Ca ethics query?? urgent

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

06 April 2013 As per Co Law & CA Ethics, can a shareholder of a private company be the auditor of that company? Thks in advance.

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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06 April 2013 Section 226(3)(e) provides that a person holding any security of the company shall be DISQUALIFIED from being appointed as auditor of that company.

CA. SUDHARSAN K G

CA. SUDHARSAN K G (Expert)
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06 April 2013 DISQUALIFICATION OF AUDITORS

By virtue of Section 226 "A person who is holding any security of that company, after a period of one year from the date of commencement of Companies (Amendment) Act, 2000 cannot be appointed as auditor of a Company"

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Querist : Anonymous

Querist : Anonymous (Querist)

06 April 2013 What if the shares are held by the relatives ( wife, Children). Can such person become the auditor if the company??

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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18 July 2024 Under Company Law and CA Ethics guidelines, the appointment of an auditor for a private company is subject to certain restrictions and conditions regarding independence and conflict of interest. Here’s how it applies:

1. **Shareholder as Auditor:**
- According to the Companies Act, 2013, a shareholder of a private company can be appointed as an auditor. However, there are important conditions to consider:
- **Independence:** The auditor must maintain independence and avoid any conflicts of interest. If the shareholder's interest in the company is significant, it could compromise their independence as an auditor.
- **Limitations:** Section 141(3)(b) of the Companies Act prohibits the appointment of an auditor who is indebted to the company, holds a substantial interest in the company’s shares, or is a partner or employee of a person who is indebted to the company. This restriction aims to preserve auditor independence.

2. **Shareholding by Relatives:**
- If the shares of the private company are held by relatives such as wife or children of the prospective auditor, the situation still needs careful consideration:
- **Independence and Conflict of Interest:** Even though the relationship may not be direct, if the auditor’s relatives hold a substantial interest in the company or have transactions with the company that could influence the auditor’s objectivity, it may pose a threat to independence.
- **Disclosure:** It is essential to disclose any relationships or interests that could affect independence. Transparency is crucial to maintaining ethical standards and fulfilling legal requirements.

3. **ICAI Code of Ethics:**
- The Institute of Chartered Accountants of India (ICAI) provides detailed guidelines on independence, objectivity, and professional conduct for auditors. These guidelines align with international standards to ensure auditors maintain integrity and impartiality in their audits.
- The Code of Ethics requires auditors to assess threats to independence and take appropriate measures to mitigate them. This includes considering any financial interests or relationships that could impair independence.

In conclusion, while a shareholder, including relatives of the auditor, can technically be appointed as the auditor of a private company, it is critical to evaluate and disclose any potential conflicts of interest. The overarching principle is to uphold auditor independence, ensure impartiality in audit judgments, and comply with both Company Law provisions and ethical guidelines set forth by regulatory bodies like the ICAI.