CLEAR AUDIT WITH SK
Company Audit
138. Internal Audit.
139. Appointment of auditors.
140. Removal, resignation of auditor and giving of special notice.
141. Eligibility, qualifications and disqualifications of auditors.
142. Remuneration of auditors.
143. Powers and duties of auditors and auditing standards.
144. Auditor not to render certain services.
145. Auditors to sign audit reports, etc.
146. Auditors to attend general meeting.
147. Punishment for contravention.
148. Central Government to specify audit of items of cost in respect of certain companies
Sec 139: Appointment of Auditors
Appointment of Appointment of
First Auditor Subsequent Auditor
Other Than a Govt Co Goverment Company Other Than a Govt Co Goverment Company
defined u/s 2 (45) defined u/s 2 (45)
[Sec 139(6)] [Sec 139(1)] [Section 139(7)]
[Section 139(7)]
Appointment by Appointment by Appointment by
Appointment by
C&AG within 60 days Members in AGM C&AG within 180 days
BOD within 30 days
from DOR from commencement
from DOR (Note 1)
of the year
Hold office from 1st
In case of failure: Hold office till
In case of failure: AGM till 6th AGM
conclusion of AGM
BOD within 30 days subject to conditions
Members in EGM
within 90 days
In case of failure:
Hold office till Members in EGM
conclusion of 1st AGM within 60 days
Hold office till
conclusion of 1st AGM
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Note 1:
Written consent of auditor & certificate that appointment is as per prescribed conditions to be obtained by Co.
Certificate should indicate that auditor satisfies criteria u/s 141 (yaad aaya?)
Co. inform auditor of appointment & file notice of appointment with ROC within 15 days of AGM
1. Managing Director of PQR Ltd. himself wants to appoint Shri Ganpati, a practicing Chartered Accountant, as
first auditor of the company. Comment on the proposed action of the Managing Director.
Section 139(6) of the Companies Act, 2013 lays down that “the first auditor or auditors of a company shall be appointed
by the Board of directors within 30 days from the date of registration of the company”. In the instant case, the
proposed appointment of Shri Ganpati, a practicing Chartered Accountant as first auditors by the Managing Director of
PQR Ltd by himself is in violation of Section 139(6) of the Companies Act, 2013, which requires the Board of Directors
to appoint the first auditor of the company.
Conclusion: In view of the above, the Managing Director of PQR Ltd cannot appoint the first auditor of the company.
2. The first auditor of Healthy Wealthy Ltd., a Government company, was appointed by the Board of Directors.
Section 139(6) of the Companies Act, 2013 (the Act) lays down that “the first auditor or auditors of a company shall be
appointed by the Board of directors within 30 days from the date of registration of the company”. Thus, the first
auditor of a company can be appointed by the Board of Directors within 30 days from the date of registration of the
company. However, in the case of a Government Company, the appointment of first auditor is governed by the provisions
of Section 139(7) of the Companies Act, 2013 which states that in the case of a Government company, the first auditor
shall be appointed by C&AG of India within 60 days from date of registration of the company. Hence, in the case of
Healthy Wealthy Ltd., being a government company, the first auditors shall be appointed by the Comptroller and Auditor
General of India.
Conclusion: Thus, the appointment of first auditors made by the Board of Directors of Healthy Wealthy Ltd. is null and
void.
Filling of Casual Vacancy [Sec 139(8)]
i) In case of non govt Co. by BOD within 30 days
If as due to resignation by auditor then BR + OR at GM within 3 months of recommendation of
Board
Hold office upto next AGM
ii) In case of Govt Co. by CG within 30 days
Otherwise BOD within next 30 days
Retiring auditor maybe reappointed at AGM if,
a) Not disqualified
b) Not given notice of unwillingness of reappointment
c) SR hasn’t been passed to appoint some other auditor or expressly provide that he shall not be
reappointed
Sec 139(10) Where at any annual general meeting, no auditor is appointed or re-appointed, the existing
auditor shall continue to be the auditor of the company.
Sec 141: Eligibility, Qualification & Disqualification
Person shall be eligible to be Auditor only if he’s a CA
Firm(including LLP) where majority partners practicing in India appointed by Firm name
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Partners who are CA can act & sign on behalf of firm
Disqualifications of an Auditor [Sec 141(3) read with Rule 10 of Cos.(Audit & Auditor) Rules
2014]
a) Body Corporate (BC) other than LLP
b) Officer or employee of Co.
(Officer includes Director, Mgr, KMP, Shadow Directors)
G, a CA in practice is a director in A Ltd. On combined reading of Section 141(3)(b) and Section 2(59),
it may be concluded that CA G would be disqualified to be appointed as an auditor of A Ltd.
G, a CA in practice is a director in Zed Ltd., holding company of RST Ltd. On combined reading of
Section 141(3)(b) and Section 2(59), it may be concluded that CA. G would be disqualified to be
appointed as an auditor of Zed Ltd. but would not be disqualified in case of RST Ltd.
Note: But as per the Ethical Std Board public conscience should be preferred over legal provisions,
so G can’t also be auditor of RST Ltd (Discussed in Professional Ethics)
c) Person who is partner or employment of officer or employee of Company (4 cases PO/PE/EO/EE)
d) Person/relative/partner (PRP)-
i. Is holding security or interest in CASSH (Co/Associate/Suby/Holding/Subsy of such holding)
Relative may hold security in the Co. of Face value (yaad rakhna) 1 Lakh
If relative (not auditor or partner) acquires interest > 1 lakh then corrective action to
maintain limit within 60 Days of acquisition
Definition of Relative: Members of HUF + Husband wife + Father (including step- father),
Mother (including step- mother), Son (including stepson), Son’s wife, Daughter, Daughter’s
husband, Brother (including step- brother), Sister (including step- sister)
“Mr. Avi”, a practicing Chartered Accountant, is holding securities of “XYZ Ltd.” having face value of `
990/-. Whether Mr. Avi is qualified for appointment as an Auditor of “XYZ Ltd.”?
As per Sec 141(3)(d)(i), a person is disqualified to be appointed as an auditor if he, or his relative or partner
is holding any security of or interest in the company or its subsidiary, or of its holding or associate company
or a subsidiary of such holding company.
In the present case, Mr. Avi. is holding security of ` 900 in XYZ Ltd, therefore, he is not eligible for
appointment as an auditor of “XYZ Ltd”.
“Mr. PK” is a practicing Chartered Accountant and “Mr. Qurashi”, the relative of “Mr. PK”, is holding
securities of “ABC Ltd.” having face value of ` 99,000/-.
Whether “Mr. PK” is Qualified for being appointed as an auditor of “ABC Ltd.”?
As per section 141(3)(d)(i), a person is disqualified to be appointed as an auditor if he, or his relative or
partner is holding any security of or interest in the company or its subsidiary, or of its holding or associate
company or a subsidiary of such holding company. Further, as per proviso to this Section, the relative of the
person may hold the securities or interest in the company of face value not exceeding of ` 1,00,000.
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Company Audit
138. Internal Audit.
139. Appointment of auditors.
140. Removal, resignation of auditor and giving of special notice.
141. Eligibility, qualifications and disqualifications of auditors.
142. Remuneration of auditors.
143. Powers and duties of auditors and auditing standards.
144. Auditor not to render certain services.
145. Auditors to sign audit reports, etc.
146. Auditors to attend general meeting.
147. Punishment for contravention.
148. Central Government to specify audit of items of cost in respect of certain companies
Sec 139: Appointment of Auditors
Appointment of Appointment of
First Auditor Subsequent Auditor
Other Than a Govt Co Goverment Company Other Than a Govt Co Goverment Company
defined u/s 2 (45) defined u/s 2 (45)
[Sec 139(6)] [Sec 139(1)] [Section 139(7)]
[Section 139(7)]
Appointment by Appointment by Appointment by
Appointment by
C&AG within 60 days Members in AGM C&AG within 180 days
BOD within 30 days
from DOR from commencement
from DOR (Note 1)
of the year
Hold office from 1st
In case of failure: Hold office till
In case of failure: AGM till 6th AGM
conclusion of AGM
BOD within 30 days subject to conditions
Members in EGM
within 90 days
In case of failure:
Hold office till Members in EGM
conclusion of 1st AGM within 60 days
Hold office till
conclusion of 1st AGM
1|Clear Audit with SK
, CLEAR AUDIT WITH SK
Note 1:
Written consent of auditor & certificate that appointment is as per prescribed conditions to be obtained by Co.
Certificate should indicate that auditor satisfies criteria u/s 141 (yaad aaya?)
Co. inform auditor of appointment & file notice of appointment with ROC within 15 days of AGM
1. Managing Director of PQR Ltd. himself wants to appoint Shri Ganpati, a practicing Chartered Accountant, as
first auditor of the company. Comment on the proposed action of the Managing Director.
Section 139(6) of the Companies Act, 2013 lays down that “the first auditor or auditors of a company shall be appointed
by the Board of directors within 30 days from the date of registration of the company”. In the instant case, the
proposed appointment of Shri Ganpati, a practicing Chartered Accountant as first auditors by the Managing Director of
PQR Ltd by himself is in violation of Section 139(6) of the Companies Act, 2013, which requires the Board of Directors
to appoint the first auditor of the company.
Conclusion: In view of the above, the Managing Director of PQR Ltd cannot appoint the first auditor of the company.
2. The first auditor of Healthy Wealthy Ltd., a Government company, was appointed by the Board of Directors.
Section 139(6) of the Companies Act, 2013 (the Act) lays down that “the first auditor or auditors of a company shall be
appointed by the Board of directors within 30 days from the date of registration of the company”. Thus, the first
auditor of a company can be appointed by the Board of Directors within 30 days from the date of registration of the
company. However, in the case of a Government Company, the appointment of first auditor is governed by the provisions
of Section 139(7) of the Companies Act, 2013 which states that in the case of a Government company, the first auditor
shall be appointed by C&AG of India within 60 days from date of registration of the company. Hence, in the case of
Healthy Wealthy Ltd., being a government company, the first auditors shall be appointed by the Comptroller and Auditor
General of India.
Conclusion: Thus, the appointment of first auditors made by the Board of Directors of Healthy Wealthy Ltd. is null and
void.
Filling of Casual Vacancy [Sec 139(8)]
i) In case of non govt Co. by BOD within 30 days
If as due to resignation by auditor then BR + OR at GM within 3 months of recommendation of
Board
Hold office upto next AGM
ii) In case of Govt Co. by CG within 30 days
Otherwise BOD within next 30 days
Retiring auditor maybe reappointed at AGM if,
a) Not disqualified
b) Not given notice of unwillingness of reappointment
c) SR hasn’t been passed to appoint some other auditor or expressly provide that he shall not be
reappointed
Sec 139(10) Where at any annual general meeting, no auditor is appointed or re-appointed, the existing
auditor shall continue to be the auditor of the company.
Sec 141: Eligibility, Qualification & Disqualification
Person shall be eligible to be Auditor only if he’s a CA
Firm(including LLP) where majority partners practicing in India appointed by Firm name
2|Clear Audit with SK
, CLEAR AUDIT WITH SK
Partners who are CA can act & sign on behalf of firm
Disqualifications of an Auditor [Sec 141(3) read with Rule 10 of Cos.(Audit & Auditor) Rules
2014]
a) Body Corporate (BC) other than LLP
b) Officer or employee of Co.
(Officer includes Director, Mgr, KMP, Shadow Directors)
G, a CA in practice is a director in A Ltd. On combined reading of Section 141(3)(b) and Section 2(59),
it may be concluded that CA G would be disqualified to be appointed as an auditor of A Ltd.
G, a CA in practice is a director in Zed Ltd., holding company of RST Ltd. On combined reading of
Section 141(3)(b) and Section 2(59), it may be concluded that CA. G would be disqualified to be
appointed as an auditor of Zed Ltd. but would not be disqualified in case of RST Ltd.
Note: But as per the Ethical Std Board public conscience should be preferred over legal provisions,
so G can’t also be auditor of RST Ltd (Discussed in Professional Ethics)
c) Person who is partner or employment of officer or employee of Company (4 cases PO/PE/EO/EE)
d) Person/relative/partner (PRP)-
i. Is holding security or interest in CASSH (Co/Associate/Suby/Holding/Subsy of such holding)
Relative may hold security in the Co. of Face value (yaad rakhna) 1 Lakh
If relative (not auditor or partner) acquires interest > 1 lakh then corrective action to
maintain limit within 60 Days of acquisition
Definition of Relative: Members of HUF + Husband wife + Father (including step- father),
Mother (including step- mother), Son (including stepson), Son’s wife, Daughter, Daughter’s
husband, Brother (including step- brother), Sister (including step- sister)
“Mr. Avi”, a practicing Chartered Accountant, is holding securities of “XYZ Ltd.” having face value of `
990/-. Whether Mr. Avi is qualified for appointment as an Auditor of “XYZ Ltd.”?
As per Sec 141(3)(d)(i), a person is disqualified to be appointed as an auditor if he, or his relative or partner
is holding any security of or interest in the company or its subsidiary, or of its holding or associate company
or a subsidiary of such holding company.
In the present case, Mr. Avi. is holding security of ` 900 in XYZ Ltd, therefore, he is not eligible for
appointment as an auditor of “XYZ Ltd”.
“Mr. PK” is a practicing Chartered Accountant and “Mr. Qurashi”, the relative of “Mr. PK”, is holding
securities of “ABC Ltd.” having face value of ` 99,000/-.
Whether “Mr. PK” is Qualified for being appointed as an auditor of “ABC Ltd.”?
As per section 141(3)(d)(i), a person is disqualified to be appointed as an auditor if he, or his relative or
partner is holding any security of or interest in the company or its subsidiary, or of its holding or associate
company or a subsidiary of such holding company. Further, as per proviso to this Section, the relative of the
person may hold the securities or interest in the company of face value not exceeding of ` 1,00,000.
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