Section 141 and 142 of Companies Act 2013: Auditor Eligibility, Disqualifications and Remuneration
Sections 141 and 142 of the Companies Act, 2013 form part of the statutory framework governing company auditors. Section 141 specifies who is eligible to be appointed as auditor and the circumstances that disqualify a person or firm. Section 142 deals with the manner in which an auditor's remuneration is fixed and what that remuneration includes.
Section 141 - Eligibility, Qualifications and Disqualifications of Auditors
Who is eligible to be appointed as auditor?
Under Section 141(1), a person is eligible for appointment as auditor of a company only if the person is a chartered accountant. A firm may be appointed in its firm name where the majority of its partners practising in India are qualified for appointment as auditors.
Under Section 141(2), where a firm, including a limited liability partnership, is appointed as auditor, only partners who are chartered accountants are authorised to act and sign on behalf of the firm.
Who is disqualified under Section 141(3)?
Section 141(3) prevents appointment of persons whose status, employment, financial interests, relationships or services may conflict with the statutory requirements governing an auditor. The principal disqualifications are:
- A body corporate, other than a limited liability partnership registered under the Limited Liability Partnership Act, 2008.
- An officer or employee of the company.
- A person who is a partner of, or is employed by, an officer or employee of the company.
- A person who, or whose relative or partner, has the prohibited security or interest, indebtedness, guarantee or security relationship described in Section 141(3)(d), subject to the prescribed limits.
- A person or firm having a prohibited business relationship, directly or indirectly, with the company or the specified related entities, subject to the exceptions prescribed by the rules.
- A person whose relative is a director or is employed by the company as a director or key managerial personnel.
- A person in full-time employment elsewhere, or a person or partner of a firm who is already holding appointment as auditor of more than twenty companies at the date of appointment or reappointment.
- A person convicted by a court of an offence involving fraud where ten years have not elapsed from the date of conviction.
- A person who directly or indirectly renders a service referred to in Section 144 to the company, its holding company or its subsidiary company.
Rule 10 limits relevant to Section 141(3)(d)
| Issue | Prescribed position |
|---|---|
| Security held by a relative | A relative of the auditor may hold securities in the company with face value not exceeding Rs. 1,00,000. If the prescribed threshold is exceeded through an acquisition, corrective action is to be taken within 60 days. |
| Indebtedness | A person, relative or partner indebted to the specified company or related entities in excess of Rs. 5,00,000 attracts the disqualification. |
| Guarantee or security for third-party indebtedness | The prescribed threshold is an amount exceeding Rs. 1,00,000. |
| Business relationship | Commercial relationships are generally covered, but prescribed exceptions include permitted professional services and specified ordinary-course, arm's-length transactions. |
What happens if a disqualification arises after appointment?
Section 141(4) provides that if an auditor incurs any disqualification mentioned in Section 141(3) after appointment, the auditor must vacate the office. The resulting vacancy is treated as a casual vacancy in the office of auditor.
Section 142 - Remuneration of Auditors
Who fixes the auditor's remuneration?
Under Section 142(1), the remuneration of the auditor is fixed in the general meeting of the company, or in such manner as may be determined in that meeting. The Board may, however, fix the remuneration of the first auditor appointed by it.
What is included in auditor remuneration?
Section 142(2) provides that remuneration includes the audit fee, expenses incurred by the auditor in connection with the audit, and any facility extended to the auditor. It does not include remuneration paid for any other service rendered at the request of the company.
Practical compliance points
Before appointment or reappointment, the company and proposed auditor should verify the auditor's professional eligibility, financial interests and relationships covered by Section 141, the Rule 10 monetary thresholds, the ceiling on audit appointments, and whether any service falling within Section 144 creates a disqualification. Any disqualification arising after appointment should be addressed promptly because Section 141(4) requires vacation of office.
Official legal resources
For the current statutory text and subordinate legislation, refer to the official Companies Act, 2013 on India Code and the Companies (Audit and Auditors) Rules, 2014 published by the Ministry of Corporate Affairs.
Note: This article is a general statutory reference. For a particular appointment, independence issue or audit engagement, the Act, applicable rules, notifications and professional requirements should be checked as applicable on the relevant date.