Number of Cost Audits at any Point of Time and Tenure of Cost Auditor:-
As already stated above, Section 224(1)(B) provides a ceiling on number of audits that a person
can hold on the date of appointment or re-appointment i.e. at any point of time. Section 233B(2) further provides that a written certificate shall be obtained from the cost auditor to the effect that
the proposed appointment, if made, will be in accordance with the prescribed ceiling, before the
appointment of any cost auditor is made by the Board. Therefore, it becomes important to know
when the holding of “appointment as cost auditor” begins and when it ends.
The appointment of cost auditor is by the Board, subject to the approval of the Central Government.
The question arises whether appointment begins from the date of the resolution of the Board or
only after the approval of the Central Government i.e. date of approval. A clarifi cation issued by
the Company Law Board (Appendix II-C) states that ‘the appointment of an auditor is complete
only when the company intimates in writing to the cost auditor that he has been appointed (Refer
circular no. 52-354 CAB-87 dated 30/8/88 The Management Accountant, October, 1988 issue
Page 719 Appendix II-C). This is further amplifi ed by the subsequent clarifi cation reference No.
3/8/89-CL.V dated 5th March, 1990 (Appendix E) addressed to ICWAI clarifi es that the number
of companies in respect of which reports have not been submitted should be taken into account for
the purposes of ceiling on cost audit. However, the clarifi cation reference No. 35/1/90-CL III dated
2nd March, 1990 (Appendix II-D) to ICAI states that the auditors will take into account not only the
actual appointments as auditors but also the proposed appointments in companies for which they
have given their consent. But this clarifi cation is applicable to Chartered Accountants only as no
approval from Central Government is required in this case. Therefore, it may be advisable that the
cost auditor takes into account the number of companies which had submitted applications in Form
23-C forwarding his name for appointment as the cost auditor. Otherwise the cost auditor may fi nd
himself having agreed to be cost auditor of more than the permissible limit at any particular time.
The second issue relates to the time or date when his appointment comes to an end. In case of
fi nancial auditor, the question is specifi cally answered by Sec. 224(1), which provides that he shall
hold offi ce ‘until the conclusion of next annual general meeting’. However in case of cost audit,
the cost auditor may have to provide clarifi cation to the queries of Cost Audit Branch long after
his submission of the report. The Cost Audit Branch on the other hand may have no clarifi cation
to seek. Therefore, Cost Audit Branch has clarifi ed (Appendix II-C) that “......it is clarifi ed that
for the purpose of furnishing the certifi cate under sub-Section 2 of Sec. 233B of the Act, a cost
auditor shall be deemed to have concluded his appointment as he renders a report to the Central
Government in accordance with the Cost Audit (Report) Rules, with a copy to the company”. The
clarifi cation further adds that ‘His obligation to answer queries from the Cost Audit Branch arising
out of review of cost audit report should not debar him from accepting another appointment as cost
auditor’ (Appendix II-C).
As already stated above, Section 224(1)(B) provides a ceiling on number of audits that a person
can hold on the date of appointment or re-appointment i.e. at any point of time. Section 233B(2) further provides that a written certificate shall be obtained from the cost auditor to the effect that
the proposed appointment, if made, will be in accordance with the prescribed ceiling, before the
appointment of any cost auditor is made by the Board. Therefore, it becomes important to know
when the holding of “appointment as cost auditor” begins and when it ends.
The appointment of cost auditor is by the Board, subject to the approval of the Central Government.
The question arises whether appointment begins from the date of the resolution of the Board or
only after the approval of the Central Government i.e. date of approval. A clarifi cation issued by
the Company Law Board (Appendix II-C) states that ‘the appointment of an auditor is complete
only when the company intimates in writing to the cost auditor that he has been appointed (Refer
circular no. 52-354 CAB-87 dated 30/8/88 The Management Accountant, October, 1988 issue
Page 719 Appendix II-C). This is further amplifi ed by the subsequent clarifi cation reference No.
3/8/89-CL.V dated 5th March, 1990 (Appendix E) addressed to ICWAI clarifi es that the number
of companies in respect of which reports have not been submitted should be taken into account for
the purposes of ceiling on cost audit. However, the clarifi cation reference No. 35/1/90-CL III dated
2nd March, 1990 (Appendix II-D) to ICAI states that the auditors will take into account not only the
actual appointments as auditors but also the proposed appointments in companies for which they
have given their consent. But this clarifi cation is applicable to Chartered Accountants only as no
approval from Central Government is required in this case. Therefore, it may be advisable that the
cost auditor takes into account the number of companies which had submitted applications in Form
23-C forwarding his name for appointment as the cost auditor. Otherwise the cost auditor may fi nd
himself having agreed to be cost auditor of more than the permissible limit at any particular time.
The second issue relates to the time or date when his appointment comes to an end. In case of
fi nancial auditor, the question is specifi cally answered by Sec. 224(1), which provides that he shall
hold offi ce ‘until the conclusion of next annual general meeting’. However in case of cost audit,
the cost auditor may have to provide clarifi cation to the queries of Cost Audit Branch long after
his submission of the report. The Cost Audit Branch on the other hand may have no clarifi cation
to seek. Therefore, Cost Audit Branch has clarifi ed (Appendix II-C) that “......it is clarifi ed that
for the purpose of furnishing the certifi cate under sub-Section 2 of Sec. 233B of the Act, a cost
auditor shall be deemed to have concluded his appointment as he renders a report to the Central
Government in accordance with the Cost Audit (Report) Rules, with a copy to the company”. The
clarifi cation further adds that ‘His obligation to answer queries from the Cost Audit Branch arising
out of review of cost audit report should not debar him from accepting another appointment as cost
auditor’ (Appendix II-C).
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