Page 219 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Corporate Legal Framework

Notes 10.5.4 Qualification of Auditors

Section 226 provides for qualifi cations of auditors. A person who is a Chartered Accountant in

practice is qualified to become an auditor. In other words, he must be a member of the Institute
of Chartered Accountants of India and in practice. However, none of the following persons, even

though qualified as above, can be appointed as auditor of a company: (i) a body corporate; (ii)
an officer or employee of the company (officer includes a director, manager or secretary); (iii) a

person who is a partner or who is in the employment of an officer or employee of the company;
(iv) a person who owes the company more than ` 1,000 or who has guaranteed the repayment
of any debt of more than ` 1,000 due to the company by a third person; (v) a person holding
any security of that company after a period of one year from the date of commencement of the
companies (Amendment) Act, 2000. The term ‘security’ here means an instrument which carries
voting rights; (vi) a person who is disqualified for appointment as auditor of the company’s

subsidiary or holding company, or a subsidiary of its holding company. If an auditor becomes
disqualified in any of the above ways after his appointment as auditor, then he shall be deemed

to have vacated his office as such.
10.5.5 Powers and Duties or Obligations of Auditors
Section 227 enumerates some of the powers of auditors:
(i) Every auditor of a company has right of free and complete access at all times to the books,
accounts and vouchers of the company whether kept at the head office or elsewhere.

(ii) He has also the right to require from the officers of the company such information and
explanation as may be necessary for the performance of his duties as auditor.
(iii) He is entitled to receive notice of and to attend general meetings of the company and be
heard on any part of the business which concerns him as auditor.
Section 227 also imposes some obligations on the auditor. He is to make a report to the members
of the company on the accounts examined by him and on every Balance Sheet and every Profi t
and Loss Account laid before the company in general meeting during his tenure of offi ce. The
report, besides other things necessary in any particular case, must expressly state:
(i) Whether, in his opinion and to the best of his information and according to explanations
given to him, the accounts give the information required by the Act and in the manner so
required.
(ii) Whether the Balance Sheet gives a true and fair view of the company’s affairs as at the end

of the financial year and the Profit and Loss Account gives a true and fair view of the profi t

and loss for its fi nancial year;
(iii) Whether he has obtained all the information and explanations required by him for the
purposes of his audit;
(iv) Whether in his opinion, proper books of accounts as required by law have been kept by
the company and proper returns for the purpose of his audit have been received from the
branches not visited by him.

(v) Whether the company’s Balance Sheet and Profit and Loss Account dealt with by the report
are in agreement with the books of account and returns.
(vi) Whether, in his opinion, the profit and loss account and balance sheet comply with the

accounting standards referred to under s. 211 (3c).
(vii) In thick type or in italics the observations or comments of the auditors which have any
adverse effect on the functioning of the company.

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