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Advanced Auditing

Notes with such terms, the auditor recovers his fees on a progressive basis, he cannot be said to
be indebted to the company at any stage.
(b) A question of indebtedness may also be raised where an auditor of a company purchases
goods or services from the company audited by him. In such a case, if the amount
outstanding exceeds 1,000, irrespective of the nature of the purchase or period of credit
allowed to other customers, the provisions concerning disqualification of auditors as
contained in Section 226(3)(d) will be attracted.

(c) Another question which arises for consideration is whether a partner is disqualified from
appointment as auditor when the firm of which he is a partner is indebted to the company
in excess of the limit prescribed and whether the firm is disqualified from appointment as
auditor when a partner of the firm is indebted in excess of the prescribed limit. In both
cases disqualification will apply because when a firm is appointed as an auditor, each
partner is deemed to be so appointed and when a firm is indebted each partner is deemed
to be indebted.
(d) There may also be situations in which, though the appointment is made in the individual
name of a partner, the work is in fact carried out by the firm and the fees are credited to the
account of the firm. In such situations, the firm will be deemed to be acting as auditor and
the disqualification will be attracted in the case of indebtedness either of firm or a partner.

Section 226(3) has been amended by the Companies (Amendment) Act, 2000 whereby a person
holding any security carrying voting rights after a period of one year from December 13, 2000
shall be disqualified from being appointed as auditor of the company. The aim of the provision
is to curb possible insider trading on the part of auditors.

9.1.2 Difference between Partnership Audits and Company Audits

Before we take up the preliminaries before commencement of the audit of a company and the
audit of share capital and divisible profits etc. let us understand the difference between the
partnership audit and company audit.

The difference between the two types of audit is as follows:
Table 9.1: Difference between Company Audit and Partnership Audit

Company Audit Partnership Audit

It is legally compulsory for every limited It is not necessary for a firm to get its
company to get its accounts audited every accounts audited
year.

The purpose is to satisfy the information It is mainly to avoid differences or
needs of the shareholders of the company disputes amongst the partners.
on whose behalf audit is conducted.
The Act defines the qualifications, The firm may have its own decision in
disqualifications, duties, powers and the appointment of auditor, and in
process of appointment of auditor, His determining his qualification, duties and
statutory powers cannot be limited or powers.
taken away by directors or shareholders
The audit fee for the year must be shown It is not essential for the firm to disclose
in the Profit and Loss Account of the the amount of audit fee paid to auditors.
company
Contd....
The Act guides the auditor in respect of The auditor has to refer to the different
the principles and processes of accounting clauses of the Partnership Deed with
to be followed by the company and the regard to the responsibility for
form of reporting to be adopted by him. maintaining accounts, methods of
150 LOVELY PROFESSIONAL UNIVERSITY profit-sharing ratio of
accounting,

partners, terms of borrowing and the
type of audit reporting relevant to the
nature of the assignment.
It is statutory responsibility of a specified The responsibility of the auditor is
and definite nature flexible; he gets clear instructions from
the firm with regard to the nature and
extent of his work.

The audit assignment is only for The audit assignment may include
verification of books of account and for preparing books of account as well.
and for auditor's report thereon