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What is Audit?
“Audit” means to look at something thoroughly. Auditing is an independent inspection of the financial information of any organization; whether profit-oriented or not profit-oriented, regardless of its legal form, status or size when such examination is conducted with a view to precise an opinion thereof”.
Need For Company Audit
Auditing of the book of accounts means verification of accounts by an independent professional to make sure that the accounting has been carried as per the relevant regulatory requirements and to see the veracity of transactions and make an opinion whether the books of Accounts shows a real and fair view of monetary transactions by the business.
An Ltd. has got to close its accounts every fiscal year and prepare the financial statements prepared as per the books of accounts depicting a true and fair view of the affairs of the corporation. The financials shall then be audited by the statutory auditor and has got to be placed before the members for approval.
Every company has got to get its accounts audited by its Statutory Auditor regardless of size and turnover and file an equivalent with the Registrar of Companies.
The Companies Act 2013 mandates every company to stay its books of accounts and other relevant books and papers and budget giving a real and fair view on accounting and as per double-entry bookkeeping system which shall be maintained at the registered office of the corporate for each fiscal year. However, the board of directors may keep the books of accounts at the other place in India after filing a notice with the Registrar of Companies.
Who can become Auditor of a corporation
The audit of a corporation shall be administered by the Statutory Auditor appointed by the corporation in its Annual General Meeting. An accountant who holds a legitimate certificate of practice under the Chartered Accountants Act, 1949 can only become an auditor of the corporation. Also, the corporation can appoint a firm as its auditor if the majority of partners are practicing in India and are eligible for an appointment. Further, only those partners who are accountants shall be allowed to check-in behalf of such a firm.
Appointment of First Auditor by a corporation.
The first auditor of a corporation shall be appointed within 30 days from the date of incorporation of the corporation by the board of directors. If the Board fails to appoint one, the members of the corporation need to appoint the primary auditor at an unprecedented General Meeting 120 days from the date of incorporation.
Appointment of Auditor at AGM of Company.
The statutory auditor shall be appointed at an AGM by the members of the corporation who shall hold office for five consecutive years unless removed or the auditor resigns himself.
Rotation of Auditors
The appointment of auditors at AGM is for a period of 5 years. Rotation of Auditors are applicable for companies that come under the categories:
- Listed Companies
- Unlisted Public Company having paid-up share capital of rupees 10 crores or more;
- Private limited companies having paid-up share capital of rupees 50 crores or more;
- Unlisted public company and personal company having public borrowings from financial institutions, banks or public deposits of rupees 50 crores or more.
Rotation of Auditors isn’t applicable to at least one Person Company (OPC) and little Companies. meaning, OPC) and little Companies can appoint or reappoint a private for quite one term of 5 consecutive years or an auditor firm for quite for quite two terms of 5 consecutive years.
Auditor to Sign Audit Reports
The statutory auditor shall sign the auditor’s report or certify financial statements and other documents of as needed in accordance with the provisions of the Act.
Timeline for Company Audit
An Audit may be a continuous process that involves examining various compliances, risk and accounting practices. Upon the closure of a fiscal year (31st March), the corporation shall prepare its financial statements as per the books of accounts maintained and therefore the board of directors shall approve it forgiving for the audit process.
The auditor shall then make an in-depth auditor report disclosing the accuracy of the transaction whether it shows a real and fair view or not.
Company has got to conduct the Annual General Meeting (AGM) within 6 months from the closure of monetary year and therefore the notice of AGM has got to tend to all or any the members before 21 days of AGM. Copy of Directors Report and Audited budget with the report of auditors has got to tend to the members alongside notice of AGM. So, the Auditors Report must be made available before sending the notice.
In case the corporation is getting to conduct AGM by the 30th of September (6 months from the date of closure of Accounts), Notice of AGM is required to be sent by the first week of September. So, ideally, the Audit of Company Account has got to be completed before 31st August.
Company Annual Filing
Every Company registered under the Companies Act is required to file their returns with the Registrar of Companies annually.
Company Annual Filing refers to the Filing of Audited Annual Financial Accounts of the corporation alongside Directors Report and Annual Return of Company with Registrar of Companies. These yearly filings are mandatory for each registered Company whether the corporate carries on business or not.
Penalty for Contravention
- The company shall be punishable with fine not be but Rs.25,000.00 which can reach Rs.5,00,000
- Every officer of the corporation shall be punishable with imprisonment for a term 1 year or with fine not but Rs10,000.00 which can reach Rs.1,00,000.00, or with both.
- The auditor shall be punishable with fine not but Rs.25,000. but which can reach Rs.5,00,000.00 or 4 times the remuneration of the auditor, whichever is a smaller amount?
Further, if it’s done knowingly or wilfully with the intention to deceive the corporate or its shareholders or creditors or tax authorities, he shall be punishable with imprisonment for a term of 1 year and with fine not but Rs.50,000.00 which can reach Rs.25, 00,000.00 or 8 times the remuneration of the auditor, whichever is a smaller amount.
Further, the auditor convicted as mentioned above shall be also susceptible to refund the remuneration received by him to the corporate and buy damages to the corporate /statutory bodies/authorities/ to members/creditors of the company.
If the partner or partners of the audit firm have acted during a fraudulent manner/colluded/abetted for the action of company or directors, the concerned partner shall be liable whether civil or criminal as provided during this Act jointly and severally.