Ramya (cafinal student) (107 Points)
25 August 2009Please anybody can Clarify my Doubt !
In a company, a firm Xyz & co are Chartered Accountants. In this partners are X & Y. X always signs the Audit report. Y buys Goods for Rs.10,000 from The company their Client. And the Bill is outstanding as on 31st march. Is Xyz & co disqualified to be auditors of the company. Any way Y does not Sign The audit report. Please clarify me , that whether The firm is disqualified or Y is disqualified ?
Ramya
CA Manish K Dhoot
(CA, B. Com, NCFM, CPCM)
(5015 Points)
Replied 26 August 2009
If any partmer of firm is disquilified then whole firm will be disqualified from acting as Auditor.
Ankur Garg
(Company Secretary and Compliance Officer)
(114773 Points)
Replied 26 August 2009
Hello Ramya,
In your case the firm of auditor is very much disqualified with in the meaning of 226(3)(d) as one of the partner falls in the clause (d) of section 226 as mentioned above and due to the disqualification of Mr. Y whole firm stands disqualified from acting as Auditor.
It does not make any diff. as to who is signing the Audit Report.
Best Regards
Ratti Wahal
(Company Secretary)
(139 Points)
Replied 26 August 2009
Dear Ramya,
As per Section 226 (3) (d) of the Companies Act, 1956 'a person who is indebted to the Company for an amount exceeding one thousand rupees, or who has given any gurantee or provided any security in connection with the indebtedness of any third person to the company for any amount exceeding one thousand rupees shall not be qualified for appointment as auditoir of a company'.
By virtue of the aforesaid provision it is clear that if a person who is indebted to the Company for an amount exceeding Rs.1,000/- he/ she shall not be qualified to act as an Auditor of the concerned company.
In my opinion, the intention of the legislature at the time of adding the disqualifications of the auditors seems to keep the interested auditors away from the giving their view on the financial performance (accounts) of the Company. That's why they had putted a limit of an amount exceeding sum of Rs. 1000/-.
In your case, as Mr. Y has owned sum of Rs. 10,000/-, which is outstanding as on 31st March. Therefore, in my opinion, the liablity of Mr. Y towards the company made him and the entire firm disqualifed to act as an auditor of the concerned company. Further, it is immaterial whether he/ she had signed the Auditor's Report or not.
I hope you would find the above in order.
Regards,
Sandeep Marathe
(CA Final)
(423 Points)
Replied 26 August 2009
As per Section 226 (3) (d) a person who is indebted for more Rs.1000/- to any company or entity can't be appointed as Auditor of that company or entity. This disqualification applies to all the partners in the CA Firm, irrespective whether they sign the audit report or not.
Regards.
pragati singhal
(NOW A FINAL STUDENT)
(101 Points)
Replied 26 August 2009
AS per Sec. 226, if a person owes a sum exceeding Rs. 1000/- in a company, he is not qualified to be appointed as auditor of that company.
However in case of a firm where all partners are CA, any partner who owes a sum exceeding Rs. 1000/-, the firm is disqualified to be appointed as auditor.
CA Devanshi Gandhi (Ajani)
(FCA DISA Mcom CIFRS & LLB)
(9060 Points)
Replied 26 August 2009
firm will be disallowed
Ankush Juneja
(Trainee)
(73 Points)
Replied 26 August 2009
Is it is necessary to sign the project report?if not signed what are its consequences?Please let me know itz urgent...
Ramya
(cafinal student)
(107 Points)
Replied 26 August 2009
Hai guys,
Thank you for clarifying my Query.
Ramya
jugal chandak
(article)
(48 Points)
Replied 01 September 2009
226(3) - firm will also disqualify if any of the partner disqualify ...........so auditor has to vacate the office
Batul
(Article assistant)
(207 Points)
Replied 29 January 2010
ram shankar
(chartered accountant)
(42 Points)
Replied 09 August 2013
please define section 226(2) in lucid language
Ashok J
(CA Final)
(880 Points)
Replied 16 August 2013
Hello everyone, Plz think of this issue.
"Disqualification" u/s 226 arisesAT THE TIME of appointment. Say Mr.Y was liable to pay Rs. 10000 as on 31st march, but cleared his liability before AGM, he as well as firm will be eligible for re-appointment at AGM.
I have come across this answer in Padhuka Audit book. The Interpretations differ due to practical issues.
Thanks
Ashok
CAclubindia
