Audit and Auditors Under the Company Act of 2013
Accounts, audit and auditors are covered under sections 138 to 148 of the Company Act of 2013. Continue Reading to learn more!
Izhar Ahmad18 Nov, 2023
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Company Act of 2013: An audit report serves as the official review by auditors regarding the trustworthiness of a company's financial records. These accountants, who may be internal or external, impartially examine whether the preparation of the financial records fits with established standards such as Generally Accepted Accounting Principles (GAAP) or other systems like IFRS and UK laws.
An auditor, a qualified and independent professional, is charged with reviewing the correctness and dependability of a company's financial records in the world of accounting. The word "auditor" is rarely interchangeable with "comptroller."Guidelines Regarding Audit and Auditors Under the Company Act of 2013
In accordance with the Company Act of 2013, all companies are mandated to create an audit report concluding on the 31st of March each year. These financial statements are required to present a truthful and equitable representation of the company's financial status, adhering to the accounting standards specified by the central government under Section 133 of the Companies Act. Additionally, the financial statement of the company must be structured in the manner and style prescribed for its particular category. According to Section 139(1) of the Company Act of 2013 , in conjunction with Rule 3 of the Companies (Audit and Auditors) Rules, 2014, each company is required to appoint an individual or a firm as an auditor during its initial annual general meeting. The appointed auditor will serve from the conclusion of that meeting until the culmination of the company's sixth annual general meeting.Types of Audit Under Companies Act of 2013
The Companies Act of 2013 outlines various types of audits to encompass every facet of corporate operations. These audits include:Internal Audit:
An independent examination of a company's internal controls, business practices, processes, and methods to ensure compliance with relevant laws.Secretarial Audit:
An audit to assess compliance with regulations and laws applicable to companies. The auditor opines on the alignment of systems and processes with the company's size and operations, monitoring adherence to laws, rules, regulations, and guidelines. Mandatory for listed companies, public companies with significant capital or turnover, and certain private companies.Statutory Audit:
Governed by Section 143 of the Company Act of 2013 , this audit ensures that a company's financial statements provide an accurate and fair view, as required by law. Unlike internal audits, statutory audits are obligatory and must be conducted based on specific criteria.Branch Audit:
Auditing of branch office accounts, performed by the company's auditor or another qualified auditor for local branches and involving an additional auditor qualified according to the foreign country's laws for foreign branches. The branch auditor submits a review report to the company's auditor.Cost Audit:
Verification of cost records, including manufacturing cost, labor cost, and overheads. Section 148(3) mandates that only a practicing cost accountant or a firm of cost accountants can be appointed as a cost auditor. The Board of Directors appoints the cost auditor, and the cost audit is conducted concurrently with the audit under Section 143 of the Company Act of 2013. The remuneration of the cost auditor is determined by the shareholders as prescribed.Conditions for Appointment of Auditors
Rule 4 of the Companies (Audit and Auditors) Rules, 2014, referred to as Rule in this chapter, establishes that, according to the second provision of section 139(1), written consent from the auditor is required prior to appointment. The appointed auditor must provide a certificate confirming the following: (a) Eligibility for appointment, and disqualification under the Act, the Chartered Accountants Act, 1949 and related rules or regulations. (b) Compliance with the conditions prescribed by the Act for the proposed appointment. (c) compliance with the restrictions set forth in or under the Act relative to the proposed appointment. (d) Accuracy of the disclosed list of ongoing proceedings against the auditor, audit firm, or any partner of the audit firm related to professional conduct matters.Looking for the Best Commerce Coaching?
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Eligibility and Qualifications of Auditor
In accordance with Section 141(1) and (2) of the Act, the eligibility and qualifications of an auditor are outlined as follows: i.) Only an individual Chartered Accountant or a firm where the majority of partners practicing in India are Chartered Accountants can be an auditor. ii.) When a firm becomes an auditor for a company, only partners who are Chartered Accountants can act and sign on behalf of the firm.Disqualifications of Auditor
As per Section 141(3) of the Act, in conjunction with Rule 10 (Audit and Auditors), the following individuals are ineligible for appointment as an auditor of a company:- A body corporate, excluding LLP.
- An officer or any employee of the company.
- Any partner, officer, employee, or relative of a partner, officer, employee.
- A spouse, relative or partner of a person who has any security or interest in the company, its holding, subsidiary or associate company.
- A person whose relative holds security or interest up to Rs. one lakh face value in the mentioned companies. This condition applies to companies without share capital or other securities, where relevant. If the relative acquires securities exceeding Rs. one lakh, the auditor must take corrective action within 60 days of acquisition.
- A person whose relative or partner is indebted to the company, its subsidiary, its holding, or associate company in excess of rupees five lakh.
- A person or whose relative or partner has provided a guarantee or security exceeding one lakh rupees for the indebtedness of a third person to the company, its subsidiary, its holding, or associate company.
- A person or a company having a “business relationship” either directly or indirectly with the company, its subsidiary, its holding company, or its associate company.
Audit and Auditors FAQs
What is the difference between an audit and an auditor?
Audit is the examination of financial information, while an auditor is the professional conducting the examination.
What is the role of audit and auditors?
Audit ensures the accuracy of financial information; auditors verify and validate financial records to ensure compliance and reliability.
What are the four types of auditors?
Internal auditors, external auditors, government auditors, and forensic auditors.
Who is called as an auditor?
An auditor is a qualified professional responsible for evaluating and validating a company's financial statements.
What is rule 4 of auditor?
Rule 4 specifies that written consent must be obtained from the auditor before the appointment.
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