QUESTIONS

1
QUESTIONS

• Miss Ani is a CA from the institute of
  England Wales. Whether she can be
  appointed as an auditor of Indian company ?
  
  Hint- No, as per section
  226(1)(2)
• Whether director can become auditor of the same
  company ? Hint- No, as per section 226(3)
• Whether relative of director can be appointed as
  auditor of the company ?
  
  Hint- 1. Yes, as per section 226(3)
  
• 2. But in case of near
  relationship with director, if
• member is off the
  view that his independence
• would be effected then
  in the best interest of
• tradition of
  profession he shall refrain from
• accepting the post of
  auditor in the company.

2

• Whether tax auditor can be appointed as company
  auditor ? Hint- If person is consultant
  professionally on income tax matters, he
  cannot be said an officer or employee of
  the company
• Whether internal auditor can be appointed
  as auditor of company ?
  
  Hint- 1. Where he is an employee of the
  company than
• considering section
  226(3) he cannot be appointed
• as auditor of the company.
  
  
• 2. Where an outsider is
  appointed as companies
• internal auditor
  even than he cannot be
• appointed as auditor of
  the company since it is not
• possible for him to give
  an objective independent
• opinion on section 227(4A)
  clause (iv).

3

• Whether auditor can recover audit fees on
  progressive basis ? Hint- An auditor can
  recover progressive fee only in accordance
  with resolution passes in general
  meeting, therefore he cannot be said to be
  indebted of the company.
• Mr A has completed 30 of total audit worked
  assigned to him. He recovered 30 of audit fees
  after completion of such work. Whether he is
  indebted to the company ?
• Mr A has taken loan amounting Rs. 1001 from
  company in which he is auditor, whether he is
  disqualified. If he had taken amount to meet
  traveling expanses, whether disqualification
  will incur ?
  Hint- 1. Yes, as
  per section 226(3).
  
• 2. If auditor has
  commenced his work than
• demanded for traveling
  Advance, he will not be
• indebted to the
  company. However if he had not
• commenced his work,
  position may be different.

4

• Mr A is named in Article of Association
  as 1st Auditor. Comment ?
  
  Hint- ICAI, compendium of opinions, Volume I,
  Edition IIIrd, 1986, Page 189, says that the only
  method for appointment of Ist auditor is layed
  down under section 224(5), and he cannot be
  appointed mearly because his name is
  specified in MOM/AOA.
• Mr A is appointed as auditor at AGM held in
  2001. no AGMs were held in 2002 2003. Mr A
  contends that he continues to be an auditor for
  2002 2003. comment ? Hint-
  The auditor in the company holds the
  office from conclusion of AGM in which he is
  appointed till the conclusion of next AGM.
  Hence, he will continue as an auditor for 2002
  2003.

5

• XYZ Co. firm of CA was appointed as
  auditor in PQR Ltd. After some time one partner
  died one new partner is added in the firm.
  Whether it is a casual vacancy in company PQR
  Ltd.
  Hint- Addition
  or death of any partner amounts to
  reconstitution of the firm not the
  dissolution of the firm. Hence, firm will
  continue to act as auditor in PQR ltd.
• A nationalized bank holds 26 subscribed
  share capital of company XYZ. Auditor of xyz
  is appointed by passing OR. comment ?
  
  Hint- 1. As per section 224A auditor
  should be appointed by
• passing SR and as OR
  is passed appointment of
• auditor is not valid.
• 2. In the present case
  section 224(3) would be
• attracted company
  would require to give notice
• of the fact to CG
  within 7 days on receipt of
• notice auditor shall be
  appointed by CG.

6

• Company XYZ a nationalized bank holds 23
  shares on date of Notice of AGM till the date
  of AGM NB increased his share holding by 3
  becoming 26 of share capital. Will the
  auditor appointed by passing OR or SR.
  Hint- 1. Date of recording
  share holding pattern for the
• purpose of section 224A
  is the date of AGM not
• the date of notice.
  
• 2. In present situation
  company has 2 alternatives-
• (I) Adjourn the meeting
  give fresh notice as may
• be required by the law
  appoint the auditor by
• passing SR.
• (II) Passing over the
  item of agenda of
• appointment of an
  auditor. In this case no auditor
• is appointed by the
  company therefore 224(3)
• will be attracted
  company would be required to
• give notice of the fact
  to CG within 7 days on
• receipt of notice auditor
  shall be appointed by CG.

7

• A firm having audits of 12 public
  companies 20 private companies ?
• Hint- As per companies act compliance
• As per ICAI notification non
  compliance
• A firm having audits of 21 public
  companies 9 private companies ?
• Hint- As per companies act non
  compliance
• As per ICAI notification
  compliance
• Note- Non observance of this
  ceiling would amount to
• professional misconduct.

8

• M/S PQR is a chartered accountant firm having 3
  partners P,Q Rs Mr. R is an whole time
  employment some where else. Currently firm is
  holding 37 audits including audit of foreign
  company. Following proposals are before firm-
• 1 public company his 60 branches
• Audit of section 25 company
• 1 cost audit
• 1 audit of government company
• 1 audit of private company 30 of its branches.
• Advice whether firm can except all the
  audits.
• Hint- 1. section 224(1B) places a ceiling on
  no. of audits, which is
• referred as specifies no.
  specified no. is 20 in present
• case firm is having 3 partners
  1 partner is in full time
• employment some where else,
  there fore firm can
• validity hold 40 audits.

9

• 2. Analysis conclusion
• If firm accepts audit of 1 public company
  60 of its branches it should be included as
  1 audit when computing total no. of audits.
• If firm accepts audit of section 25 company,
  it should be included in the limit when
  computing total no. of audit.
• If cost audit is accepted by the firm, it
  should be included in the overall limit.
• If firm accepts audit of government company, it
  should be included in the limit when computing
  total no of audits.
• If firm accepts audit of private company
  30 of its branches, it should not be
  excluded in the overall limit.
• If firm accepts all the audit, total no.
  of audits will be 40, which is within the
  limit specifies under section 224(1B)
  hence firm can accept all the audits.