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auditor of subsidiary Co....

CA Mohit Agrawal (Chartered Accountant) (371 Points)

23 December 2010

Can an auditor of subsidiary co. become the director of holding co. please answer me with section and reason

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udit sharma (Company Secretary) (2303 Points)
Replied 23 December 2010

Hi..

Yes a Statutory Auditor(Only a Practicing Chartered Accountant and not a firm of Chartered Accountants practicing in India) of the Company can be appointed as Director of its Holding Company as only an Individual can be appointed as Director of the Company.

But i am of the opinion that he should not be appointed as such in view of the following points,

1. After being appointed as a Director of the Company, he will not be able to exercise his independent judgement on the financial statements of the Subsidiary Company in his capacity as its Auditor. In my opinion an Auditor should be in a position to express his independent views on the financial results of the Company in his report to the members of the Company and his views should be free from any kind of influence. Being a Director of the Holding Company, his independence as Auditor of the Company might be effected.

2. Secondly with respect to compliance part, the Holding Company will have to cpmply with the provisions of section 314 of the Companies Act, 1956 as the Director will be said to be holding an office or place of profit in its Subsidiary Company.

In my opinion, there is no statutory restriction regarding the appointment of Statutory Auditor of Subsidiary Company as Director of Holding Company, but he should not beso appointed in view of the above cited reasons which are my personal opinion and the independence of the Auditor may be questioned in the future.

Let us wait for the view of other eminent experts:-)

God Bless

Udit Sharma

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binita kumari (student) (23 Points)
Replied 29 December 2010

As per sec 226 of companies act, 1956 "Any officer or employee of the company is disqualified to be appointed as an auditor and also any person disqualified for appointment as an auditor in the company's subsidiary or holding company , or a subsidiary of that company's holding company is disqualified to be appointed as an auditor of that company"

As per my opinion director is also an employee of the company , so auditor of subsidiary company can't appoint as director of the holding company and if he do that then he became disqualified as an auditor.