Disqualification of auditor under section 226
This query is : Resolved
23 November 2009
Hi Venu, u/s 226 an auditor can not take advance from the client otherwise he will be considered as indebted to the co. as his name will appear on the debit side of the Balance Sheet of the client. he, however, can take progressive payment against work done. Regards,
CA Shakuntala Chhangani
CA Shakuntala Chhangani
24 November 2009
He can take advance audit fee towards work done and he'll not be disqualified u/s. 226..
S. 226 says that auditor will be disqualified only when he is indebted to client for more than Rs. 1000 but advance audit fee will not be considered as advance or loan
S. 226 says that auditor will be disqualified only when he is indebted to client for more than Rs. 1000 but advance audit fee will not be considered as advance or loan
24 November 2009
Since most clients drag their feet when it comes to payment of fees for CAs services there is nothing wrong in taking an advance. This is between the client and the auditor irrespective of the amount involved. this cannot be reason for disqualification If the auditor fails to keep his part of the bargain then the issue of business ethics comes in and the rest follows
24 November 2009
Dear friends, suppose you take an advance from your client. you have not done any work of client in that year. so in the financial statements, where your client will show it? the term indebtedness means you owe something. till the time the work is done, the advance will be considered as indebtedness. i no it is not wrong to take advance from the clients together with the hardship we face in collecting the same, but friends, this course of action is not allowed u/s 226. in fees also you can follow proportionate completion method i.e. progressive payments. you know even if it is the policy of your client to sell the goods on cr. basis, but if you, as an auditor buy the same on cr. basis, you will get caught in the net of sec. 226.
24 November 2009
IF advance is taken after provision for audit fees and the same is less than the audit fees payable then there does not seems to be any problem as the indebtness to the company does not cross the limit of Rs. 1000/-.
24 November 2009
no my dear friends, if auditor receive advance audit fees, its not deemed to be a loan taken by auditor by company. do not consider Rs.1000 limit for advance audit fees.
25 November 2009
this is clerefication by ICAI.
27 November 2009
Hi again friends, the provision relating to the disqualification of a person to act as an auditor of a co. if he is indebted to the co. for an amount exceeding Rs. 1,000 seeks to ensure that the auditor has NO FINANCIAL OBLIGATION towards the co. In my answer mention above, i have already clarified that he can take progressive payment(provision for fees if the work is done and advance against the same as mentioned by Mr. Maheshwari).
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