Test - Audit & Auditors
Marks-30
Time- 1 Hour
Question-1 (4 marks)
XYZ Ltd., a prominent manufacturing company, is in the process of appointing a new auditor for the
upcoming financial years. Mr. A is a renowned auditor being considered for the role. During the due
diligence process, the following details come to light:
1. Mr. B and Mr. A are partners in ABC & Co. Mr. B has taken a personal loan of Rs.4 Lacs from XYZ
Ltd.'s subsidiary, EFG Ltd., six months ago.
2. Mr. A's relative, Ms. C, has an outstanding debt of Rs.2 Lacs with DEF Ltd., an associate company
of XYZ Ltd., which was taken three months ago.
Discuss about the eligibility of Mr. A for being appointed as an auditor of XYZ Ltd. in view of the
provisions of the Companies Act, 2013.
Question-2 (4 marks)
Stallworth Ltd. a listed company having a paid-up share capital of Rs.11 crores with a turnover of Rs.
100 crores had appointed an Audit Committee which recommended M/S ANC & Associates, a firm of
Chartered Accountants having such qualifications and experience as is required for appointment as
the auditor of the company. The next Annual General Meeting (the AGM) was due on 30.09.2023. The
Board disagreed with the said recommendation of the committee and refer back to it for
reconsideration. The Audit Committee was adamant on appointing the above firm of the Chartered
Accountants.
Discuss in the light of the Companies Act, 2013:
(i) The course of action for Board of Directors to resolve the above deadlock. What would be
your answer, if above situation was that of filling the casual vacancy of auditors?
(ii) The steps to be taken by the Board of Directors for appointment of auditors in case there
was no requirement of Audit Committee in the company?
Question-3 (4 marks)
The Board of Directors of Moon Light Limited, a listed company appointed Mr. Tel, Chartered
Accountant as its first auditor within 30 days of the date of registration of the Company to hold office
from the date of incorporation to conclusion of the first Annual General Meeting (AGM). At the first
AGM, Mr. Tel was re-appointed to hold office from the conclusion of its first AGM till the conclusion
of 6th AGM. In the light of the provisions of the Companies Act, 2013, examine the validity of
appointment/ reappointment in the following cases:
(i) Appointment of Mr. Tel by the Board of Directors.
(ii) Re-appointment of Mr. Tel at the first AGM in the above situation.
(iii) In case Mr. Bell, Chartered Accountant, was appointed as auditor at the first AGM to hold office
from the conclusion of its first AGM till the conclusion of 5th AGM. i.e.., 4 years tenure.
Question-4 (4 marks)
Yellow Private Limited is engaged in the business of manufacturing premium quality rattle toys. They
have a huge market for their toys all over India. The company has appointed its statutory auditors
for the financial year 2022-2023. The engagement letter of the auditors was signed with a clause
that fee to be mutually decided. Directors of the company have approached you to seek your advice
for provisions related to remuneration of auditors as per the provisions of the Companies Act, 2013.
Question-5 (4 marks)
L Ltd. having 2,000 members with paid-up capital of 1 crore, decided to hold its Annual General
Meeting (AGM) on 21 August, 2022. On 2nd July, 2022, 50 members holding paid-up capital of 6 lakhs
in aggregate, has given notice of their intension for a resolution to be passed at the AGM for
appointing Dawar & Co., as its Statutory auditor from FY 2022-23 onwards, instead of its existing
Statutory auditor, SNS & Co. which was originally appointed for 5 years term and had completed only
3 years term. When such notice was received by existing auditors, they sent a representation in
writing to the company along with a request for its notification to the members of the company. In
the context of aforesaid facts, answer the following question(s) according to provisions of the
Companies Act, 2013:
(i) Whether the said notice was given by adequate number of members and within the prescribed
time limit to L Ltd.?
(ii) Whether the company was bound to send such representation to its members made by SNS &
Co?
MCQS (2 Marks Each)
1. XYZ Limited is a company with 51% of its equity shares held by the State Government of
Maharashtra and 49% by private investors. The Board of XYZ Limited seeks to appoint an
auditor for the upcoming financial year. As per the Companies Act, 2013, which of the
following statements is correct regarding the appointment of the auditor?
(a) The Board of XYZ Limited has the authority to appoint the auditor through a board
resolution.
(b) The Comptroller and Auditor General (CAG) of India will appoint the auditor for XYZ
Limited
(c) The shareholders of XYZ Limited will appoint the auditor in the annual general
meeting
(d) The State Government of Maharashtra, holding the majority stake, will appoint the
auditor.
2. Birthday Card Limited, a listed company can appoint or re-appoint, Mishra & Associates (a
firm of Chartered Accountants), as their statutory auditors for:
(a) One year only
(b) One term of 3 consecutive years only
(c) One term of 4 consecutive years only
(d) Two terms of 5 consecutive years
3. Mr. Amit, a Chartered Accountant, is the appointed auditor of Grey Limited. Mrs. Anita,
Mr. Amit’s wife, recently acquired equity shares in Grey Limited with a face value of Rs. 1 lakh. Which
of the following statements is correct regarding M/s Amit & Co. eligibility to continue as the auditor
of Grey Limited?
(a) M/s Amit & Co. must vacate the position of auditor immediately due to the
disqualification arising from his wife’s holding of shares.
(b) M/s Amit & Co. can continue as the auditor only if Mrs. Anita divests her shares
within 30 days.
(c) M/s Amit & Co. can continue as the auditor since the shares held by Mr. Amit's wife do
not exceed the limit specified under the Companies (Audit and Auditors) Rules, 2014
(d) M/s Amit & Co. cannot continue as the auditor, as any acquisition of shares by a relative
leads to automatic disqualification.
4. For appointing an auditor other than the retiring auditor,
(a) Special notice is required.
(b) Ordinary notice is required.
(c) Neither ordinary nor special notice is required
(d) Approval of Central Government is required
5. The auditor of a Government Company shall be appointed or re- appointed by-
(a) The Central Government
(b) Comptroller and Auditor General of India (CAG).
(c) Central Government on the advice of Comptroller and Auditor General of India
(d) Chairman of the Board of Directors
BEST OF LUCK!!
