MODULE 3

Question 1

What is meant by audit of limited companies?

Answer 1

It refers to the statutory audit conducted under the Companies Act to examine the financial records and statements of a company.

Question 2

Who appoints the auditor in a limited company?

Answer 2

The Board of Directors or the shareholders in a general meeting

Question 3

What are the qualifications of a company auditor?

Answer 3

A Chartered Accountant holding a valid certificate of practice.

Question 4

Name two disqualifications for appointment as a company auditor.

Answer 4

Being an officer/employee of the company

Question 5

What section of the Companies Act deals with auditor qualifications?

Answer 5

Section 141 of the Companies Act

Question 6

What are the rights of a company auditor?

Answer 6

Right to access books

Question 7

List the duties of a company auditor.

Answer 7

Examining accounts

Question 8

What is the liability of an auditor for negligence?

Answer 8

An auditor is liable for any loss caused to the company due to failure in detecting material misstatements or frauds.

Question 9

What is meant by misfeasance?

Answer 9

Improper performance of duty resulting in financial loss to the company.

Question 10

Can an auditor be criminally liable?

Answer 10

Yes

Question 11

Under what conditions can an auditor be removed?

Answer 11

By a special resolution in the general meeting and prior approval of the Central Government (in some cases).

Question 12

What is share capital audit?

Answer 12

Verification of the issue

Question 13

What is share transfer audit?

Answer 13

It involves checking that the transfer of shares is done legally and recorded accurately in the books.

Question 14

What are the contents of an audit report?

Answer 14

Title

Question 15

Name the types of audit reports.

Answer 15

Unqualified (clean)

Question 16

What does a clean audit report indicate?

Answer 16

It indicates that the financial statements present a true and fair view without any reservations.

Question 17

What does a qualified audit report mean?

Answer 17

It means that the auditor has found certain issues that do not conform to accounting standards but are not pervasive.

Question 18

When is a disclaimer of opinion issued?

Answer 18

When the auditor is unable to obtain sufficient audit evidence to form an opinion.

Question 19

What is an adverse audit report?

Answer 19

It states that the financial statements do not present a true and fair view.

Question 20

What is the role of the auditor in share transfer audit?

Answer 20

To verify documentation

Question 21

Mention two liabilities of a company auditor.

Answer 21

Civil liability for negligence and criminal liability for fraud or false reporting.

Question 22

Company Auditor

Answer 22

Who is qualified and authorised to audit accounts of a company as per the provisions of Companies Act 2013

Question 23

Provisions relating to company Auditor

Answer 23

Sec 139 to 148 of the CA 2013
Companies(Audit and Auditors) rules,2014

Question 24

Sec 141

Answer 24

Qualifications of company Auditor

Question 25

Chartered accountant under Chartered Accountants Act 1949

Answer 25

Sec 2(1)(b): a person who is a member of ICAI Who holds a valid certificate of practice

Question 26

Types of company Auditors

Answer 26

Individual or proprietary concern Partnership firm LLP under LLP Act 2008

Question 27

Disqualification provision

Answer 27

Section 141(3)3

Question 28

Persons not qualified

Answer 28

A body corporate except LLP registered under LLP Act, 2008 Officer or employee Relative or partner Business relationship Director or Key managerial personnel (or abbreviated as KMP) – an individual whose relative is a director or . Full-time employment auditor over more than 20 companies Convicted by a court-10 years has not elapsed from the date of such conviction. Consulting and specialized services (or abbreviated as C&S services)- any company or business entity whose subsidiary or affiliates, is engaged as on the appointment date in C&S services as specified in section 144. Where an individual appointed as a company’s auditor sustains any of the disqualifications as specified in sub-section (3) after his appointment, he then will have to vacate his office as such auditor

Question 29

Sec 139

Answer 29

Appointment of Company Auditor

Question 30

Sec 139(6)

Answer 30

First Auditors( non- governmental companies

Question 31

First Auditors( non- governmental companies

Answer 31

First auditor for a newly started company appointed by board of directors by passing a resolution within 30 days of registration or by the members within 90 days at extraordinary general meeting and he shall hold office till first annual general meeting. Written consent and certificate

Question 32

139(1)

Answer 32

Subsequent auditor (non governmental companies)

Question 34

Subsequent auditor (non governmental companies)

Answer 34

Shareholders -ordinary resolution AGM- 6th AGM-written consent and certificate - 15 days registrar of the joint stock companies - new Auditor and previous

Question 35

Sec 139(9)

Answer 35

Reappointment of retiring auditor

Question 36

Appointment by central government

Answer 36

No appointment or reappointment at AGM- notify

Question 37

Sec 139(8)

Answer 37

Casual vacancy of an auditor

Question 38

Appointment of auditors for government companies

Answer 38

Sec 139(7) CAG 60 Board of directors 30 days Members 60 days First AGM Govt companies 2(45)

Question 39

Sec 139(5)

Answer 39

Reappointment of auditors for government companies 180 days AGM

Question 40

Appointment by special resolution

Answer 40

25% subscribed special institution AGM by a spcl resolution

Question 41

Ceiling on number of audit

Answer 41

Sec 141(3)(h)

Question 42

Ceiling on number of audit exemptions

Answer 42

Private limited company paid up100 cr Small company turnover 2cr, paid up 50 la OPC Dormant company

Question 43

Remuneration

Answer 43

Sec 142

Question 44

Sec 140(1)

Answer 44

Removal of an auditor

Question 46

Removal of an auditor

Answer 46

Board resolution -30 days central government - special resolution 60 days- being heard

Question 47

Rights and powers

Answer 47

Sec 143 To access books of accounts Refuse Indemnified Benefits of Limitation Receive remuneration Correct any wrong statements Notice and attend general meetings Visit branches Obtain information and explanation Sign audit report Seek legal and technical advice

Question 48

Sec 143(2)

Answer 48

Duties Statutory Contractual or common law Imposed by court decision Professional etiquette

Question 49

Statutory duty

Answer 49

To make report Assist investigators Enquire and call for information Certify statutory report Certify p&L ac in prospectus sign audit report Assist central government in prosecution Certify the declaration of solvency Make a report on public deposits

Question 50

Contractual duties

Answer 50

To see his appointment is in order Common law duties Special duties under contract Reasonable care and diligence

Question 51

Spackman v evans

Answer 51

The auditors may be agents of shareholders,so far it relates to the audit of the accounts. For the purpose of audit,the auditors will bind the shareholders

Question 52

In case of London and General Bank And Kingston cotton mills case

Answer 52

The Auditor is an officer of the company as he is appointed by the company and his position is described as an officer of the company.He is not a servant of the directors. On the contrary he is appointed to check the directors