Law & audit
Querist : Anonymous
any relative of officer of the company disqualified from appoinment as auditor.
So son is relative of director(officer) of the company can't be appointed as auditor.
However, the council of the Institute of Chartered Accountants of India has suggested that a chartered accountant shall not accept the audit of a company where he is relative of the company's managing director or whole-time director and he believes that he would not be in a position to express his independent opinion.
RG
Querist : Anonymous
RG
Querist : Anonymous
First we will go through the Provision of Section 226 of Companies Act which disqualifies persons who can be appointed as auditor. The following persons cannot be appointed as auditor:
(a) a body corporate;
(b) an officer or employee of the company;
(c) a person who is a partner, or who is in the employment, of an officer or employee of the company;
(d) a person who is indebted to the company for an amount exceeding one thousand rupees, or who has given any guarantee or provided any security in connection with the indebtedness of any third person to the company for an amount exceeding one thousand rupees;
e) a person holding any security of that company after a period of one year from the date of commencement of the Companies (Amendment) Act, 2000.
Explanation.—For the purpose of this section, “security” means an instrument which carries voting rights.
This provision is silent regarding appointment of auditor who is relative of director.
Now we will move on to second part..
The Chartered Accountant Regulation Act:
Clause (4) to Part I of The Second Schedule reads as follows:
A CA will be guilty of professional misconduct if he "expresses his opinion on financial statements of any business or enterprise in which he, his firm, or a partner in his firm has a substantial interest;
Now if the father holds substantial interest in the enterprise then the son can be termed as also holding substantial interest in business - beneficially...
Therefore in essence after amendment of Chartered Accountant Regulation Act (2006) relative cannot be appointed.
Earlier this clause allowed such appointments if the auditor disclosed his interest also in the audit report.
Now after amendment such question of appointment may not arise.
Querist : Anonymous
The Guidance Note on Independence of Auditor no where restricts an appointment of relative as auditor.
But the Institute has made it clear that such engagement should not be accepted as the independence may get hampered...
There is no restriction as such but it is in the best interest of our profession not to accept such engagements.
This answer very well suits the requirement of The Revised Guidance Note on Independence of Auditors.
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