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CA Intermediate · Corporate and Other Laws

Audit and Auditors for CA Intermediate: Chapter Guide

Audit and Auditors is the Companies Act, 2013 chapter on who audits a company, how they are appointed, when they must go, and what they can and must do. Solve it by stating the provision, applying it to the facts given, and ending with a clear conclusion.

What this chapter covers

This chapter covers the statutory audit framework in the Companies Act, 2013. You start with books of account, then move to appointment, eligibility, rotation, removal, remuneration, powers, duties, liability and the special audits: cost, secretarial and internal.

Most questions are fact-based. A company appoints someone, a person holds shares, a firm has served for years, or an auditor resigns. You must decide if the act is valid. That means you need the exact conditions of each rule, not just the general idea.

The chapter links to the rest of Paper 2. Company Law topics such as the Board, general meetings, resolutions, the audit committee and the registered office all touch on audit. It also supports your Auditing paper, which takes the same auditor from the standards side. Learn the law here and the Auditing paper becomes easier.

Audit and Auditors is a rule-heavy chapter, and rule-heavy chapters give predictable marks. MCQs test small conditions such as who appoints, within how many days, and who is disqualified. Written questions give case facts and ask you to apply the law, so a student who knows the conditions and writes in provision-facts-conclusion format can score well. The chapter is also easier to revise than long procedural chapters, because most of it is lists of conditions and time limits.

Audit and Auditors: topics in the order to study them

  1. 1Statutory Audit and Books of Account BasicsStart here. You need to know what is being audited and what books a company must keep before you study who audits them.
  2. 2Appointment of Auditors and First AuditorThis is the core entry point. It covers who appoints, when, and for how long, and the first auditor rules differ from later appointments.
  3. 3Eligibility, Qualifications and Disqualifications of AuditorsOnce you know how an auditor is appointed, learn who can be appointed. Disqualification lists are heavily tested through case facts.
  4. 4Rotation of Auditors and Removal, ResignationRotation, removal and resignation describe how an appointment ends, so they come after you know how it begins and who qualifies.
  5. 5Remuneration and Powers and Duties of AuditorsWith the appointment lifecycle clear, move to what the auditor does: fees, access to records, the audit report and reporting duties.
  6. 6Non-Audit Services, Auditor's Liability and PenaltiesLiability and prohibited services make sense only after you know the auditor's duties, because they are the consequences of breaching them.
  7. 7Cost Audit, Secretarial Audit and Internal AuditStudy these last. They are separate audits with their own rules, and you can compare them against the statutory audit you already know.

How to prepare Audit and Auditors

Treat this chapter as a set of conditions you must be able to apply to facts. Build one compact note per topic and test it on small cases.

  1. Read the Act's wording for each topic once, slowly, and note the exact condition words: who, by whom, within how many days, by which type of resolution.
  2. Make a one-page table for appointment, rotation, removal and resignation. Columns: who acts, time limit, resolution type, filing needed.
  3. Learn the disqualification list as short triggers, such as body corporate, officer or employee, indebtedness, guarantee, business relationship and fraud conviction. Check any figure against the current Act and Rules before you memorise it.
  4. Practise fact-based questions. For each, write the provision, the facts, and a one-line conclusion: valid, invalid, or allowed with conditions.
  5. Compare the statutory audit with cost audit. In section 148, the cost auditor is appointed by the Board, cannot be the person appointed as auditor under section 139, and reports to the Board.
  6. Do MCQs on time limits and who-does-what. There is no negative marking, so always attempt every MCQ after eliminating options that break a rule.
  7. Revise the amendments covered for your exam attempt, since Paper 2 follows the amendments notified by ICAI for each sitting.

Common mistakes in Audit and Auditors

  • Treating the cost auditor like the statutory auditor in every respect.

    Fix: Keep a short comparison: who appoints, who can be appointed, to whom the report goes, and which Act section governs. Section 148 says the cost auditor is appointed by the Board, and the report goes to the Board.

  • Mixing up the first auditor and later auditor rules.

    Fix: Write the first auditor process as a separate flow: who appoints first, who steps in if that body fails, and the time limits. Then learn the later appointment rule on its own.

  • Giving a general answer instead of applying the provision to the facts.

    Fix: Use provision, facts and conclusion every time. Quote the condition, match it to the named facts, and end with a firm verdict.

  • Remembering the rule for removal but forgetting the safeguards.

    Fix: List the full steps for removal and resignation as a checklist, including the approval, the resolution type and the filings.

  • Guessing figures such as limits on shareholding, debt or number of companies.

    Fix: Check each figure against the current Act and Rules, and revise the numbers in a separate list on the last day.

  • Skipping the amendments for the exam attempt.

    Fix: Check the ICAI amendment notes for your sitting and update your table before the final revision.

Last-day revision: Audit and Auditors

  • A statutory audit is in addition to any cost audit: section 148(4) says the cost audit is in addition to the audit under section 143.
  • The cost auditor is a cost accountant appointed by the Board, with remuneration determined by the members in the prescribed manner.
  • The person appointed as auditor under section 139 cannot be appointed to audit cost records.
  • The cost audit report goes to the Board of Directors; the company sends it to the Central Government within thirty days of receiving a copy.
  • Cost auditors must follow the cost auditing standards issued by the Institute of Cost Accountants of India.
  • Appointment and rotation both follow the same pattern: learn who appoints, for how long, and what happens at the end of the term.
  • Removal before the term ends needs a special resolution and the Central Government's prior approval, and the auditor must get a chance to be heard.
  • Resignation is not just a letter: the auditor must also file the prescribed statement with the company and the Registrar.
  • An auditor who is disqualified at the time of appointment cannot be appointed; one who becomes disqualified later must vacate office.
  • Prohibited non-audit services protect independence; check any service against the list in section 144.
  • Default in cost audit provisions is punishable under section 147: company and officers under sub-section (1), the cost auditor under sub-sections (2) to (4).
  • In written answers, always write provision, facts, conclusion.

Audit and Auditors practice questions

Audit and Auditors in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Audit and Auditors: frequently asked questions

Which section of the Companies Act, 2013 covers cost audit?

Section 148 covers cost audit. It lets the Central Government direct certain classes of companies to keep cost records and to have them audited. The audit is in addition to the audit under section 143.

Who appoints the cost auditor?

The Board appoints the cost auditor, who must be a cost accountant. The remuneration is determined by the members in the prescribed manner. The person appointed as auditor under section 139 cannot be appointed to audit cost records.

To whom does the cost auditor submit the report?

The report on the audit of cost records goes to the Board of Directors. The company must then furnish a copy to the Central Government within thirty days of receiving it. It must include full information and explanation on every reservation or qualification.

How should I answer a case-based question on auditors?

Write the provision first, then match it to the facts given, then state a clear conclusion. Keep each part to a few lines. This format earns step marks even if you slip on one detail.

Is there negative marking for MCQs in this chapter?

No. There is no negative marking for wrong MCQ answers, so attempt all of them. Eliminate options that break a rule you know, then choose the best remaining one.