India Code: Already Registered (2024)

(1) A person shall be eligiblefor appointment as an auditor of a company only if he is a chartered accountant:

Provided that a firm whereof majority of partners practising in India are qualified for appointment asaforesaid may be appointed by its firm name to be auditor of a company.

(2) Where a firm including a limited liability partnership is appointed as an auditor of a company,only the partners who are chartered accountants shall be authorised to act and sign on behalf of the firm.

(3) The following persons shall not be eligible for appointment as an auditor of a company,namely:--

(a) a body corporate other than a limited liability partnership registered under the LimitedLiability Partnership Act, 2008 (6 of 2009);

(b) an officer or employee of the company;

(c) a person who is a partner, or who is in the employment, of an officer or employee of thecompany;

(d) a person who, or his relative or partner--

(i) is holding any security of or interest in the company or its subsidiary, or of its holding orassociate company or a subsidiary of such holding company:

Provided that the relative may hold security or interest in the company of face value notexceeding one thousand rupees or such sum as may be prescribed;

(ii) is indebted to the company, or its subsidiary, or its holding or associate company or asubsidiary of such holding company, in excess of such amount as may be prescribed; or

(iii) has given a guarantee or provided any security in connection with the indebtedness ofany third person to the company, or its subsidiary, or its holding or associate company or asubsidiary of such holding company, for such amount as may be prescribed;

(e) a person or a firm who, whether directly or indirectly, has business relationship with thecompany, or its subsidiary, or its holding or associate company or subsidiary of such holdingcompany or associate company of such nature as may be prescribed;

(f) a person whose relative is a director or is in the employment of the company as a director orkey managerial personnel;

(g) a person who is in full time employment elsewhere or a person or a partner of a firm holdingappointment as its auditor, if such persons or partner is at the date of such appointment orreappointment holding appointment as auditor of more than twenty companies;

(h) a person who has been convicted by a court of an offence involving fraud and a period of tenyears has not elapsed from the date of such conviction;

¹[(i) a person who, directly or indirectly, renders any service referred to in section 144 to thecompany or its holding company or its subsidiary company.

Explanation.-- For the purposes of this clause, the term "directly or indirectly" shall have themeaning assigned to it in the Explanation to section 144.]

(4) Where a person appointed as an auditor of a company incurs any of the disqualificationsmentioned in sub-section (3) after his appointment, he shall vacate his office as such auditor and suchvacation shall be deemed to be a casual vacancy in the office of the auditor.

(1) Notwithstanding anything contained in this Chapter, the Central Government may, by order, in respect ofsuch class of companies engaged in the production of such goods or providing such services as may beprescribed, direct that particulars relating to the utilisation of material or labour or to other items of costas may be prescribed shall also be included in the books of account kept by that class of companies:

Provided that the Central Government shall, before issuing such order in respect of any class ofcompanies regulated under a special Act, consult the regulatory body constituted or established undersuch special Act.

(2) If the Central Government is of the opinion, that it is necessary to do so, it may, by order, directthat the audit of cost records of class of companies, which are covered under sub-section (1) and whichhave a net worth of such amount as may be prescribed or a turnover of such amount as may be prescribed,shall be conducted in the manner specified in the order.

(3) The audit under sub-section (2) shall be conducted by a ¹[cost accountant] who shall be appointedby the Board on such remuneration as may be determined by the members in such manner as may beprescribed:

Provided that no person appointed under section 139 as an auditor of the company shall be appointedfor conducting the audit of cost records:

Provided further that the auditor conducting the cost audit shall comply with the cost auditingstandards.

Explanation.-- For the purposes of this sub-section, the expression cost auditing standards meansuch standards as are issued by the ²[Institute of Cost Accountants of India], constituted under the Costand Works Accountants Act, 1959 (23 of 1959), with the approval of the Central Government.

(4) An audit conducted under this section shall be in addition to the audit conducted under section143.

(5) The qualifications, disqualifications, rights, duties and obligations applicable to auditors under thisChapter shall, so far as may be applicable, apply to a cost auditor appointed under this section and it shallbe the duty of the company to give all assistance and facilities to the cost auditor appointed under thissection for auditing the cost records of the company:

Provided that the report on the audit of cost records shall be submitted by the ³[cost accountant] to theBoard of Directors of the company

(6) A company shall within thirty days from the date of receipt of a copy of the cost audit reportprepared in pursuance of a direction under sub-section (2) furnish the Central Government with suchreport along with full information and explanation on every reservation or qualification contained therein.

(7) If, after considering the cost audit report referred to under this section and the information andexplanation furnished by the company under sub-section (6), the Central Government is of the opinionthat any further information or explanation is necessary, it may call for such further information andexplanation and the company shall furnish the same within such time as may be specified by thatGovernment.

(8) If any default is made in complying with the provisions of this section,

(a) the company and every officer of the company who is in default shall be punishable in themanner as provided in sub-section (1) of section 147;

(b) the cost auditor of the company who is in default shall be punishable in the manner asprovided in sub-sections (2) to (4) of section 147.

(1) The Central Government may, bynotification, make rules for carrying out the provisions of this Act.

(2) Without prejudice to the generality of the provisions of sub-section (1), the Central Governmentmay make rules for all or any of the matters which by this Act are required to be, or may be, prescribed orin respect of which provision is to be or may be made by rules.

(3) Any rule made under sub-section (1) may provide that a contravention thereof shall be punishablewith fine which may extend to five thousand rupees and where the contravention is a continuing one, witha further fine which may extend to five hundred rupees for every day after the first during which suchcontravention continues.

(4) Every rule made under this section and every regulation made by Securities and Exchange Boardunder this Act, shall be laid, as soon as may be after it is made, before each House of Parliament, while itis in session, for a total period of thirty days which may be comprised in one session or in two or moresuccessive sessions, and if, before the expiry of the session immediately following the session or thesuccessive sessions aforesaid, both Houses agree in making any modification in the rule or regulation orboth Houses agree that the rule or regulation should not be made, the rule or regulation shall thereafterhave effect only in such modified form or be of no effect, as the case may be; so, however, that any suchmodification or annulment shall be without prejudice to the validity of anything previously done underthat rule or regulation.

(1) Subject to the provisions of this Chapter, every company shall,at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold officefrom the conclusion of that meeting till the conclusion of its sixth annual general meeting and thereaftertill the conclusion of every sixth meeting and the manner and procedure of selection of auditors by themembers of the company at such meeting shall be such as may be prescribed:

¹* * * * *

Provided further that before such appointment is made, the written consent of the auditor to suchappointment, and a certificate from him or it that the appointment, if made, shall be in accordance withthe conditions as may be prescribed, shall be obtained from the auditor:

Provided also that the certificate shall also indicate whether the auditor satisfies the criteria providedin section 141:

Provided also that the company shall inform the auditor concerned of his or its appointment, and alsofile a notice of such appointment with the Registrar within fifteen days of the meeting in which theauditor is appointed.

Explanation.-- For the purposes of this Chapter, "appointment" includes re-appointment.

(2) No listed company or a company belonging to such class or classes of companies as may beprescribed, shall appoint or re-appoint--

(a) an individual as auditor for more than one term of five consecutive years; and

(b) an audit firm as auditor for more than two terms of five consecutive years:

Provided that--

(i) an individual auditor who has completed his term under clause (a) shall not be eligible forre-appointment as auditor in the same company for five years from the completion of his term;

(ii) an audit firm which has completed its term under clause (b), shall not be eligible for reappointmentas auditor in the same company for five years from the completion of such term:

Provided further that as on the date of appointment no audit firm having a common partner or partnersto the other audit firm, whose tenure has expired in a company immediately preceding the financial year,shall be appointed as auditor of the same company for a period of five years:

²[Provided also that every company, existing on or before the commencement of this Act which isrequired to comply with provisions of this sub-section, shall comply with the requirements of this subsectionwithin three years from the date of commencement of this Act:]

Provided also that, nothing contained in this sub-section shall prejudice the right of the company toremove an auditor or the right of the auditor to resign from such office of the company.

(3) Subject to the provisions of this Act, members of a company may resolve to provide that--

(a) in the audit firm appointed by it, the auditing partner and his team shall be rotated at suchintervals as may be resolved by members; or

(b) the audit shall be conducted by more than one auditor.

(4) The Central Government may, by rules, prescribe the manner in which the companies shall rotatetheir auditors in pursuance of sub-section (2).

Explanation.-- For the purposes of this Chapter, the word "firm" shall include a limited liabilitypartnership incorporated under the Limited Liability Partnership Act, 2008 (6 of 2009).

(5) Notwithstanding anything contained in sub-section (1), in the case of a Government company orany other company owned or controlled, directly or indirectly, by the Central Government, or by anyState Government or Governments, or partly by the Central Government and partly by one or more StateGovernments, the Comptroller and Auditor-General of India shall, in respect of a financial year, appointan auditor duly qualified to be appointed as an auditor of companies under this Act, within a period of onehundred and eighty days from the commencement of the financial year, who shall hold office till theconclusion of the annual general meeting.

(6) Notwithstanding anything contained in sub-section (1), the first auditor of a company, other than aGovernment company, shall be appointed by the Board of Directors within thirty days from the date ofregistration of the company and in the case of failure of the Board to appoint such auditor, it shall informthe members of the company, who shall within ninety days at an extraordinary general meeting appointsuch auditor and such auditor shall hold office till the conclusion of the first annual general meeting.

(7) Notwithstanding anything contained in sub-section (1) or sub-section (5), in the case of aGovernment company or any other company owned or controlled, directly or indirectly, by the CentralGovernment, or by any State Government, or Governments, or partly by the Central Government andpartly by one or more State Governments, the first auditor shall be appointed by the Comptroller andAuditor-General of India within sixty days from the date of registration of the company and in case theComptroller and Auditor-General of India does not appoint such auditor within the said period, the Boardof Directors of the company shall appoint such auditor within the next thirty days; and in the case offailure of the Board to appoint such auditor within the next thirty days, it shall inform the members of thecompany who shall appoint such auditor within the sixty days at an extraordinary general meeting, whoshall hold office till the conclusion of the first annual general meeting.

(8) Any casual vacancy in the office of an auditor shall--

(i) in the case of a company other than a company whose accounts are subject to audit by anauditor appointed by the Comptroller and Auditor-General of India, be filled by the Board ofDirectors within thirty days, but if such casual vacancy is as a result of the resignation of an auditor,such appointment shall also be approved by the company at a general meeting convened within threemonths of the recommendation of the Board and he shall hold the office till the conclusion of the nextannual general meeting;

(ii) in the case of a company whose accounts are subject to audit by an auditor appointed by theComptroller and Auditor-General of India, be filled by the Comptroller and Auditor-General of Indiawithin thirty days:

Provided that in case the Comptroller and Auditor-General of India does not fill the vacancywithin the said period, the Board of Directors shall fill the vacancy within next thirty days.

(9) Subject to the provisions of sub-section (1) and the rules made thereunder, a retiring auditor maybe re-appointed at an annual general meeting, if--

(a) he is not disqualified for re-appointment;

(b) he has not given the company a notice in writing of his unwillingness to be re-appointed; and

(c) a special resolution has not been passed at that meeting appointing some other auditor orproviding expressly that he shall not be re-appointed.

(10) Where at any annual general meeting, no auditor is appointed or re-appointed, the existingauditor shall continue to be the auditor of the company.

(11) Where a company is required to constitute an Audit Committee under section 177, allappointments, including the filling of a casual vacancy of an auditor under this section shall be made aftertaking into account the recommendations of such committee.

(1) Every auditor of a companyshall have a right of access at all times to the books of account and vouchers of the company, whetherkept at the registered office of the company or at any other place and shall be entitled to require from theofficers of the company such information and explanation as he may consider necessary for theperformance of his duties as auditor and amongst other matters inquire into the following matters,namely:--

(a) whether loans and advances made by the company on the basis of security have been properlysecured and whether the terms on which they have been made are prejudicial to the interests of thecompany or its members;

(b) whether transactions of the company which are represented merely by book entries areprejudicial to the interests of the company;

(c) where the company not being an investment company or a banking company, whether somuch of the assets of the company as consist of shares, debentures and other securities have been soldat a price less than that at which they were purchased by the company;

(d) whether loans and advances made by the company have been shown as deposits;

(e) whether personal expenses have been charged to revenue account;

(f) where it is stated in the books and documents of the company that any shares have beenallotted for cash, whether cash has actually been received in respect of such allotment, and if no cashhas actually been so received, whether the position as stated in the account books and the balancesheet is correct, regular and not misleading:

Provided that the auditor of a company which is a holding company shall also have the right of accessto the records of all ²[its subsidiaries and associate companies] in so far as it relates to the consolidation ofits financial statements with that of ¹[its subsidiaries and associate companies.]

(2) The auditor shall make a report to the members of the company on the accounts examined by himand on every financial statements which are required by or under this Act to be laid before the companyin general meeting and the report shall after taking into account the provisions of this Act, the accountingand auditing standards and matters which are required to be included in the audit report under theprovisions of this Act or any rules made thereunder or under any order made under sub-section (11) andto the best of his information and knowledge, the said accounts, financial statements give a true and fairview of the state of the company's affairs as at the end of its financial year and profit or loss and cashflow for the year and such other matters as may be prescribed.

(3) The auditor's report shall also state--

(a) whether he has sought and obtained all the information and explanations which to the best ofhis knowledge and belief were necessary for the purpose of his audit and if not, the details thereof andthe effect of such information on the financial statements;

(b) whether, in his opinion, proper books of account as required by law have been kept by thecompany so far as appears from his examination of those books and proper returns adequate for thepurposes of his audit have been received from branches not visited by him;

(c) whether the report on the accounts of any branch office of the company audited under subsection

(8) by a person other than the company's auditor has been sent to him under the proviso tothat sub-section and the manner in which he has dealt with it in preparing his report;

(d) whether the company's balance sheet and profit and loss account dealt with in the report are inagreement with the books of account and returns;

(e) whether, in his opinion, the financial statements comply with the accounting standards;

(f) the observations or comments of the auditors on financial transactions or matters which haveany adverse effect on the functioning of the company;

(g) whether any director is disqualified from being appointed as a director under sub-section (2)of section 164;

(h) any qualification, reservation or adverse remark relating to the maintenance of accounts andother matters connected therewith;

(i) whether the company has adequate ³[internal financial controls with reference to financialstatements] in place and the operating effectiveness of such controls;

(j) such other matters as may be prescribed.

(4) Where any of the matters required to be included in the audit report under this section is answeredin the negative or with a qualification, the report shall state the reasons therefor.

(5) ⁴[In the case of a Government company or any other company owned or controlled, directly orindirectly, by the Central Government, or by any State Government or Governments, or partly by theCentral Government and partly by one or more State Governments, the Comptroller and Auditor Generalof India shall appoint the auditor under sub-section (5) or sub-section (7) of Section 139 and direct suchauditor the manner in which the accounts of the company are required to be audited and] thereupon theauditor so appointed shall submit a copy of the audit report to the Comptroller and Auditor-General ofIndia which, among other things, include the directions, if any, issued by the Comptroller andAuditor-General of India, the action taken thereon and its impact on the accounts and financial statementof the company.

(6) The Comptroller and Auditor-General of India shall within sixty days from the date of receipt ofthe audit report under sub-section (5) have a right to,--

(a) conduct a supplementary audit of the financial statement of the company by such person orpersons as he may authorise in this behalf; and for the purposes of such audit, require information oradditional information to be furnished to any person or persons, so authorised, on such matters, bysuch person or persons, and in such form, as the Comptroller and Auditor-General of India maydirect; and

(b) comment upon or supplement such audit report:

Provided that any comments given by the Comptroller and Auditor-General of India upon, orsupplement to, the audit report shall be sent by the company to every person entitled to copies ofaudited financial statements under sub section (1) of section 136 and also be placed before the annualgeneral meeting of the company at the same time and in the same manner as the audit report.

(7) Without prejudice to the provisions of this Chapter, the Comptroller and Auditor-General of Indiamay, in case of any company covered under sub-section (5) or sub-section (7) of section 139, if heconsiders necessary, by an order, cause test audit to be conducted of the accounts of such company andthe provisions of section 19A of the Comptroller and Auditor-General's (Duties, Powers and Conditionsof Service) Act, 1971 (56 of 1971), shall apply to the report of such test audit.

(8) Where a company has a branch office, the accounts of that office shall be audited either by theauditor appointed for the company (herein referred to as the company's auditor) under this Act or by anyother person qualified for appointment as an auditor of the company under this Act and appointed as suchunder section 139, or where the branch office is situated in a country outside India, the accounts of thebranch office shall be audited either by the company's auditor or by an accountant or by any other personduly qualified to act as an auditor of the accounts of the branch office in accordance with the laws of thatcountry and the duties and powers of the company's auditor with reference to the audit of the branch andthe branch auditor, if any, shall be such as may be prescribed:

Provided that the branch auditor shall prepare a report on the accounts of the branch examined by himand send it to the auditor of the company who shall deal with it in his report in such manner as heconsiders necessary.

(9) Every auditor shall comply with the auditing standards.

(10) The Central Government may prescribe the standards of auditing or any addendum thereto, asrecommended by the Institute of Chartered Accountants of India, constituted under section 3 of theChartered Accountants Act, 1949 (38 of 1949), in consultation with and after examination of therecommendations made by the National Financial Reporting Authority:

Provided that until any auditing standards are notified, any standard or standards of auditing specifiedby the Institute of Chartered Accountants of India shall be deemed to be the auditing standards.

(11) The Central Government may, in consultation with the National Financial Reporting Authority,by general or special order, direct, in respect of such class or description of companies, as may bespecified in the order, that the auditor's report shall also include a statement on such matters as may bespecified therein.

⁵[Provided that until the National Financial Reporting Authority is constituted under section 132, theCentral Government may hold consultation required under this sub-section with the Committee chairedby an officer of the rank of Joint Secretary or equivalent in the Ministry of Corporate Affairs and theCommittee shall have the representatives from the Institute of Chartered Accountants of India andIndustry Chambers and also special invitees from the National Advisory Committee on AccountingStandards and the office of the Comptroller and Auditor-General.]

⁶[(12) Notwithstanding anything contained in this section, if an auditor of a company, in the course ofthe performance of his duties as auditor, has reason to believe that an offence involving fraud is being orhas been committed against the company by officers or employees of the company, he shall immediatelyreport the matter to the Central Government within such time and in such manner as may be prescribed.

Provided that in case of a fraud involving lesser than the specified amount, the auditor shall report thematter to the audit committee constituted under section 177 or to the Board in other cases within suchtime and in such manner as may be prescribed:

Provided further that the companies, whose auditors have reported frauds under this sub-section to theaudit committee or the Board but not reported to the Central Government, shall disclose the details aboutsuch frauds in the Board's report in such manner as may be prescribed.]

(13) No duty to which an auditor of a company may be subject to shall be regarded as having beencontravened by reason of his reporting the matter referred to in sub-section (12) if it is done in good faith.

(14) The provisions of this section shall mutatis mutandis apply to--

(a) the ⁷[cost accountant] conducting cost audit under section 148; or

(b) the company secretary in practice conducting secretarial audit under section 204.

⁸[(15) If any auditor, cost accountant, or company secretary in practice does not complywith the provisions of sub-section (12), he shall, --

(a) in case of a listed company, be liable to a penalty of five lakh rupees; and

(b) in case of any other company, be liable to a penalty of one lakh rupees.]

(1) The auditor appointedunder section 139 may be removed from his office before the expiry of his term only by a specialresolution of the company, after obtaining the previous approval of the Central Government in that behalfin the prescribed manner:

Provided that before taking any action under this sub-section, the auditor concerned shall be given areasonable opportunity of being heard.

(2) The auditor who has resigned from the company shall file within a period of thirty days from thedate of resignation, a statement in the prescribed form with the company and the Registrar, and in case ofcompanies referred to in sub-section (5) of section 139, the auditor shall also file such statement with theComptroller and Auditor-General of India, indicating the reasons and other facts as may be relevant withregard to his resignation.

¹[(3) If the auditor does not comply with the provisions of sub-section (2), he or it shall be liable to apenalty of fifty thousand rupees or an amount equal to the remuneration of the auditor, whichever is less,and in case of continuing failure, with a further penalty of five hundred rupees for each day after the firstduring which such failure continues, subject to a maximum of ²[two lakh rupees].]

(4) (i) Special notice shall be required for a resolution at an annual general meeting appointing asauditor a person other than a retiring auditor, or providing expressly that a retiring auditor shall not be reappointed,except where the retiring auditor has completed a consecutive tenure of five years or, as thecase may be, ten years, as provided under sub-section (2) of section 139.

(ii) On receipt of notice of such a resolution, the company shall forthwith send a copy thereof to theretiring auditor.

(iii) Where notice is given of such a resolution and the retiring auditor makes with respect theretorepresentation in writing to the company (not exceeding a reasonable length) and requests its notificationto members of the company, the company shall, unless the representation is received by it too late for it todo so,--

(a) in any notice of the resolution given to members of the company, state the fact of therepresentation having been made; and

(b) send a copy of the representation to every member of the company to whom notice of themeeting is sent, whether before or after the receipt of the representation by the company,

and if a copy of the representation is not sent as aforesaid because it was received too late or because ofthe companys default, the auditor may (without prejudice to his right to be heard orally) require that therepresentation shall be read out at the meeting:

Provided that if a copy of representation is not sent as aforesaid, a copy thereof shall be filed with theRegistrar:

Provided further that if the Tribunal is satisfied on an application either of the company or of anyother aggrieved person that the rights conferred by this sub-section are being abused by the auditor, then,the copy of the representation may not be sent and the representation need not be read out at the meeting.

(5) Without prejudice to any action under the provisions of this Act or any other law for the timebeing in force, the Tribunal either suo motu or on an application made to it by the Central Government orby any person concerned, if it is satisfied that the auditor of a company has, whether directly or indirectly,acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or itsdirectors or officers, it may, by order, direct the company to change its auditors:

Provided that if the application is made by the Central Government and the Tribunal is satisfied thatany change of the auditor is required, it shall within fifteen days of receipt of such application, make anorder that he shall not function as an auditor and the Central Government may appoint another auditor inhis place:

Provided further that an auditor, whether individual or firm, against whom final order has been passedby the Tribunal under this section shall not be eligible to be appointed as an auditor of any company for aperiod of five years from the date of passing of the order and the auditor shall also be liable for actionunder section 447.

Explanation I.-- It is hereby clarified that the case of a firm, the liability shall be of the firm and thatof every partner or partners who acted in a fraudulent manner or abetted or colluded in any fraud by, or inrelation to, the company or its director or officers.

Explanation II.-- For the purposes of this Chapter the word "auditor" includes a firm of auditors.