Page 58 - DCOM204_AUDITING_THEORY

Auditing Theory

Notes

Notes Apart from the disqualifications laid down in Section 226, the Institute of Chartered
Accountants of India has prepared its own code of ethics which is mandatory for its
members.
In order to ensure independence of the auditors and also to prevent conflict of interest and duty,
the Council has decided not to permit a Chartered Accountant in employment to certify the
financial statements of the concern in which he is employed, or of a concern under the same
management as the concern in which he is employed, even though he is holding a certificate of
practice and even though such certification can be done by any chartered accountant in practice.
This restriction does not apply where the certification is permitted by any law. Further, it has
also been decided that a chartered accountant should not by himself or in his firm name:–
1. Accept the auditorship of a college, if he is working as a part-time lecturer in the college.
2. Accept the auditorship of a trust where his partner is either an employee or a trustee of the
trust.

4.1 Qualifications and Disqualifications of Auditors [Section 226]

Only individual, possessing the requisite knowledge and skill, can be appointed as auditor of
the company. The auditor should be independent in carrying out his work so that he is able to
give an unbiased opinion based on an objective assessment of facts. Thus, he should have no
interest, financial or otherwise and whether directly or indirectly, in the company and/or its
management.
A person, who is Chartered Accountant within the meaning of Chartered Accountants Act, 1949
and holds a certificate of practice, or a partnership firm where of all the partners are Chartered
Accountants holding certificates of practice, may be appointed as auditor of a company. However,
in the latter case, the appointment as an auditor may be made in the firm name and any of its
partners may act in the name of the firm.
The following persons cannot be appointed as auditor of a company:
1. An officer or employee of the company;

2. A person who is partner with an employee of the company or employee of an employee
of the company;
3. Any person who is indebted to a company for a sum exceeding ` 1,000/- or who have
guaranteed to the company on behalf of another person for a sum exceeding ` 1,000/-.
4. A person who is holding any security of that company, after a period of one year from the
date of commencement of Companies (Amendment) Act, 2000.

!
Caution If an auditor, after his appointment, becomes subject to any disqualification
mentioned above, he shall be deemed to have vacated as such.

Central Government Act Section 226 in the Companies Act, 1956

1. A person shall not be qualified for appointment as auditor of a company unless he is a
Chartered Accountant within the meaning of the Chartered Accountants Act, 1949 (48 of
1949 )

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