i want to ask whether a auditor of a company can grant loan to company of which he is the statutory auditor. Will it count for disqualification as per the provisions of companies act,1956.
Regards
Madhusudan Kabra
Madhusudan Kabra (knowledge seeker) (1779 Points)
15 June 2010i want to ask whether a auditor of a company can grant loan to company of which he is the statutory auditor. Will it count for disqualification as per the provisions of companies act,1956.
Regards
Madhusudan Kabra
Siddarth R Sunder Ram
(Finance Professional)
(230 Points)
Replied 15 June 2010
Section 226(1)(d) of Companies Act only requires that the auditor must not be indebted to the company for a sum exceeding Rs.1000. It does not prevent the auditor from providing loan to the company. So the auditor is not disqualified.
Ankur Garg
(Company Secretary and Compliance Officer)
(114773 Points)
Replied 16 June 2010
This transaction is out of the reach of section 226(3) and (4) of the companies act, 1956.
But this transaction will 100% affect the independence of statutory auditor and defeat the sole purpose of auditing so as per my opinion this transaction is not advisable at all.
Further am quite sure this kind of transaction can't escape from ICAI manuals. So avoid this transaction.
Thanks
Amit Madan
(Audit)
(32 Points)
Replied 16 June 2010
100% Agree with Ankur
This transaction is against the Principles of Governing an Audit...
Therefore, Avoid this transaction
Siddarth R Sunder Ram
(Finance Professional)
(230 Points)
Replied 16 June 2010
I agree. There is bound to be a serious governance issue as the independence and objectivity of the auditor may be affected by such a transaction, although it is not prohibited by the Companies Act. It is better that Auditors don't have anything to do with their client except ,of course their audit responsibilities.
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