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Auditor's qualification query

Tony John (Chartered Accountant) (6085 Points)

04 February 2012

Is it possible for the creditor of a company to act as its auditor ?? Does the law disqualify him ?? What about a debenture holder ??

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Keval Ponkiya (CA CS MBA(Fin.) M.Com. L.L.B.) (223 Points)
Replied 04 February 2012

The answer is NO as both having DEBT with company i.e. creditor and debenture holder both !!!

so as per qualification criteria the auditor should not owe to the co.

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Srikanth (Tax Associate) (297 Points)
Replied 04 February 2012

The Companies Act says that the person who is indebted to the company for sum of Rupees 1000 or more or given any guarantee to the third party in respect of indebtness to the company in which he is proposed to be appointed as auditor will be disqualified. And once again according to the CA Act, 1949 if the person accepts a position of auditor of a company in which he or his relatives whether singly or together holds substantial interest (25% or more shareholding or voting rights) he is guilty of prof. misconduct & he has to vacate his office as auditor.

But the Act doesnt specify that if the person is being a creditor of the company is disqualified for appointment. He can accept position as an auditor. Even the debenture holder ( if not having substantial interest ) can eligible for appointment.

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Tanash Chakraborty (KPMG) (292 Points)
Replied 05 February 2012

yes i agree with sreekanth...the disqualification criteria under section 226(3) clearly mentions the indebtedness of the proposed auditor towards the company and not about the company's debt towards the auditor...hence the appointment in such a cse will not be disqualification under section 226(3).

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