Auditors to attend general meeting
Section 146 of the Companies Act 2013, provides that all notices of, and other communications relating to, any
general meeting shall be forwarded to the auditor of the company, and the auditor shall, unless otherwise
exempted by the company, attend either by himself or through his authorised representative, who shall also be
qualified to be an auditor, any general meeting and shall have right to be heard at such meeting on any part of
the business which concerns him as the auditor.
Auditing Standards and National Financial Reporting Authority (NFRA): The Companies Act, 2013 provides that every auditor shall comply with the auditing standards. The auditing standards will be prescribed by the Central Government recommended by the Institute of Chartered Accountants of India in consultation with and after examination of the recommendations made by the National Financial Reporting Authority. Until any auditing standards are notified, any standard or standards of auditing specified by the Institute of Chartered Accountants of India shall be deemed to be the auditing standards.
Under the 2013 Act, National Financial Reporting Authority (NFRA) which replaces existing National Advisory Committee on Accounting Standards will make recommendations to the Central Government on laying down auditing and accounting standards applicable to companies. NFRA will monitor and enforce compliance with auditing standards.
Penal Provisions: Section 147 provides for punishment for contravention of the provisions of sections 139 to 146. These penalty provisions are as under.
• If a company contravenes any of the provisions of sections 139 to 146 it shall be liable to pay minimum fine of Rs. 25,000/- which may extend to Rs. five lakh. Further, every officer who is in default shall be punishable with imprisonment upto one year and minimum fine of Rs. 10,000/- which may extend to Rs. one lakh or with both.
• If an auditor of a company contravenes any of the provisions of sections 139, 143 144 or 145, the auditor shall be punishable with minimum fine of Rs. 25,000/- which may extend to Rs. five lakh.
• If it is found that the auditor has contravened the provisions of sections 139, 143 144 or 145, knowingly or willfully with the intention to deceive the company, its share holders, creditors or tax authorities, he shall be punishable with imprisonment for a term upto one year and with a minimum fine of Rs. one lakh which may extend upto Rs. 25 lakh.
• If any auditor contravened any of the provisions of sections 139, 143 144 or 145, he shall be liable to-
(b) refund the remuneration received by him to the company and
(c) pay for damages to the company, statutory bodies/authorities or to any other persons for loss arising out of incorrect or misleading statements of particulars made in his audit report.
• The Central Government shall, by notification, specify any statutory body or authority or an officer for ensuring prompt payment of damages to the company or the persons under clause (ii) of sub-section
(3) and such body, authority or officer shall after payment of damages to such company or persons file a report with the Central Government in respect of making such damages in such manner as may be specified in the said notification.
• Where, in case of audit of a company being conducted by an audit firm, it is proved that the partner or partners of the audit firm has or have acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to or by, the company or its directors or officers, the liability, whether civil or criminal as provided in this Act or in any other law for the time being in force, for such act shall be of the partner or partners concerned of the audit firm and of the firm jointly and severally.
Other Penalties on Auditor under Companies Act 2013:
(a) Class action suit against the Auditors U/s 245: To protect investor interest, Section 245 of Companies Act 2013 has introduced the concept of class action suits, through which shareholders, depositors can initiate legal action against the company and auditors in the event of fraudulent activity. A class of shareholders or deposit holders can now claim damages or compensation or demand other suitable action against the auditor, including the audit firm, by filing an application with the NCLT.
(b) Prosecution by NFRA (National Financial Reporting Authority) U/s 132: NFRA may investigate either suo moto or on a reference made to it by the Central Government on matters of professional or other misconduct committed by any member or firm of chartered accountants, registered under the Chartered Accountants Act, 1949 chartered accountants. If professional or other misconduct is proved, NFRA has the power to make order for-
• imposing penalty of (I) not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals; and (II) not less than ten lakh rupees, but which may extend to ten times of the fee received, in case of firms;
• debarring the member or the firm from engaging himself or itself from practice as member of the Institute of Chartered Accountant of India referred to in clause (e) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 for a minimum period of six months or for such higher period not exceeding ten years as may be decided by the National Financial Reporting Authority.
(c) Punishment for fraud U/s 447: Any person who is found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud. Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than three years.
(d) Punishment for false statement U/s 448: If any return, report, certificate, financial statement, prospectus, statement or other document required by, or for, the purposes of any of the provisions of this Act or the rules made thereunder, any person makes a statement-
• which is false in any material particulars, knowing it to be false; or
• which omits any material fact, knowing it to be material, he shall be liable under section 447.