to provide non-audit services (Clause 144)
Auditor of the company shall not provide services as per list given below tp
  • the company, holding company, or subsidiary directly or indirectly
  • indirectly includes through relative, connected or associated person, or other entity over which individual has significant influence or control, or whose name or trade mark or brand is used by the individual Clause 147
Following services not to be provided
  •  accounting and book keeping services;
  •  internal audit;
  •  design and implementation of any financial information system;
  •  actuarial services;
  •  investment advisory services;
  •  investment banking services;
  •  rendering of outsourced financial services;
  •  management services; and
  •  any other kind of services as may be prescribed

Punishment to auditors : In case the auditor contravenes the provisions related to his powers & duties, provide services given under Clause 144 then in addition to punishment provided in the section, he shall be required to refund the remuneration received by him from the company and shall be liable to pay the damages to the company or to any person for the loss arising out of misleading or incorrect information.

It is specifically provided that partner or partners of the audit firm and the firm shall be jointly and severally responsible for the liability, whether civil or criminal as provided in this Act or in any other law for the time being in force.

If it is proved that the partner or partners of the audit firm has or have acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to or by, the company or its directors or officers, and they shall also be punishable in the manner provided in Clause 447.

Cost Audit (Clause 148)

Instead of company pertaining to any class of companies engaged in production, processing, manufacturing or mining activities, the central government can only direct cost audit to be conducted in such class of companies engaged in the production of such goods or providing such services , which have the prescribed net worth or turnover and who has been directed to include the particulars relating to the utilization of material or labour or to other items of cost as may be prescribed in their books of account .

No approval is required of central government for the appointment of cost auditor to conduct the cost audit

Internal auditor  (Clause 138)

Certain Class of companies are required to appoint an internal auditor to conduct internal audit of the books of company. Internal Auditor shall be a Chartered Accountant or Cost Accountant or such other professional as may be decided by Board. (Clause 138)

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