Corporate and Economic Laws · Accounts and Audit

Auditor Qualifications, Disqualifications and Remuneration under the Companies Act

Updated 11 October 2026 · Fact-checked

Only a chartered accountant, or a firm with a majority of practising partners who are CAs, can be a company auditor. Section 141(3) lists who cannot be appointed, Section 144 bars certain non-audit services, and Section 142 says members fix remuneration. To solve a question, test the person against each disqualification clause, then the services.

Understand Auditor Qualifications, Disqualifications and Remuneration

An auditor checks the accounts independently for the members. The law therefore asks two things: is the person competent, and is the person independent? Qualification answers the first. Disqualification answers the second.

Qualification is in Section 141(1). Only a chartered accountant is eligible. A firm can be appointed in its firm name if the majority of its partners practising in India are qualified. Under Section 141(2), where a firm (including an LLP) is appointed, only the partners who are chartered accountants can act and sign for it.

Disqualification is in Section 141(3). A qualified person is still barred if independence is doubtful. Examples: being an officer or employee of the company; holding securities of or interest in the company, its subsidiary, holding or associate company; a relative being a director or KMP; business relationship of a prescribed nature; being auditor of more than twenty companies; a fraud conviction within the last ten years; or rendering services prohibited by Section 144. Note that the test often extends to the person's relative or partner, and to group companies.

Section 144 adds a rule on services. The auditor may give other services only if the Board or audit committee approves them, and never the listed ones: accounting and book keeping, internal audit, design and implementation of any financial information system, actuarial, investment advisory, investment banking, outsourced financial services, management services, and any other service prescribed. This applies whether rendered directly or indirectly, to the company, its holding company or subsidiary company.

Remuneration is fixed by the company in general meeting or in the manner the meeting decides. The Board may fix it for the first auditor it appoints. It includes the auditor's expenses and facilities for the audit, but not pay for other services rendered at the company's request.

Key rules to remember

Eligibility of auditor: Chartered accountant, or firm with majority of India-practising partners being CAs; Section 141(1). Firm is appointed by firm name. Under 141(2) only CA partners sign and act.
Body corporate bar: Body corporate not eligible, except an LLP registered under the LLP Act, 2008; Section 141(3)(a). Many students forget the LLP exception.
Employment and relationship bars: Officer or employee of the company; partner or employee of such an officer or employee; person whose relative is a director or KMP/employee as director or KMP; Section 141(3)(b), (c), (f).
Securities, debt and guarantee bars: Person, relative or partner holding security or interest, indebted, or having given guarantee or security for a third person's debt, in company, subsidiary, holding, associate or subsidiary of holding; Section 141(3)(d). Relative may hold security of face value up to ₹1,000 or prescribed sum. Debt and guarantee amounts are as prescribed.
Business relationship bar: Person or firm with direct or indirect business relationship of prescribed nature; Section 141(3)(e).
Ceiling on number of audits: Not more than 20 companies at date of appointment or reappointment; Section 141(3)(g). Also bars a person in full-time employment elsewhere. For a firm, the partner is counted.
Fraud conviction: Convicted of fraud offence and 10 years not elapsed from date of conviction; Section 141(3)(h).
Prohibited services: Accounting and book keeping; internal audit; financial information system design and implementation; actuarial; investment advisory; investment banking; outsourced financial services; management services; others prescribed; Section 144. Applies to company, holding and subsidiary, directly or indirectly. Other services need Board or audit committee approval. Section 141(3)(i) makes rendering them a disqualification.
Post-appointment disqualification: Vacate office; treated as casual vacancy; Section 141(4).
Remuneration: Fixed in general meeting or as it determines; Board fixes for first auditor; includes expenses, excludes other services; Section 142(1) and (2).

How to solve Auditor Qualifications, Disqualifications and Remuneration questions

Use this order for any question on an auditor's eligibility, disqualification, services or fees.

1Identify who is being appointed: an individual, a firm, an LLP or a body corporate.
2Check qualification under Section 141(1): CA, or firm with majority of practising partners being CAs. Note that only CA partners sign under 141(2).
3Go through Section 141(3) clause by clause: body corporate, employment, securities, debt, guarantee, business relationship, relative as director or KMP, 20-company limit, fraud conviction, prohibited services.
4Check the group reach: does the fact involve the company, its subsidiary, holding or associate company? Does it involve a relative or partner?
5For services, match the service to the Section 144 list. If it is not listed, state that Board or audit committee approval is needed.
6For remuneration, state who fixes it (general meeting, or Board for first auditor) and what it includes.
7State the consequence: not eligible, or if it arose after appointment, vacate office as a casual vacancy under Section 141(4). Then write a one-line conclusion.

Quickest way: Clause-scan and service-list check

When to use it: For MCQs and short case scenarios where you must decide in under two minutes.

Ask: CA or firm with CA majority? If no, stop.
Scan the facts for a trigger word: employee, relative, shares, loan, guarantee, business, director, 20 companies, fraud, services.
Match the trigger to the clause and note any threshold such as ₹1,000 face value, twenty companies or ten years.
If the facts involve a relative, check whether the clause covers relatives. Shareholding by a relative has the ₹1,000 relief.
If services appear, compare against the nine-item Section 144 list.
Pick the option that matches the rule exactly, not the one that sounds strict.

Common mistakes in Auditor Qualifications, Disqualifications and Remuneration

Saying any body corporate cannot be auditor, ignoring LLPs.
Students remember the bar but skip the exception.
Fix: Write: body corporate other than an LLP registered under the LLP Act, 2008 is disqualified. LLPs can be appointed, with only CA partners signing.
Treating the 20-company limit as 20 audits per firm.
The word 'partner' is overlooked.
Fix: The text says a person or a partner of a firm holding appointment as its auditor of more than twenty companies. Apply it at the date of appointment or reappointment.
Confusing qualification with disqualification.
Both sit in Section 141 and sound similar.
Fix: Qualification (141(1)) is who may be appointed. Disqualification (141(3)) is who may not be, even if qualified. Use competence versus independence.
Applying a relative's shareholding as a total bar.
Students remember that relatives are covered but miss the proviso.
Fix: A relative may hold security of face value not exceeding ₹1,000 or the prescribed sum. The auditor's own or partner's holding has no such relief.
Thinking all non-audit services are banned.
Section 144 is read as a blanket prohibition.
Fix: Only listed services are banned. Other services are allowed with Board or audit committee approval.
Ignoring what happens when a disqualification arises after appointment.
Questions focus on the date of appointment.
Fix: Cite Section 141(4): the auditor vacates office and it is a casual vacancy.

Worked examples

Example 1

CA Meera is the statutory auditor of Sundaram Textiles Ltd. During the year her firm also maintains the company's books of account and designs its accounting software. Her brother holds shares of Sundaram Textiles with face value ₹800. Advise on her position.

Show the solution

Meera is a chartered accountant, so she is qualified under Section 141(1).
Maintaining books is 'accounting and book keeping services', and designing accounting software is 'design and implementation of any financial information system'. Both are prohibited by Section 144.
Under Section 141(3)(i), a person who directly or indirectly renders such services to the company is disqualified. Services through her firm count as direct or indirect rendering.
Her brother's holding: a relative may hold security of face value up to ₹1,000 (or the prescribed sum). ₹800 is within the limit, so it is not a disqualification.
Because the disqualification arose after appointment, Section 141(4) applies: she must vacate office and it is a casual vacancy.

Answer: Meera is disqualified because of the prohibited services. The brother's ₹800 holding is not a problem. She must vacate office as auditor, creating a casual vacancy.

Example 2

Is each of the following eligible for appointment as auditor of Bharat Engineering Ltd? (a) A firm of five partners, of whom three practising in India are CAs and two are not. (b) A CA who is an employee of Bharat Engineering Ltd. (c) A CA who already holds audit appointments in exactly 20 companies. (d) A CA convicted of a fraud offence eight years ago.

Show the solution

(a) The firm is eligible if the majority of partners practising in India are qualified. Three of five is a majority. It can be appointed in the firm name, and only the CA partners can act and sign under Section 141(2).
(b) An officer or employee of the company is disqualified under Section 141(3)(b), despite being a CA.
(c) The bar applies to more than twenty companies. Exactly 20 is not more than twenty, so the limit is not breached. Accepting this appointment would make it 21, so the check is made at the date of appointment. Taking the 21st would breach it only if he already holds appointment in more than twenty. As the text speaks of holding appointment in more than twenty at the date of appointment, a person holding exactly 20 is not barred by clause (g).
(d) A fraud conviction disqualifies until ten years have elapsed from the conviction. Only eight years have passed, so he is disqualified under Section 141(3)(h).

Answer: (a) Eligible. (b) Not eligible. (c) Not barred by the 20-company clause, as he holds exactly 20 at the date of appointment. (d) Not eligible until ten years pass.

Exam tips

In MCQs, hunt for the number: ₹1,000 relative holding, twenty companies, ten years from fraud conviction. Examiners change these figures in wrong options.
In case scenarios, always check whether the fact concerns the company only or also its subsidiary, holding or associate. The law covers the group.
List Section 144 services from memory in the same order. Marks come from naming the exact service and then linking to Section 141(3)(i).
Quote Section 141(4) when a disqualification arises after appointment. Many answers stop at 'disqualified' and lose the consequence.
For remuneration questions, state who fixes it and that expenses are included but pay for other services at the company's request is not.

Practice questions from Accounts and Audit

Auditor Qualifications, Disqualifications and Remuneration in other exams

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

Auditor Qualifications, Disqualifications and Remuneration: frequently asked questions

What is the difference between qualification and disqualification of an auditor?

Qualification is the minimum requirement to be appointed: a chartered accountant, or a firm with a majority of practising partners who are CAs. Disqualification is a bar on a qualified person because of an independence issue, such as being an employee or holding securities of the company. Both are in Section 141.

What is the limit on the number of company audits an auditor can hold?

Under Section 141(3)(g), a person or a partner of a firm cannot be appointed or reappointed if, at that date, he holds appointment as auditor of more than twenty companies. Exactly twenty is within the limit.

Which services are prohibited to an auditor under Section 144?

Accounting and book keeping, internal audit, design and implementation of any financial information system, actuarial services, investment advisory, investment banking, outsourced financial services, management services, and any other service prescribed. They are barred for the company, its holding company and subsidiary company, directly or indirectly.

Who fixes the auditor's remuneration?

The company fixes it in general meeting, or in the manner the meeting determines. The Board may fix the remuneration of the first auditor it appoints. It includes the auditor's expenses for the audit and facilities extended, but not pay for other services requested by the company.

What happens if an auditor becomes disqualified after appointment?

Under Section 141(4), the auditor must vacate office, and the vacation is treated as a casual vacancy in the office of auditor.