Auditors to soon face harsh penal consequences for deviating from auditing standards & duties of auditors

Section 143 of the Companies Act 2013 (CA-13) provides the powers and duties of auditors and auditing standards, including rights of access to books of account and making a report to the company members. In particular, under Section 143(12), if an auditor of a company has reason to believe that an offense involving fraud is being or has been committed against the company by officers or employees of the company, she needs to report the matter to the Central Government or committee constituted by the Board depending on the amount involved in the suspected fraud.

Refer: Company Law Committee Report

Section 143(15) provides the penalty if an auditor does not comply with the provisions of sub-section (12). Prior to the amendment of Section 143(15) in 2020, such a defaulting auditor was punishable with a fine, not less than one lakh rupees, but which may extend to twenty-five lakh rupees. However, upon the amendment in 2020, she shall be punishable with a penalty of five lakh rupees in the case of listed companies and one lakh rupees for any other company.

NFRA should be empowered to take action against CA for professional or other misconduct [Company Law Committee]

Section 143(15) only provides the penalty for non-compliance with sub-section (12). Non- compliance with other sub-sections was earlier covered by Section 147, which provided that if an auditor contravened any of the provisions of Section 139, 143, 144, or 145, she/it would be punishable with a fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees or four times the remuneration of the auditor, whichever is less. However, Section 147 was amended in 2020 and inadvertently omitted the entire Section 143 from the purview of punishments.

Company Act may be Amended to mandate joint audits for certain classes of companies [Company Law Committee]

The Company Law Committee noted that after the amendment to Section 147 through the Companies (Amendment) Act, 2020 (“CAA-20”), auditors are not presently punishable for the contravention of Section 143, except for contravention of Section 143(12), which is covered by Section 143(15). To rectify this anomaly, it is recommended that a suitable amendment may be made to Section 147 to cover penal consequences for contravention of Section 143 regarding sub-sections other than sub-section (12).

Companies not having a public interest may be allowed to avail some currently prohibited non-audit services from their auditors