who can become an auditor
This query is : Resolved
12 March 2010
A CA who has COP and have preference shares of Bharti Airtel ltd.can become the auditor of Bharti Airtel.
12 March 2010
12 March 2010
A CA who has COP and have preference shares of Bharti Airtel ltd.can become the auditor of Bharti Airtel.
12 March 2010
QUALIFICATIONS AND DISQUALIFICATIONS OF AUDITORS [Section 226]
Section 226 of the Companies Act, 1956 contains provisions as regards qualifications and disqualifications of auditors. It applies to all types of companies, whether public or private and also to section 25 company and a Government Company.
Must be a Chartered Accountant for appointment as auditor
A person shall not be qualified for appointment as auditor of a company unless he is a chartered accountant within the meaning of the Chartered Accountants Act, 1949.
A Chartered Accountant's firm may be appointed as auditor
A firm whereof all the partners are practicing chartered accountants in India are qualified for appointment as aforesaid, may be appointed by its firm name to be auditor of a company, in which case any partner so practising may act in the name of the firm.
In such case the appointment of a firm as auditors shall be made in the name of the firm whereas the appointment of a proprietary concern as auditor shall be made in the name of the individual i.e., the proprietor. [Vide Circular No. 8/229/56-PR, dated 20-3-1957]
Certain category of persons not qualified for appointment as auditor
Section 226(3) states that none of the following persons shall be qualified for appointment as auditor of a company:—
(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 i.e. 13th December, 2000;
(f) For the purposes of section 226, "security" means an instrument, which carries voting rights;
(g) a person if he is, by virtue of section 226(3), disqualified for appointment as auditor of any other body corporate which is that company's subsidiary or holding company or subsidiary of that company's holding company. [Section 226(4)]
Regards
Section 226 of the Companies Act, 1956 contains provisions as regards qualifications and disqualifications of auditors. It applies to all types of companies, whether public or private and also to section 25 company and a Government Company.
Must be a Chartered Accountant for appointment as auditor
A person shall not be qualified for appointment as auditor of a company unless he is a chartered accountant within the meaning of the Chartered Accountants Act, 1949.
A Chartered Accountant's firm may be appointed as auditor
A firm whereof all the partners are practicing chartered accountants in India are qualified for appointment as aforesaid, may be appointed by its firm name to be auditor of a company, in which case any partner so practising may act in the name of the firm.
In such case the appointment of a firm as auditors shall be made in the name of the firm whereas the appointment of a proprietary concern as auditor shall be made in the name of the individual i.e., the proprietor. [Vide Circular No. 8/229/56-PR, dated 20-3-1957]
Certain category of persons not qualified for appointment as auditor
Section 226(3) states that none of the following persons shall be qualified for appointment as auditor of a company:—
(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 i.e. 13th December, 2000;
(f) For the purposes of section 226, "security" means an instrument, which carries voting rights;
(g) a person if he is, by virtue of section 226(3), disqualified for appointment as auditor of any other body corporate which is that company's subsidiary or holding company or subsidiary of that company's holding company. [Section 226(4)]
Regards
12 March 2010
but if he buy the preference shares of that company,in which he is an auditor then is he be disqualified to be an auditor.
03 August 2025
Great question! Here's the position under the Companies Act and auditing norms:
Can a CA holding preference shares become an auditor of that company?
If the CA already holds shares (preference or equity) in the company before appointment as auditor, then he is disqualified from being the auditor of that company.
According to Section 141(3)(b) of the Companies Act, 2013, a person is disqualified to be appointed as auditor if he is a partner or in the employment of an officer or employee of the company or if he has any interest in the company, which includes holding shares.
So, holding preference shares means he has an interest in the company and hence is disqualified.
What if a CA buys shares after being appointed auditor?
Yes, if a CA buys shares after appointment, he becomes disqualified and must vacate the office of auditor immediately.
This is to ensure the auditor's independence and avoid conflicts of interest.
Summary:
Scenario Auditor Eligibility
CA holds shares before appointment Disqualified
CA buys shares after appointment Becomes disqualified; must resign
CA holds no shares at all Eligible
So, in your case:
If the CA already held preference shares before becoming auditor of Bharti Airtel, he cannot be appointed as auditor.
If the CA bought preference shares after becoming auditor, he must resign immediately.
Can a CA holding preference shares become an auditor of that company?
If the CA already holds shares (preference or equity) in the company before appointment as auditor, then he is disqualified from being the auditor of that company.
According to Section 141(3)(b) of the Companies Act, 2013, a person is disqualified to be appointed as auditor if he is a partner or in the employment of an officer or employee of the company or if he has any interest in the company, which includes holding shares.
So, holding preference shares means he has an interest in the company and hence is disqualified.
What if a CA buys shares after being appointed auditor?
Yes, if a CA buys shares after appointment, he becomes disqualified and must vacate the office of auditor immediately.
This is to ensure the auditor's independence and avoid conflicts of interest.
Summary:
Scenario Auditor Eligibility
CA holds shares before appointment Disqualified
CA buys shares after appointment Becomes disqualified; must resign
CA holds no shares at all Eligible
So, in your case:
If the CA already held preference shares before becoming auditor of Bharti Airtel, he cannot be appointed as auditor.
If the CA bought preference shares after becoming auditor, he must resign immediately.
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