Audit of Companies

Audit of companies in India – rules and
procedure
by :
DR. T.K. JAIN
AFTERSCHO☺OL
centre for social entrepreneurship
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What is audit ?
Examination of accounts and records to ensure

that they are correct and give proper
information
What should be qualification of
auditor ?
As per 226(1) : CA as per CA Act 1949

as per 226(3) he should not be company,
employee of the company, partner of the
company being audited, debtor of the company
being audited for more than Rs. 1000, or a
person holding voting right in that company
First auditor
First auditor is appointed by Directors in 1

month of date of registration of the company.
This auditor works till first AGM, thereafter
AGM will appoint auditor
Number of audits a CA can
undertake?
A CA can undertake maximum 30 audits

(including private companies) in a year
Procedure of appointment of
auditor
Company to inform the CA about it in 7 days,

CA to give consent in 30 days in form no. 23B
How to appoint an auditor ?
Special notice of 14 days, with names of the

auditor to be appointed
a copy of notice has to be sent to members,
directors, retiring auditor etc.
Casual vacancy ?
It can be filled by board of directors.

But when this vacancy is due to resignation,
then only AGM can fill this vacancy.
If there are more than 1 auditor, other auditors
can continue their work on resignation by one
of them.
Remuneration ....
To be fixed by the AGM

in case of govt. Comapanies, appointment is
done by CAG (comptroller and auditor
general) but remuneration is fixed by
shareholders.
Reappointment of auditor ?
Sec. 224 (2) yes, an auditor can be reappointed,

unless, he is unwilling, or unable, or
disqualified, or a resolution has be put for his
removal.
Does appointment of auditor
require special resolution?
No,
but in some cases yes - when govt. /
scheduled banks / insurance companies /
financial institution is holding 25% capital in a
company, the appointment must be by spcial
resolution (otherwise the government will
appoint).
Rights of auditor ?
Sec. 227 ;
he can access accounts
he can obtain information and explanation
attend AGM and be heard
receive remuneration
visit branch offices
Duties of auditor
Sec. 227 :
make audit report
make adequate disclosure,
attend audit committee meeting of directors
give reasons for qualifications
sign the audit report
Audit of branches
When you will set up branches of your
business all over India / world, then you may
appoint one auditor for all the branches or you
may appoint separate auditors for each branch,
but these auditors must be qualified (as per
company law of that country / India). The
branch auditor shall send his report to the main
auditor. The main auditor can visit the branch
also.
Special audit (sec. 233A)
The government can order for spcial audit -

when it thinks that the company is not properly
managed or its affairs need to be examined,
Such auditor will submit his report to the
government covering all the aspects as covered
in sec. 227 + the matters given by the
government
Cost audit 233 B
They undertake verification of cost accounts,

and ensure that cost accounting principles are
followed :
as per sec. 209 (1)d and 224 (1b) such audit is
done by ICWA / qualified cost auditor
cost auditor is appointed by board of directors
(with approval of government in some cases)
Inspection
Inspection is different from audit – it is ordered

under sec. 209A.
Who will order for inspection ?
Registrar
SEBI
other government executives authorised for
this
Why inspection?
To identify correctness of accounts

to ascertain whether statutory auditors have
discharged their duties
to detect miapplication of funds
to detect misuse of funds
Powers of inspectors ?
Powers equal to Civil Court (discovery &

production of books of accounts, summons,
enforcing attendance, inspection of books ,
registers etc. )
has the powers of registrar of companies if
doing as per Sec. 234 (inspection on order of
registrar)
can copy books / mark the books of accounts
Report of inspection
The inspector will report to Registrar of

companies + Ministry of company affairs or
SEBI
Actions on inspection report
Upon receipt of inspection report, following

actions may be taken up : 1. investigation
under sec. 235
special audit u/s 233A
appointment of govt. Directors 408
or other actions
Powers of registrars
Can call for documents (sec. 234, 235)

investigation (by government) as per sec. 239,
237, 247)
Can members (shareholders)
apply to govt for investigation?
As per sec. 235(2) 200 shareholders with

minimum 1/10th of capital can apply for
investigation of a company
if a company doesnt have shares, then 1/5th
members can apply
govt can also order for investigation on special
resolution by company or on order by court
Powers of investigators
They can examine affairs of related companies

ask for production of documents and for oath
seize documents
Report by investigators
Sec. 241 : they will submit report to CLB as

per 235 / court as per 237
Action on default
Wind up : 243
actions as per criminal laws 242
recovery of damages 244
further investigations of other companies (247)
expenses of investigation (245) by govt, to be
recoverable from the convict
employess are protected (sec. 635B)
freezing of voting rights etc. As per sec. 250
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Audit of Companies

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Audit of companies in India – rules and

Examination of accounts and records to ensure

As per 226(1) : CA as per CA Act 1949

First auditor is appointed by Directors in 1

A CA can undertake maximum 30 audits

Company to inform the CA about it in 7 days,

Special notice of 14 days, with names of the

It can be filled by board of directors.

To be fixed by the AGM

Sec. 224 (2) yes, an auditor can be reappointed,

The government can order for spcial audit -

They undertake verification of cost accounts,

Inspection is different from audit – it is ordered

To identify correctness of accounts

Powers equal to Civil Court (discovery &

The inspector will report to Registrar of

Upon receipt of inspection report, following

Can call for documents (sec. 234, 235)

As per sec. 235(2) 200 shareholders with

They can examine affairs of related companies

Sec. 241 : they will submit report to CLB as

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