Ask Our Expert!

Vital Component of Appointment of Auditor

remuneration of auditors

Appointment of Auditor is the necessary process in the company. This blog will give you the best of the relevant information to make your company more stiff with leading platforms. 

Running a company is a significant responsibility as there are many compliance rules, regulations, and tax laws that all corporations need to satisfy. An integral part of maintaining such compliance depends on the role of the statutory auditor in a company. The role of a statutory auditor in a company is quite significant as they help ensure accuracy, efficiency, and maximum productivity. 

Additionally, the Companies Act, 2013 has clearly defined auditors’ certain roles, rights and responsibilities, and power. So, what exactly is the statutory auditor’s role in a company? Here’s a look at everything you need to know about an auditor’s power, role, and responsibilities as per India’s company laws.

Every type of business structure is required to do the audit on a day-to-day basis or a quarterly basis or a monthly basis or a half-year or yearly basis. The audit is required to be carried out in the corporate to know the financial stability and to verify the Annual Accounts, Compliance, risk management policy, and other laws applicable to the Company.

The role of a statutory auditor, in general, is no walk in the park. Having been regarded as a certified professional, the auditor has placed himself, responsibilities to regulators and the public, and the duties that go with it. Without powers, it will be challenging for a statutory auditor to perform his duties fairly and thus can be held liable for any loss or damage that the company might have to suffer.

Powers of a Statutory Auditor

  1. Right to access books of accounts of the company:

The Auditor has the right to inspect the Books of Accounts, and vouchers of the Company, or the subsidiary company whether kept at the Head Office or any other place. The books of accounts include all books which are usually financial books or statutory books or statistical books or inventory books or costing records etc. The right to access books of account and records maintained at a registered office as well as at any branches of the Company.

  1. Right to obtain information and explanation from Officers:

The auditor can obtain information and explanation from the officers of the Company whenever he may consider necessary. The auditor would not be able to obtain details from the directors or any other officer of the company which he cannot be able to find from observing the books, then he shall mention in a report that he doesn’t receive any adequate information from the company.

  1. Right to attend the General Meeting of the company:

The statutory Auditors have the right to attend all the General Meetings of the Company whether the accounts audited by them are going to discuss or not in that meeting. The Auditor of the company shall also be entitled to receive all the notices and to be heard at any general meetings. He may attend it himself or through his authorized representative, who is also qualified to be a statutory auditor. The auditor shall always attend the meeting to bring to the notice of the shareholders any matter or discrepancy which has come to his knowledge during an audit.

Duties of the Statutory Auditor

Section 143 of the Companies Act, 2013 defines the duties of the statutory in a simplified manner, although the list given is not exhaustive.

  1. Prepare audit report:
  • An audit report, in simple terms, is a formal written opinion on a business's financial position. The statutory auditor is responsible for preparing a statutory audit report based on the financial statements of the company. 
  • He must ensure that the books of accounts and the financial statements comply with the relevant provisions of the Companies Act 2013, relevant Accounting Standards, etc and that the company's financial statements provide a true and fair view of the company’s financial position.
  • Where the auditor feels that the statements do not provide a true and fair view of the financial position of the company, he empowers to form an adverse opinion on the same.
  • Moreover, where the auditor finds that he is dissatisfied with the information provided, then he is also entitled to form a disclaimer of opinion. A disclaimer of opinion indicates that due to insufficient information available, the financial status of the entity or company cannot be determined.
  1. Make inquiries:

One of the auditor’s important duties is to make inquiries into the affairs of the company, as he considers necessary. Some of the inquiries include: -

  • Whether loans and advances made based on security are properly secured and the terms relating to prejudicial to the interests of the company or its members 
  • Whether any personal expenses (expenses not related to the business) are charged to the Revenue Account
  • Where loans and advances are made by the company, they are shown as deposits.
  •  Whether the financial statements comply with the relevant accounting standards 
  • Whether transactions are represented merely by book entries, which are prejudicial to the interests of the member or company
  • whether the assets of the company such as shares, debentures, and other securities are sold at a price less than at which they were purchased by the company.
  1. Reporting of fraud

Section 143(12) of the Companies Act, 2013 empowers the Auditor to report suspicious matters to the Central Government, the auditor may have certain suspicions concerning fraud that’s taking place in the affairs of the company While performing his duties.  

  1. Sign audit reports of the company

The person appointed as statutory auditor of the company is required to sign the audit report of the company and certify the documents of the company following the provisions of section 141(2). The observations, qualifications, and any adverse remark on the financial statement or matters of the company which has any adverse effect on the affairs of the company.

  1. Comply with the Code of ethics and professional conduct:

The statutory auditor, being a professional, must comply with the Code of Ethics and Professional Conduct. Part of this involves confidentiality, integrity, and due care in the performance of his duties as auditor of the company. In simple words, the auditor must have a questioning mind and must be alert to possible errors and fraud in the financial statements.

  1. Assistance in an investigation:

In the case when the affairs of the company are being investigated, the auditor has to assist the officers as required for the same. Therefore, it can be seen that the duties of the statutory auditor are pretty diverse, it has an all-round and far-reaching effect. The level of assurance and reliability provided by a set of audited financial statements is comparatively higher as compared to regular unaudited financial statements.

Remuneration of auditors

Section 142 of the Companies Act, 2013 states the terms relating to the remuneration of the statutory auditor.

Who fixes the remuneration of the auditor

First Auditor Board of director of the company
Subsequent Auditor Members or shareholders of the company at its general meeting 
In case the casual vacancy  Board of director of the company
An auditor is appointed by the Central Government The Central government
Included in remuneration The expenses incurred by the auditor in connection with the audit of the company and any facility extended to him
Exclude in remuneration Any remuneration paid to any other service provided by him at the request of the company.

Auditors are not to render certain services

An auditor of a company can render only such services which have been approved by the board of directors of the company or the audit committee. But these services should not include the below-mentioned services: -

  • Accounting and bookkeeping services;
  • Design and implementation of any financial information system;
  • Actuarial services;
  • Investment advisory services;
  • Interpretation of outsourced financial services and management services
  • Internal audit;
  • Investment banking services;
  • Any other kind of services as may be prescribed:

[Note:  The auditor cannot provide directly and indirectly these services in the company in which he is appointed as well as in its holding company or subsidiary company also.]