What are the rights and powers of an auditor?

Ans.

RIGHTS AND POWERS OF AN AUDITOR

(1) Right of access to books of account- The auditor has a right of access at all times to the books of account and vouchers of the company whether kept at the head office of the company or elsewhere and also to the returns submitted by the branch offices to the head office [Cuff vs. London and County Land Building Company Ltd. 1912] [Section 227 (1)]. The term “Books” includes not only those which pertain to accounts but also all the statutory, statistical and costing books while the vouchers include documentary evidence of any nature appertaining to the books and account under audit such as memorandum, minute books, stock books, share ledger. vouchers which include any documentary evidence in respect of a transaction in the books of account, contracts, correspondence, invoices etc. Although the auditor has got right of access to the books of account, etc. at all times he generally does not exercise it. He informs or consults the directors as to which time will be suitable and convenient to them before he goes to check the accounts. But in case he has some suspicion, he need not contact the directors and must pay a surprise visit.

(2) Right to call information and explanations- He has got a right to ask the directors and officers of the company, to give any information and explanations as may be necessary for the due discharge of his duty as auditor. [Section 227 (1)] The word “officer” includes Managing Agents Secretaries and Treasurers or the Secretary, etc. If the Managing Agents Secretaries, etc., is or are a firm, he can ask for an explanation from any partner of such firm. If such officers consist of a company, then he can question any director, managing director, etc., of such a company.

(3) Right to receive notice of and attend general meeting- To receive a notice of and to attend every general meeting of the shareholders irrespective of the fact whether accounts are being discussed or not at such a meeting. He has a right to speak at such meeting when the accounts are being discussed (Section 231). It may be remembered that the auditor has such a right but he may or may not exercise this right if he so desires.

(4) Right to make statement at the general meeting- He has a right to make any statement or explanation, he desires at such a meeting in connection with the accounts but is not bound to do so. If an auditor is present at a meeting, he is not bound to answer any question unless he is asked to do so by the chairman of the meeting. He should answer only those questions which affect the accounts.

If he finds that some wrong statement has been made by the directors relating to the accounts, he has the right to correct it. He cannot relieve himself of a responsibility for any omission in his report by making a verbal statement at the meeting to cover such omission. It must be remembered that according to Section 201, any provision, whether contained in the articles of the company, or in any contract with the company or otherwise. for affording to any auditor relief or exemption from or indemnity against any liability, shall be void.

(5) Right to be indemnified- He has a right to be indeminified out of the assets of the company against any liability incurred by him in defending himself against civil and criminal proceedings by the company provided he is acquitted of the charges or judgment is given in his favour or the court is of opinion that the auditor acted honestly (Section 633). (Article 99 of Table A).

(6) Right to visit the branches- The auditor of a company has the right to visit the branches of the company to audit the accounts provided no qualified auditor to audit the accounts of these branches has been appointed and exemption to get the branch accounts audited has not been granted to the company by the Central Government. In case he has to audit the accounts of the branches, he will have the right of access to all the books of accounts and vouchers, etc., of the branches at all times. If the company is a banking company and has branches outside India, the auditor will have no right to visit such branches but will have the right of access to all the returns sent by the branch to the head office (Section 228).

(7) Right to take legal and technical advice- He has the right to take legal expert or technical advice but he must give his opinion in the report and not that of the experts, lawyers, etc. (Re London and General Bank, 1895).

(8) Right to remuneration- An auditor has the right to have his remuneration paid to him provided, he has completed the work he undertook to do. But if an accountant has been employed at an annual fee and is dismissed during the currency of the year he is entitled to a full year’s fee as was held in Homer vs. Quilter in 1908. Lancaster is of opinion that an auditor dismissed subsequently to his election would be entitled to a similar claim in respect of fees. Similar considerations apply in the case of an auditor to a partnership.

(9) Right to sign the audit report- Only the person appointed as auditor of the company, or where a firm has so appointed, only a partner of the firm practising in India, may sign the auditor’s report, or sign or authenticate any other document of the company required by law to be signed or authenticated by the auditor (Section 229).

(10) Right of Lien-

(i) The right of lien is possessory right available to a person to retain the goods belonging to others upon which he has worked or with -respect to which he rendered service. During his audit work, the auditor works upon the books of accounts, documents, records etc., of his client. He also prepares working papers for his audit reference. The working papers prepared by him for his reference belong to him. As a owner he can refuse to part with his working papers when claimed by the client.

(ii) The auditor works on the books of accounts, documents etc., belonging to the client if he has work on them. He acts as an accountant or as an auditor depending upon the terms of engagement. The accountant has right of lien on the books on which he worked. The right of lien of auditor over the books which he audited is a disputed one. In the case of Herbert Alfred Burliegh vs. Ingram, Clark Ltd. (1901), it was decided that the auditor had no line on the books, of account in respect of the audit work. But if the work was of the nature of accountancy, lien could be exercised.