Qualification and Disqualification of a Company Auditor

Qualification and Disqualification of a Company Auditor

Tags: Auditing | Company Audit | Company Auditor | Qulification of a Company Auditor | Disqualification of a Company Auditor | Audit of Joint Stock Company |

Company Auditor

Auditing, as we know is not compulsory for all types of organizations, it is compulsory for some of the organisations only. In a joint stock company, auditing and report thereon is also compulsory at the end of every financial year. All the auditors whether for an ordinary organizations or the joint stock company are required to be a member of ICAI. The single difference is in their appointment procedure, however, in case of internal audit, managers and other employees of the organization may carry an audit process.

An auditor is appointed to protect the interest of shareholders and he is supposed to provide safeguard to them. His appointment is made by Board of Director or by shareholders at Annual General Meeting (AGM). Any person, who fulfills minimum qualification laid down by the company, may be appointed as an auditor. However he must be a member of ICAI.

Qualification of a Company Auditor

According to section 226(I &II) of Companies Act 1956, prescribed qualification of an auditor is as under;

(i)                 A person shall not be qualified for appointment as company auditor unless he is a CA (Chartered Accountant) within the meaning of the Institute of Chartered Accountants of India. A certificate of qualification is required thereon. A Certificate of Practice (CoP) is also required in this regard.

(ii)               A person, who holds a certificate under the restricted auditor’s certificate as per PART B rules 1956, is also qualified to act as an auditor. This type of auditor is known as Certificate or Certified Auditor.

Disqualification of Company Auditor:

According to the section 226(iii) following persons are not qualified for appointment as a Company Auditor;

(i)                 A body corporate: A body corporate is an association of persons having a legal existence, but no physical and natural existence. A body corporate has a limited liability.

(ii)               An officer or employee of the company: A person appointed as a manager or an officer of the company cannot become an auditor. The act does not prevent an auditor of a company to head over any other assignment. Therefore, an auditor can render his services to the company in matters relating to taxation, finance, management, accountancy or other related services.

(iii)             A person who is a partner or who is in employment of an officer or employee of the company.

(iv)              A person holding any security of the company after a period of one year from the date of commencement i.e. an instrument which carries voting right, there is no minimum amount fixed for holding the security and therefore a small security holder shall become disqualified appointment as company auditor.

(v)                If he is disqualified for appointment under any of the four clauses;

(a)   Companies subsidiary

(b)   Holding company

(c)    Subsidiary of its holding company

(d)   Disqualified if the body corporate were a company.

If an auditor becomes subject after his appointment to any of the disqualification specified above, he shall be deemed to be vacated his office as per sec 226(5).