(Auditor’s appointment under Company Law)

A – Well, I was attentive. I did understand; but find it difficult to digest and implement.

S – That is always the situation. You are impatient to grab the audit work; and are reluctant to comply with your Institute’s rules.

A – Unfortunately, our mindset has become that way. We often think of short-cuts or bypassing the rules or complying only at the 11th hour.

S – 11th hour is also not bad. You do it at 13th hour with a backdate!

A – We always have some hypothetical fear of doing things in time. We can’t work without tension! Now tell me, if directors of a company give us an appointment letter, is it not sufficient?

S – You often behave as if you have never studied the Companies Act. You can never see anything beyond income tax! That is the whole trouble.

A – Tell me then what I need to do.

S – At least read clause (9) of the First Schedule. First see whether you are the first auditor of that company or there is a change?

A – Why? Is there a difference? I just go by the directors’ letter.

S – Oh! Very dangerous! There are many who don’t even take an appointment letter! You are little better!

A – I am talking of a private limited company. Who is going to verify? Everything is within the family.

S – Are you sure – never are there any disputes in the family? Then why did you fight with Kauravas?

A – They were our cousins! Here, they are husband-wife and their son.

S – In Kaliyuga, there are instances where husband and wife – both CAs – separated and lodged complaints against each other to the Institute!

A – Oh Lord! I must keep Draupadi and Subhadra in good mood. Otherwise, they will drag me into court!

S – Can’t rule out! So, don’t be in a slumber. Previously you were ‘innocent’; but now they will call you ‘stupid’!

A – Anyway. Then what should I see?

S – See Sections 224 and 225 of the Companies Act. If it is the first appointment, then directors can appoint the auditor. But this has to be done within 30 days from incorporation.

A – Oh! And if they don’t?

S – That was sub-section (5) of Sec 224. Otherwise, they will have to hold an extraordinary general meeting and appoint the first auditor.

A – Ah! That’s simple. These are paper meetings. I will ask my friend to write minutes. He is a company secretary.

S – Arey Arjuna, don’t take it so lightly. All formalities of EGM must be observed.

 A – Yeah! He will draft the notice and minutes. Everything is internal!

S – One should see the record of service of notice. Remember, directors and members can deny that they received the notice. They can challenge the validity of the meeting itself.

A – Why should they? It is being done in company’s interest only.

S – So you feel. When everything is smooth and amicable, they will agree. But when friction starts, they will conveniently forget it.

A – Unnecessary complications! Very disgusting

. S – Why are you so uncomfortable when the compliances are so simple? After all, it is a corporate entity. There is sanctity behind these provisions.

A – Then tomorrow, there could be disputes amongst partners also!

S – Yes. That is very common. It is inevitable. Partners are bound to dispute and separate one day or the other! For every birth, there is a death and partnership is no exception.

A – Then, do you mean we should take everything in writing?

S – If possible, you should obtain signatures of all partners on your copy of balance sheet. Do you ever read the partnership deed of a client? There is normally a clause there that accounts will be signed by all partners.

A – Ah! All those are standard clauses. I don’t even ask for the Deed. Same is the case of memorandum and articles of a company. What’s the use of all those stereotyped clauses?

S – Then be ready for trouble.

A – Now, I am in practice for 24 years! Nothing has happened so far.

S – You have not died in the last 50 years. Can you not die now?

 A – Come back to auditor’s appointment. What if there is a change of auditors?

S – You have to first ensure whether the previous auditor has resigned or was removed. He may have just given a letter expressing his unwillingness to be reappointed.

 A – Then what? Is it not sufficient?

S – It may be an item requiring special notice under section 190 of the Companies Act. You have to see all these things.

A – This is too much! If I spend time on this, when shall I audit the accounts. There are deadlines.

S – This happens because you don’t recognise any other deadline except your tax returns. Why don’t you understand that your appointment should be validly made? It is of prime importance. Why are you so casual about it?

A – Clients come to us only at the last moment.

S – So to accommodate them, you compromise everything! If they are careless, make them understand the things. If you accommodate them, they will take you for granted. As if everything is your own duty.

A – I think I should insist on a company secretary’s certificate regarding compliances.

S – That will be better. At least some safeguard!. Client must spend for it. But your basic duty still remains.

A – What duty? S – At least to see the prima facie compliance.

A – Tell me further. Board can fill up a casual vacancy. Is it not?

S – Yes. But every vacancy is not a casual vacancy. First see whether the Board has power to do so. I mean, whether the vacancy is really casual.

A – Why?

S – Don’t expect me to teach you the whole of the Company Law. Why don’t you read the publication on Code of Ethics of your Institute?

A – Where will I get it?

 S – That also you want me to tell? What kind of a CA you are! Go to WIRC. The latest edition is of January 2009 – reprinted in May 2009.

A – Okay! I will see that. There seems no escape!

S – And remember, these provisions of Companies Act and Code of Ethics are very well thought of. Don’t take them as a burden. They are designed to safeguard your own interest. Otherwise, someday, you yourself will crib about your unjust removal.

A – I agree; but our clients are like that! And other CAs also are not bothered about it.

S – Don’t let your client take your professional work for granted. Read all these carefully and update yourself regularly. They are meant for your betterment. Your conduct with the client will decide the dignity of your fraternity, not only now but also in future. If you conduct yourself very loosely before the client, I am sure your future generation will pay for it.