The Auditor’s Role in a Company

The Auditor's Role in a Company

Auditing is a corporate governance practise that is used to keep an entity in check. It is the thorough examination of complete books of accounts, transactions entered into by the company, physical inspection of inventories, and so on to ensure that all departments within the organisation adhere to the standards and operating systems.

Depending on the type of audit, professionals with expertise in relevant areas conduct the audit. Before declaring the results of any quarter, every publicly traded entity must have its accounts audited by an independent auditor.

The sequence of steps is critical for any audit to ensure a smooth and trouble-free process. The following rules must be followed:

Decide on the auditor’s role and responsibilities.
Include the scope of the work and the departments that will be covered.
Conduct the audit and gather the necessary data and information.

Auditor Appointment Procedure

Every company, whether private or public limited, must have its accounts audited, and to do so, it must go through the following steps:

The company’s first auditor is appointed by the board of directors within 30 days of incorporation and serves until the conclusion of the first AGM.
If the board fails to appoint within the specified time frame, the company will appoint its first auditor in a general meeting.
Every annual general meeting must appoint or ratify the appointment of an auditor to serve from the conclusion of that AGM to the next AGM.
The company must notify the appointed auditor within 7 days of the appointment.

The auditor must confirm his appointment within 30 days of receiving notification from the company and must notify the Registrar of his appointment.
In the case of government companies, such appointments are made on the advice of the Comptroller and Auditor General of India.
Within 15 days of such appointment, the company must file Form ADT-1 with ROC.

Auditor Appointment by Special Resolution:

Auditor shall be appointed by passing Special Resolution in all such Companies where these entities hold 25% or more shareholding:

Public Financial Institution; or Government Company; or Central Government; or Any financial institution established by provincial act in which the State Government holds 51% or more of the subscribed capital; or Nationalized bank; or Insurance Company.

If these classes of the company fail to pass a Special resolution for the appointment of an auditor, it will be considered non-appointment, and the company will be assumed to have no auditor, with the Central Government having the authority to fill such vacancy.

Auditor Removal

The removal of an auditor is divided into two categories: before or after the expiration of the auditor’s tenure. The Companies Act governs the process of removing the auditor.

If the company is dissatisfied with the auditor’s work, it has the authority to dismiss him before the end of his term.
The auditor is given a fair and reasonable opportunity to be heard and to explain his inappropriate behaviour.
The Central Government must approve the removal of the auditor before his tenure expires.
Form ADT-2 is used to apply for approval from the Central Government.
Such application to the central government must be made within 30 days of the Board Resolution being passed.

Such application to the central government must be made within 30 days of the Board Resolution being passed.
Once the removal of the auditor has been approved, the company must hold a general meeting to pass a special resolution appointing an alternate auditor in place of the auditor who is being removed.

Auditor's Rights, Duties, and Obligations

The auditor is appointed to examine the books of accounts and conduct an in-depth examination of the organization’s operations in order to ensure the validity and accuracy of the transactions contained therein. Thus, while performing his audit, an auditor has specific rights, duties, and obligations.

The audit report is an assessment of the company’s financial position. He must prepare a financial report based on true and accurate information that adheres to the requirements of the applicable law.
Because it contains an auditor’s opinion about the company, the audit report is a reliable source of information. An auditor must provide accurate advice on the report and, in some cases, provide negative feedback.
Making inquiries and findings throughout the audit is one of the most important duties of an auditor. For example, whether the company’s loan and advances are made in accordance with the provisions of the Companies Act, or whether the loans taken are recorded as a deposit.

If a branch audit is required, the auditor must assist.
The Central Government, in collaboration with the NFRA, has issued Auditing Standards that auditors must follow while performing their duties.
The auditor should carry out the audit within the scope determined by the board.