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Auditing is the process of validating, substantiating and providing promissory services. It is a process of collecting, recording and valuing financial transactions complies with Accounting and Auditing standard issued by ICAI.
Accounting Standard specifies what accounting practice one should follow for a particular financial transaction, how that particular transaction to be recorded in the books of account. Auditing standard helps auditor to check whether all the applicable laws i.e income tax, sales tax, custom, excise and much more, relevant for a particular industry have been properly complied not.
Now question arises how Government Departments or any other person who may be an investor, incubator or stakeholder may know whether books of accounts are showing true, actual and fair picture or not?
To establish a trust in the eye of investor or government itself, the government has casted a responsibility on the shoulders of auditor to issue a report over the financials of the concerned entity. It is the responsibility of an Auditor to issue a report to the management of the concern company whether its accounts are proper or not or their accounts represents a true and fair view.
Now the question arises, who is an auditor, what is its role, how is he appointed and what are his duties and the worthiest question why do I make an audit of my financial transactions.
Let’s answer all the above questions by one by one.
Who is an Auditor?
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In simpler terms, an auditor has to be a chartered accountant holding a certificate of practice and Appoint of auditor shall be done within 30 days of incorporation of company. The ADT-1 form is required to be filed on the Ministry of Corporate Affairs portal for the appointment of auditor. So, you need to choose a good chartered accountant soon after your company incorporation and get your form filed for completing this compliance. Is it mandatory to appoint an auditor ? When I am running a partnership firm or Proprietary unit or Private Limited Company, or Public Limited Company ?
The Answer is “NO”. The mandatory requirement to appoint an auditor is applicable only for a Private limited company or a Public Limited Company , except these company structures; no other legal structure is required to appoint an auditor for their business entity. However, if you are running any other concern and achieving an annual turnover more than Rs.1 Core then also you are required to get your books of accounts audited by a Practicing Chartered Accountant.
What I have to do if I have incorporated a company recently?
As per section 139(6) of Companies Act 2013, ‘company (other than Government Company) has to appoint its first auditor within 30 days from the date of incorporation by conducting a board meeting and a board resolution for the same has to passed. If the board of directors are not able to appoint, then the auditor has to be appointed within 90 days at an extraordinary general meeting of members.’
What if appointment of auditor is not made?
As appointment of Auditor is statutory requirement, non-compliance of same can attract severe penalty over the company and its directors as well.
However, In case the company fails to do so the appointment can be done later on payment of statutory late fees as prescribed by ROC.
To know about late fees, please use following link:
What is the role of Auditor in company?
The appointment of the auditor by the members of the company Board plays a crucial role in the company’s management. Some of the following activities pertaining to company’s management are as follows:
- Finalization of Books of accounts i.e. finalization Balance sheet and profit & loss.
- Check over non-compliance: Performing audit of your books and accounts annually to allows to quickly check whether any non-compliance with companies act exist in your books or not such as payment of service tax liability etc.
- ROC Filing (http://www.company360.in/roc-filing-for-companies-annual-roc-filing): A regular audit supplies an audited Balance sheet and Profit & Loss which is required to be filed at ROC. A complete audit report is required to be filed at ROC.
- Balance sheet Finalization: A good track of books of accounts keep a tap over your growth chart and helps you in finalization Balance sheet and profit & loss.
What are the Documents required for appointment of Auditor’s Appointment?
Below the few documents that are required to be prepared for Auditor’s Appointment:
- Board Resolution is passed first for the appointment of Auditor.
- A Consent letter is obtained by Auditor for seeking his appointment.
- Appointment letter by company is issued to auditor.
The above mentioned documents are than required to file at MCA in form ADT-1 for appointment of Auditor.