In this article, we will discuss appointment of an auditor or who are qualified to become an auditor of a company or who can be appointed as a company auditor. We will also discuss the disqualifications of a company auditor.
Who can be appointed as an auditor of a company? What are the disqualifications of an auditor?
Section 226 of the Companies Act, deals with the eligibility of persons for appointment as auditor in a company, be it a private limited company, a public limited company, a Government company or a licensed company.
Appointment of an Auditor / Who can be appointed as an auditor of a company?
(a) Chartered accountant in practice: A person who is a Chartered Accountant and has a certificate of practice. [Section 226(i)]
(b) Partnership firm of Chartered accountants in practice: A partnership firm can be appointed as an auditor of a company if all the partners are Chartered Accountants and they hold certificate of practice. In such case, the appointment may be made in the name of the firm and any partner may act in its name. [Section 226(i)]
(c) Holder of a certificate under the Restricted Auditors certificates (Part B States) Rules, 1956: The person holding certificate under this Rules is also qualified to be an auditor. However, the Central Government may make rules to provide the grant, renewal, suspension or cancellation of such certificates and may prescribe conditions and restrictions for such purposes by notification in the official gazette. [Section 226(2)]
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Disqualification of an Auditor
As per Section 226(3) of the Companies Act, following persons are disqualified for appointment as auditor of a company-
(a) a body corporate,
(b) an officer or employee of the company,
(c) a person who is a partner or an officer or an employee of the company,
(d) a person who has debt to the company for an amount that exceeds one thousand rupees or who has given any guarantee or provided any security in relation to the indebtedness of any third person, to the company for an amount that exceeds one thousand rupees,
(e) a person who holds any security of that company. Here, “security” means any instrument that carries voting rights.
It is further stated in Section 226(4) that a person is not eligible for appointment as auditor of any company, if he is disqualified from working as auditor of that company’s holding company or subsidiary company or any other subsidiary of the same holding company.
Apart from the above provisions of the companies Act, Section 8 of the Chartered Accountant Act 1949 has disqualified a person to become auditor of a company if he,
(a) has not reached the age of 21 years,
(b) has been adjudged as of unsound mind by the competent court,
(c) is an undischarged insolvent,
(d) being a discharged insolvent, has not yet obtained from the Court a certificate stating that his insolvency was caused by misfortune without any misconduct on his part,
(e) has been convicted by a competent Court of an offence that involves an act of moral turpitude,
(f) has been found to have been guilty of conduct which renders him unfit to be a member of the institute.
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