Audit & Auditors – Companies Act, 2013 vs. Companies Act, 1956

Prescribes companies of a particular class to appoint an Internal auditor who can be a CA or CWA or of any other professional as may be decided by the Board.

Members of a Company may resolve to rotate the audit partner and his team of an audit firm at periodical intervals  or resolve to conduct audit by more than one auditor.

(a) he is not qualified for re-appointment;

(b) he has given the company notice in writing of his unwillingness to be re-appointed;

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

(d) where notice has been given of an intended resolution to appoint some person or persons in the place of a retiring auditor, and by reason of the death, incapacity or disqualification of that person or of all those persons, as the case may be, the resolution cannot be proceeded with.

An Audit firm or an individual including an LLP to be appointed as an auditor for a period of 5 years, that is to hold office up to the date of the 6^th AGM. Appointment of auditors for 5 yrs shall be subject to ratification by members at every AGM

Auditors could be appointed to hold office only up to the date of the next AGM and could be re-appointed thereafter.

Existing auditor to continue to be the auditor of the company in such a scenario

Provided that if no auditor was appointed/ re-appointed at the AGM, the Central Government could fill up the vacancy.

Casual vacancy to be filled up by the Board within 30 days. If due to resignation, then by the Company in its meeting within 3 months from the date of recommendation of the Board and such auditor to hold office only up to the date of the next AGM

Casual vacancies to be filled up by the Board. If due to resignation, then by members in their meeting. And shall hold such office until the conclusion of the next annual general meeting.

All the appointment of statutory auditors including case of casual vacancy shall be made after considering the recommendations of the Audit Committee in case where the Company is required to constitute an Audit Committee.

Retiring auditor to file a statement with the ROC as well as the Company, within 30 days of resignation, indicating reasons and other facts that may be relevant with regard to his resignation.

The Tribunal may, by order, direct the Company to change its auditors on being satisfied that the auditors has acted in a fraudulent manner or abetted or colluded in any fraud.

Provides for removal of auditors before the expiry of their term only by the company in the general meeting, after obtaining the prior approval of the Central Government.

To inform the fraud to CG which prescribed time and manner and the same shall not be construed as a breach of duty

Where a firm including an LLP is appointed as an auditor of a company, only the partners who are chartered accountants shall be authorized to act and sign on behalf of the firm.

LLP wasn’t treated as a Body corporate for the limited purpose of this section and hence couldn’t be appointed as an Auditor.

Auditor not to directly or indirectly render the following services to the company, it holding company or its subsidiaries, or associate company:

-Accounting and book keeping service.

-Internal audit

-Design or implementation of any financial information system

-Actuarial services.

-Investment advisory services

-Investment banking services

-Rendering of outsourced financial services.

– Management services

-Any other kind of consultancy services.

Provisions relating to restrictions on non-audit services modified to provide that such restrictions shall not apply to associate companies and further to provide for transitional period for complying with such provisions.

Provides that auditor shall, unless otherwise exempted by the Company, attend any general meeting. Either by himself or through his authorized representative who is qualified to be an auditor.

Provides for all notices of and other communication relating general meeting of a company to be forwarded to the auditor. The auditor was thus entitled to but not obliged to attend any general meeting.

Penalties significantly enhanced –

Fine not less than 25000 INR but extendable up to 5 Lakhs.

Imprisonment up to 1 yr and fine in case there is an intention to deceive the company, its shareholders or creditors.

Provisions relating to extent of criminal liability of auditors particularly in case of partners of an audit firm reviewed to bring clarity.

Sec. 147 (3)

Further, to ensure that the liability in respect of damages paid by the auditor, as per the order of the court, is promptly used for payment to affected parties including tax authorities, Central Government has been empowered to specify any statutory body/ authority for such purpose.

Penalties were provided for violation of section 227 (dealing with powers and duties of auditors) and section 229 (dealing with signature of audit report). Meager penalties of fine up to 10,000 INR.

(a) a body corporate other than a LLP,

(b) an officer or employee of the company;

(c) a person who is a partner, or who is in the employment, of an officer or employee of the company;

(d) a person who, or his relative or partner—

(i) is holding any security of or interest in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company: Provided that such person may hold security or interest in the company of face value not exceeding 1000 rupees or such sum as may be prescribed;

(ii) is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of such amount as may be prescribed; or

(iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, for such amount as may be prescribed;

(e) a person or a firm who, whether directly or indirectly, has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company of such nature as may be prescribed; (f) a person whose relative is a director or is in the employment of the company as a director or key managerial personnel;

(g) a person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies;

(h) a person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction;

(i) any person whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialized services as provided in section 144 (mentioned above in S. No 12)