Respected Sir,

Now My question is : Let me know whether My answer is right or wrong and why if possible.

At the AGM ABC (p) Ltd., Mr. Y, existing  auditor is  reappointed as the auditor. Y refuses to accept the audit. The company holds another general meeting (extra ordinary GM) and appoints a new auditor Mr. Z.

My answer :  The appointment of a new auditor Mr. Z  in place of  Mr. Y by the company in extra ordinary general meeting is right. 

Sir, my answer is based upon following material:

(1)

According to Study Material of Integrated Professional Competence Course, Paper:6 “Auditing and Assurance” Volume 1, edition July 2010, under heading “7.2.8 Auditor Appointed at an Annual General Meeting Failing to Accept the Appointment” page no. 7.9 and 7.10 it is written that:

7.2.8 Auditor Appointed at an Annual General Meeting Failing to Accept the Appointment

Can the Board of directors be authorised by the general meeting to appoint auditors in the event of auditors appointed at an annual general meeting fail to accept the appointment? For knowing the correct legal procedure that should be followed in such a case, the Research Committee of the Institute had posed the following query to its Council:

(1)     A company appointed auditors for the current year by a resolution passed in the Annual
General Meeting as under:

"Resolved that Shri X (Chartered Accountants) be and is hereby re-appointed as a joint
auditor for the current year on an overall remuneration of Rs         only"

"Resolved further that Shri Y (Chartered Accountants) be and is hereby re-appointed as

a joint auditor for the current year on an overall remuneration of Rs.. only."

Further resolved that in the event of both or either of the auditors declining the assignment, the Board may fill up the vacancy at their own discretion".

(2)     The Board of directors, subsequently, passed a resolution as under :

"Resolved that in the event of any of the auditors declining to accept the assignment, Shri Z should be appointed as joint auditor".

(3)                     The last para of the resolution of the general meeting and the resolution itself of the Board of Directors, were intended to meet a contingency of the appointments being declined by any or both of the auditors appointed by the general meeting since the remuneration fixed by the general meeting was less than that proposed by the retiring auditors, and there was a possibility of the appointments being rejected by the auditors on that account.

(4)                     Y declined to accept the assignment and Z was called upon to intimate his willingness or otherwise to accept the assignment pursuant to the resolution of the Board of Directors. The Counsel's opinion was sought on the following points :

(a)          whether the vacancy caused by Y declining to accept the appointment constituted a casual vacancy under sub-section 6(a) of section 224 or one due to resignation of an auditor; and

(b)                      was the appointment of Z, made by the Board of Directors in place of Y, valid?

Auditing and Assurance

The Counsel was of the opinion that the Board of Directors could appoint an auditor only under the circumstances contemplated under sub-section 5 and under sub-section 6(a) of section 224. Further that, in the specific case referred to him for opinion, the refusal of Y to accept the appointment as joint auditor did not create a vacancy either casual or by resignation since Y's appointment had not become effective. Further, the appointment of an auditor having been made by the shareholders, sub-section (3) could not be invoked. Thus, Z could only be appointed by shareholders at general meeting.

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7

The Company Audit 1

 Page 12

Auditin7.12 g

In case the directors have refused to produce the Minute Books, the auditor may

consider extending the audit procedure as also consider qualifying his report in any

appropriate manner.

Question 9

Comment on the following:

(a) In case the existing auditor(s) appointed at the Annual General Meeting refused to

accept the appointment, whether the Board of Directors could fill up the vacancy.

(4 Marks)

(b) X and Co., Chartered Accountants, who were appointed as the first auditors of the

company, were removed without the prior approval of the Central Government,

before the expiry of their term, by calling an Extraordinary General Meeting.(5 Marks)

(c) Due to the resignation of the existing auditor(s), the Board of directors of X Lld

appointed Mr. Hari as the auditor. Is the appointment of Hari as auditor valid?

(4 Marks)

(d) At the Annual General Meeting of the Company, a resolution was passed by the

entire body of shareholders restricting some of the powers of the Statutory Auditors.

Whether powers of the Statutory Auditors can be restricted?

(5 Marks)(Intermediate-May 2002)

Answer

(a) Board's Powers to Appoint an Auditor: The appointment of an auditor is complete

only on the acceptance of the offer by the auditor. The non-acceptance of

appointment by the auditor does not result in any casual vacancy. Moreover, even if

the auditor is existing one, the matter would not make any difference since the

appointment has to be made at each AGM and the auditor must accept the same.

The casual vacancy is said to arise only in case of death, resignation, etc. Therefore,

the Board is empowered to fill such a vacancy. Section 224(3) of the Companies Act,

1956, empowers the Central Government to fill up a vacancy in case no auditors are

appointed or re-appointed at an annual general meeting (AGM). (It is also opined that

the appointment of an auditor having been made by shareholders, sub-section (3)

cannot be invoked Thus the auditor could only be appointed by shareholders at

general meeting). Thus, the Board of Directors are not authorised to fill up the

vacancy in case the existing auditor (s) appointed at the Annual General Meeting

refuse to accept the appointment.

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Company Audit 1

Section 224(3) of the Companies Act 1956, empowers the Central Government to fill up a vacancy in case no auditors are appointed or r-appointed at an AGM (it is also opined that that the appointment of an auditor has been made by shareholders, sub- section (3) cannot be invoked. Thus the auditor can only be appointed at general meeting by shareholders). Thus the Board of Director is not authorized to fill up the vacancy in case the existing auditor (s) appointed at the AGM refuse to accept the appointment