KNC501/KNC601 Constitution of India, Law and Engineering

Chapter 17: Sole Traders and Partnership

Unit 1

Unit 2

Unit 3

Unit 4

Unit 5



An auditor is a person authorized to review and verify the accuracy of financial records and ensure that companies comply with tax laws. They protect businesses from fraud, point out discrepancies in accounting methods and, on occasion, work on a consultancy basis, helping organizations to spot ways to boost operational efficiency. Auditors work in various capacities within different industries.

Types of Auditors:

• Internal auditors

Internal auditors are hired by organizations to provide in-house, independent, and objective evaluations of financial and operational business activities, including corporate governance. They report their findings, including tips on how to better run the business, back to senior management.

• External auditors

External auditors usually work in conjunction with government agencies. They are tasked with providing an objective, public opinion concerning the organization’s financial statements and whether they fairly and accurately represent the organization’s financial position.

• Government auditors

Government auditors maintain and examine records of government agencies and of private businesses or individuals performing activities subject to government regulations or taxation. Auditors employed through the government ensure revenues are received and spent according to laws and regulations. They detect embezzlement and fraud, analyze agency accounting controls, and evaluate risk management.

• Forensic auditors

Forensic auditors specialize in crime and are used by law enforcement organizations.

Who are eligible to be appointed as auditor?

The following person/(s) or firm shall not be eligible for appointment as an auditor of a company, namely:

  1. A body corporate other than a limited liability partnership registered under the Limited Liability Partnership Act, 2008;
  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, or his relative or partner—
    1. Is not holding any security of or interest in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company of face value not exceeding rupees one lakh
    2. Is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of rupees five lakh
    3. has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, of one lakh rupees
  5. Person or a firm who, whether directly or indirectly, has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company.
  6. A person whose relative is a director or is in the employment of the company as director or key managerial personnel
  7. A person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies.
  8. A person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction;

What are duties of auditor?

The auditor shall make a report to the members of the company on the accounts examined by him and on every financial statements which are required by or under this Act to be laid before the company in general meeting. The auditor’s report shall also state.

  1. whether he has sought and obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit and if not, the details thereof and the effect of such information on the financial statements;
  2. whether, in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books and proper returns adequate for the purposes of his audit have been received from branches not visited by him;
  3. whether the report on the accounts of any branch office of the company audited by a person other than the company’s auditor has been sent to him under the proviso to that sub-section and the manner in which he has dealt with it in preparing his report;
  4. whether the company’s balance sheet and profit and loss account dealt with in the report are in agreement with the books of account and returns;
  5. whether, in his opinion, the financial statements comply with the accounting standards
  6. the observations or comments of the auditors on financial transactions or matters which have any adverse effect on the functioning of the company;
  7. whether any director is disqualified from being appointed as a director
  8. any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith;
  9. whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls;

Which companies required to appoint auditor?

Every company is required to appoint, whether it.

  1. One person company
  2. Private Company
  3. Public Company

What are the formalities regarding appointment of auditor?

We can divide this into two (2) parts: 

1. First appointment of Auditor within thirty (30) days from the incorporation of company:-

In this case passing the Board resolution and taking consent from the proposed auditors is done. The company needs to file form ADT-1 within fifteen (15) days from the passing of Board resolution.

2. Appointment of auditor in First Annual General meeting and all subsequent meeting:-

In this case, first pass Board resolution proposing the appointment of concerned auditor. Fixing the annual general meeting and approving the notice of Annual general meeting. In the General meeting pass the resolution by members.

What are various documents which are prepared to appoint auditor?

There are various documents required like: 

1. Consent from proposed Auditor

2. Certificate that they are eligible to be appointed as auditor

3. Board resolution

4. Annual General Meeting resolution and notice of Annual General Meeting

5. Non objection certificate from old auditor


Rights of Company Auditor: The Companies Act, 1956

  • Rights to access the books and records.
  • Right to get explanations from company staff.
  • Right to receive notice of general meetings.
  • Right to visit branches.
  • Right to seek legal and technical advises.
  • Right to claim remuneration.
  • Right to refuse to commence the audit.

Author – Dilip Kumar Rawat

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