Disqualifications of a Cost Auditor:-
The disqualifications of a person for being appointed or re-appointed for conducting the cost audit
are detailed in sub-Sections (a), (b) and (c) Section 233 (5) of the Companies Act, 1956 detailed as
under:
(a) The sub-Section (5)(a) provides that a person referred to in sub-Section (3) or sub-Section (4)
of the Section 226 shall not be appointed or re-appointed for conducting the audit of the cost
accounts of a company.
(b) The sub-Section 5(b) provides that a person appointed under Section 224 as an auditor of a
company shall not be appointed or re-appointed for conducting the audit of the cost accounts
of that company.
(c) The sub-Section (5)(c) provides that if a person, appointed for conducting the audit of cost
accounts of a company, becomes after his appointment, to any of the disqualifications specified
in clause 5(a) or 5(b) above, he shall on and from the date on which he becomes disqualified,
shall cease to conduct the audit of the cost accounts of the company.
Section 226 of the Companies Act, 1956 provides for the qualifications and disqualifications of the
auditors. Reading of sub-Section (3) of Section 226 implies that the following persons cannot be
appointed or reappointed as cost auditor of a company –
(a) a body corporate;
(b) an officer or employee of the company;
(c) a person who is a partner, or who is in the employment, of an officer or employee of the
company;
(d) a person who is indebted to the company for an amount exceeding one thousand rupees or
who has given any guarantee or provided any security in connection with the indebtedness
of any third person to the company for an amount exceeding one thousand rupees;
(e) a person holding any security of that company after a period of one year from the date of
commencement of the Companies (Amendment) Act, 2000. (Explanation: “security” means
an instrument which carries voting rights);
The sub-Section (4) of Section 226 provides that a person shall also not be qualified for appointment
as auditor of a company if he is, by virtue of sub-Section (3), disqualified for appointment as
auditor of any other body corporate which is that company’s subsidiary or holding company or a
subsidiary of that company’s holding company, or would be so disqualified if the body corporate
were a company. In other words, if a person is disqualified under any of the aforesaid classes
from being appointed as an auditor of any company or body corporate, he cannot be appointed as
auditor of its holding company, subsidiary or ‘co-subsidiary’; and
A person, who is in full time employment elsewhere [Section 224 (1B)].
If an auditor becomes disqualified after his appointment, under any of the above provisions he
shall be deemed to have vacated his office.
The disqualifications of a person for being appointed or re-appointed for conducting the cost audit
are detailed in sub-Sections (a), (b) and (c) Section 233 (5) of the Companies Act, 1956 detailed as
under:
(a) The sub-Section (5)(a) provides that a person referred to in sub-Section (3) or sub-Section (4)
of the Section 226 shall not be appointed or re-appointed for conducting the audit of the cost
accounts of a company.
(b) The sub-Section 5(b) provides that a person appointed under Section 224 as an auditor of a
company shall not be appointed or re-appointed for conducting the audit of the cost accounts
of that company.
(c) The sub-Section (5)(c) provides that if a person, appointed for conducting the audit of cost
accounts of a company, becomes after his appointment, to any of the disqualifications specified
in clause 5(a) or 5(b) above, he shall on and from the date on which he becomes disqualified,
shall cease to conduct the audit of the cost accounts of the company.
Section 226 of the Companies Act, 1956 provides for the qualifications and disqualifications of the
auditors. Reading of sub-Section (3) of Section 226 implies that the following persons cannot be
appointed or reappointed as cost auditor of a company –
(a) a body corporate;
(b) an officer or employee of the company;
(c) a person who is a partner, or who is in the employment, of an officer or employee of the
company;
(d) a person who is indebted to the company for an amount exceeding one thousand rupees or
who has given any guarantee or provided any security in connection with the indebtedness
of any third person to the company for an amount exceeding one thousand rupees;
(e) a person holding any security of that company after a period of one year from the date of
commencement of the Companies (Amendment) Act, 2000. (Explanation: “security” means
an instrument which carries voting rights);
The sub-Section (4) of Section 226 provides that a person shall also not be qualified for appointment
as auditor of a company if he is, by virtue of sub-Section (3), disqualified for appointment as
auditor of any other body corporate which is that company’s subsidiary or holding company or a
subsidiary of that company’s holding company, or would be so disqualified if the body corporate
were a company. In other words, if a person is disqualified under any of the aforesaid classes
from being appointed as an auditor of any company or body corporate, he cannot be appointed as
auditor of its holding company, subsidiary or ‘co-subsidiary’; and
A person, who is in full time employment elsewhere [Section 224 (1B)].
If an auditor becomes disqualified after his appointment, under any of the above provisions he
shall be deemed to have vacated his office.
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