A statutory auditor is a professional appointed by a company to check and verify its financial statements. Their job is to make sure these statements show a true and fair view of the company’s financial situation. This role is very important because it helps ensure transparency, honesty, and that the company follows the law (specifically The Companies Act and accounting standards). The statutory auditor protects the interests of shareholders, creditors, and the public by helping prevent financial mismanagement.
A statutory auditor is an independent person or auditing firm appointed under Section 173 of The Companies Act The company appoints the auditor at each Annual General Meeting (AGM), and the auditor holds office until the next AGM. Their main duty is to examine the company’s financial statements and give an opinion on them.
The auditor must not be an employee or officer of the company, nor a partner or employee of someone who is an officer or employee of the company. According to Section 178 of the Companies Act, the auditor must be independent and not involved in the company’s management or decision-making. This means directors, managing directors, company secretaries, chief financial officers, managers, or anyone with significant control cannot be auditors.
The auditor must be a certified public accountant (CPA). If a firm is appointed as auditor, every partner in that firm must be a CPA. This means the auditor must be legally recognized, professionally trained, and licensed to perform audits. They must have the skills and knowledge to determine if the company’s financial statements meet legal requirements.
If a person or firm does not meet these qualifications, they cannot legally be the company’s statutory auditor.
If a company appoints someone who does not meet these qualifications, or if someone acts as an auditor without meeting these requirements, both the company and the person responsible can be fined under Section 178(4) of The Companies Act.
Public companies, insurance companies, banks, and large public groups that exceed certain turnover and asset limits must appoint a statutory auditor.
Private companies are generally exempt unless specified under Section 174 of the Companies Act.
Examine the company’s financial statements, including cash flow statements and profit and loss accounts.
Prepare a report confirming whether the company’s accounts and records have been properly maintained and whether the financial statements agree with those records, as required under Section 166 of the Companies Act.
Statutory auditors provide an independent check on a company’s financial statements. This helps shareholders and other stakeholders trust that the financial information is accurate and reliable. It also reduces risks and potential liabilities for company directors by ensuring proper financial management.
The auditor has the right to look at the company’s books, accounts, and records whenever needed. They can also ask the company’s officers for any information or explanations necessary to do their job properly.
If a company officer knowingly or carelessly gives the auditor false, misleading, or deceptive information—whether spoken or written—they are committing an offense. Such a person can be punished with a fine, imprisonment, or both.
Auditors have the right to attend any general meeting of the company. They must receive all notices and communications sent to members about these meetings. At the meeting, auditors can speak on any matters that relate to their role as auditors.
Yes, a company can remove an auditor at any time without waiting for their term to finish. To do this, the company must give a special notice and pass a resolution at a general meeting to remove the auditor.
As soon as the company receives a notice about the plan to remove the auditor, it must immediately send a copy of this notice to the auditor who is about to be removed or the retiring auditor.
If the auditor writes a response about the removal (which should not be too long) and asks the company to share it with the members of the company, the company must do the following unless the response was received too late:
Send a copy of the auditor’s response to every member who receives the meeting notice, whether they get it before or after the company receives the response.
If the company doesn’t send the response on time or at all, the auditor has the right to ask that their response be read aloud during the meeting.
If the court believes the auditor is misusing this right to get unnecessary publicity or to spread harmful statements, it can stop the company from sending out or reading the response. In such cases, the court can also order the auditor to pay some or all of the company’s legal costs, even if the auditor is not directly involved in the court case.
These rules also apply when the company wants to remove the first auditor or when a retiring auditor is not being re-appointed.
They also apply if an auditor resigns voluntarily and submits a statement explaining the reasons, which should be shared with members or creditors.
Inconclusion, the statutory auditor is not only a legal requirement but a key guardian of financial integrity, helping companies operate responsibly and maintain trust with all stakeholders.
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