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appointment

ABIR KUMAR DEB (Student-CA FINAL(New)) (153 Points)

03 October 2010

Can a relative of a director be appointed as an auditor? If yes, what are the conditions to be fulfilled?

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6 Replies

C.A. LINESH PATIL (CA) (910 Points)
Replied 03 October 2010

No,

As per clause 4 of part 1 of schedule II to CA Act 1949 A practicing CA shall be deemed to be guilty of professional misconduct if he express an opinion on financial statement on an enterprises in which he,his firm,partner of his firm has substantial interest and

in the opinion of council relative of him is a director also tantamount to substantial interest.

however this is clause is applicable when reporting is done to outside authority.

therefore a relative of director cant be appointed as an auditor.

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ABIR KUMAR DEB (Student-CA FINAL(New)) (153 Points)
Replied 04 October 2010

Thanks for ur opinion Linesh.Would u kindly clarify whether "wife's brother" is considered as a relative or not ?

ABIR KUMAR DEB (Student-CA FINAL(New)) (153 Points)
Replied 04 October 2010

well, after reading Section 6 as well as Schedule -IA to the Companies Act 1956,the following comes to my mind: SISTER'S HUSBAND is Defined as a relative but WIFE'S BROTHER has not been defined as a relative. Hence, i come to the conclusion: "If Jija is a director, Saala is not a relative and hence Saala can become an auditor; but if Saala is a director,Jija becomes a relative and hence Jija cannot become an auditor" I hope i have got this correct.TRICKY ONE!!!

(Guest)

pata nahi but as far as i know the definition of relative as far as tax purpose.................brother or sister of a spouse is considered to be a relative..........but dont know if this definition applies for appointment of auditor...........maybe i need to go through the sections...............i dont know why dont they apply a universal rule.............tax ke liye kuch aur hota hai.....audit ke liye kuch aur hota hai......at the end of the day a relative is a relative......

(Guest)

According to sec 226 qualification and disqualification ....A person is not disqualified for appointment as an auditor of a Compnany....if his relative or employee act as director.......secretary or otherwise as an officer of the company.......but central governments permission may have to be taken u/s 314 of the act.....further if a CA being a relative of the person having substantial interest in the company expresses an opinion on financial statement of that company he should disclose his interest while making the report.....if this disclosure is not made it will amount to misconduct under CA act 1949.....the term relative is explained in sec 6 of the act and the term substantial interest has the same meaning as asigned under sec 13 of income tax act .....................................................

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(Guest)

in tax its taken as ......an individuals brother sister and the brother and sister of spouse r considered relative............actually ....even the spouses of brother nd sister r taken to be relative....for both the individul and spouse.............................................its quite clear in tax.......but i havnt read sec 6...........