Relaxing Provisions of Auditors Under Companies Amendment Act, 2017 By CS Srishti Soni

Dear Professional Colleagues,

MCA Vide notification dated May 7, 2018, has notified 28 Sections of Companies (Amendment) Act, 2017 (CAA 2017).

The objective behind bringing the amendment in Companies Act, 2013 is to clear the equivocation in the current provisions in order to strengthen the administration and code of conduct in the companies and to help improve ease of doing business and simplification of compliances in the country.

Among various amendments and changes, the present Article deals with changes brought under the Section 139, 140 and 141 of the Companies Act, 2013.

Changes in Section 139

Previously, Every company was required to appoint an Auditor for a consecutive period of five years, Subject to ratification by shareholders at every AGM.

In section 139 proviso has been omitted and now the company is not required to place the appointment of Auditors for ratification by members at every AGM.

Changes in Penal Provisions

The amended section 140 has extended the penal provisions to an Auditor of the company.

Pursuant to section 140(2), the Auditor who has resigned from the company shall file within a period of thirty days from the date of resignation, a statement in the prescribed form with the company and the Registrar, and in case of companies referred to in sub-section (5) of section 139, the auditor shall also file such statement with the Comptroller and Auditor-General of India, indicating the reasons and other facts as may be relevant with regard to his resignation.

Throwing light on provisions of Section 140(3), If the auditor does not comply with sub-section (2), he or it shall be punishable with fine which shall not be less than “fifty thousand rupees or the remuneration of the Auditor, whichever is less”.

Disqualification of an Auditor

The Amendment Act, 2017 clarifies that any person who provides directly or indirectly any services as given in section 144 of the 2013 Act to the company, its holding company or to its subsidiary company is ineligible to be appointed as an Auditor of the company. (Section 141)

Services under Section 144 include:

  • Accounting and Book-keeping services;

  • Internal Audit;

  • Actuarial Services;

  • Investment advisory and investment banking service;

  • Rendering of outsourced financial services; and

  • Any other kind of services.

Powers and Duties of Auditors and Auditing Standards

The Amendment Act, 2017 clarifies that an Auditor of a holding company would have a right of access to the records of all its associates in addition to its subsidiaries for the purpose of consolidation of its financial statements with that of its subsidiaries and associates.

Additionally, the Amendment Act, 2017 clarifies that an Auditor would report on Internal Financial Control (IIFC) with regard to financial statements. Earlier the 2013 Act did not clarify that IFC would be with regard to financial statements.

Comparison between the current and amended provisions


Companies Act, 2013

Companies Act (Amendment ) 2017


Every company is required to appoint an auditor for consecutive period of five years, subject to ratification by shareholders at every AGM.

Annual ratification from the shareholders has been omitted.


Auditor of the holding company, shall also have right of access to the records of all its subsidiaries.

Right of access to the records of its subsidiaries and associate companies.


An Auditor is required to report whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls.

Clarified that the reporting obligations of the auditor on “internal financial controls is with reference to the financial statements”.


Currently, CARO 2015 requires auditors to comment whether managerial remuneration has been paid or provided in accordance with the requisite approvals mandated by the provisions of section 197 read with Schedule V to the 2013 companies Act.

Auditor to state in his report under section 143 whether:


·      Remuneration paid is as per sec 197;

·      Remuneration paid to any Director is in Excess of limits under sec 197;

·      Other details as may be prescribed;


Every company having a subsidiary or subsidiaries shall place separate audited accounts on its website.

Only listed companies having subsidiary or subsidiaries will be required to place separate audited accounts on its website.

Bottom Line

The amendments made by the Amendment Act, 2017 are aimed at providing Ease of Doing Business and Encouragement of Startups.

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