Statutory Auditors

Auditors

The auditors are appointed at Annual General Meeting of the company. Their tenure is from the beginning of one Annual General Meeting to the conclusion of the next. Before such appointment, the company should obtain a certificate from the auditors that they are eligible to act as statutory auditor and the company should intimate the auditors within seven days of their appointment. Every such appointment shall, within thirty days, intimate the Registrar of Companies by filing form 23B.

Audit is an examination of accounting records. It involves the intelligent scrutiny of the books of accounts of the company. The main object of the audit is to ensure that the statement of accounts for a financial year truly and fairly reflects the state of affairs of the company. The main purpose of audit is detection and prevention of errors and fraud. Section 216 of the Companies Act, 1956 lays down that auditors report should be attached the Balance sheet. According to Section 2(30) of the Companies Act, 1956, an auditor is not an officer of the company. But in Connell v. Himalaya Bank Limited it was held that auditors, if appointed at a general meeting and if also paid by the company were officers of the company.

It is very suitable here to reproduce the words of Lopes L J in Re. Kingston Cotton Mills Co (1862). He said: “An auditor is not bound to be detective or to approach his work with suspicion or with a foregone conclusion that here is something wrong. He is a watch dog, not a blood hound; he is justified in believing tried servants of the company in whom confidence is placed by the company.

The liability of Auditors is not limited to the company and to its members.  Various judicial decisions underline the liability of Auditors to third parties also. According to the decision in Hedley Bryne & Co. Limited v. Haller and Partners Limited (1964), the auditors may become liable to non-members in certain circumstances.

The following are the important provisions in the Companies Act, 1956 relating to Auditors.

224(1)	Every company shall at each Annual General Meeting appoint auditor/auditors to hold office of statutory auditors.
	After appointment of the auditor in Annual General Meeting, within seven days, the company should give intimation thereof to every auditor so appointed.
Proviso to 224(1)	Before any appointment or re appointment of auditor is made by any company  at any Annual General Meeting a written certificate from the proposed auditor shall be obtained to the effect that such appointment, if made will be in accordance with the limits specified in Section 224 (1B)
226 (3)	The following persons are not qualified for the appointment as auditor of a company
	1.	A body corporate
	2.	An officer or employee of the company.
	3.	A person, who is a partner or                Who is in the employment, of an officer  or                employee of the company.
	4.	A person who is indebted to the company for more than `. 1000 or who has guaranteed the repayment of any debt of more than `.1000.0 due to the company by a third person.
	5.	A person holding any security of that company which carries voting rights of that company.
	6.	If a person is qualified for appointment as an auditor of the subsidiary or holding company of the company.
If an auditor becomes disqualified after his appointment, he shall be deemed to have vacated his office.
224(1)	Every company shall, after the appointment of Auditor at Annual General Meeting, intimate the concerned auditor within seven days after the appointment.
224A	Under the following Companies, appointment or re appointment of auditor shall be made by a special resolution.
	If 25% of the subscribed share capital is held, whether singly or jointly by:
	1.	A public financial institution or Government company or Central Government or any State Government; or
	2.	Any financial, or other institution established by any Provincial or State Act in which State Government holds not less than 51% of the subscribed share capital; or
	3.	A nationalized bank or an insurance company carrying on general insurance business.
619	The auditor of a Government company shall be appointed and re-appointed by C&AG.