Page 26 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes usually appointed by the directors. Subsequently, except for appointments to fill casual vacancies,
auditors are normally appointed by the shareholders at each annual general meeting by an
ordinary resolution to hold office until the next general meeting by an ordinary resolution to
hold office until the next annual general meeting. In the case of companies in which not less than
51 percent of the paid-up share capital is held by the Central or State Government or by
government-owned companies/corporations or a combination thereof, the auditor is appointed
or reappointed by the Central Government on the advice of the Comptroller and Auditor
General of India. However, in the case of a company in which not less than 25 percent of the
subscribed share capital is held singly or jointly by the Government a prescribed financial
institution, a Government company, a nationalized bank, or an insurance company, the
appointment or reappointment of an auditor at each annual general meeting must be made by
a special resolution that must be passed by not less than 75 percent of the total votes.
Casual vacancies arising other than by the resignation of an auditor are filled by the board. A
vacancy in the office of auditor arising from resignation may be filled only be filled only by the
shareholders in a general meeting. The shareholders at an annual general meeting may pass a
resolution appointing as auditor a person other than the retiring auditor. The intention of
proposing such a resolution must be notified by a shareholder to the company at least 14 clear
days before the date of the meeting. The company, in turn, must give notice of the resolution to
its shareholders within seven days before the date of meeting. This procedures is designated to
avoid the removal of an auditor without providing a reasonable opportunity for all the
shareholders to attend the meeting and vote on the matter.

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Caution Except for the first auditor, no auditor may be removed before the expiration of
the period of appointment without the previous approval of the Government.

In practice, a firm of accountant whose partners all qualify for appointment is usually appointed
as auditors. No officer or employee of the company and no corporate body can be appointed
auditor of the company, no person who is a partner or in the employment of an officer or
employee of the company can be appointed auditor of any company. The term “officer” is
defined by the Companies Act to include the directors, the secretary and management personnel
of the company. The Companies Act sets a limit on the number of company audits that may be
undertaken by an auditor; the ceiling is 20 companies per partner of an audit firm, of which
companies with paid-up shares capital above ` 2.5 million should not number more than ten.
The auditor has the right of access at all times to the accounting and other records of the company,
as well as the right to require from the officers of the company such information and explanation
as the auditor deems necessary for the audit.

Self Assessment

Fill in the blanks:

4. The books of account must be kept at the .......................
5. The ....................... have the right of access to most of the registers, kept at the registered
office of the company.

6. At every annual general meeting of a company, the Board of Directors must lay before the
shareholders financial statements consisting of a ....................... and .......................
7. The period covered by the income statement should not end on a date that is .......................
before the date of the annual general meeting unless the date of the general meeting is
extended by the Registrar of Companies.

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