Corporate Accounting and Auditing · Statutory Audit under the Companies Act, 2013

Penalties and Liabilities of Auditors under the Companies Act, 2013

Updated 10 October 2026 · Fact-checked

An auditor who breaks sections 139, 143, 144 or 145 faces a fine under section 147(2): ₹25,000 to ₹5 lakh, or four times the remuneration, whichever is less. If the breach is knowing or willful with intent to deceive, imprisonment up to one year and a higher fine apply. A convicted auditor must also refund remuneration and pay damages.

Understand Penalties and Liabilities of Auditors

An auditor holds a position of trust. Members, creditors and the tax authorities rely on the audit report. If the auditor ignores the law or gives a false report, the Companies Act, 2013 imposes penalties and liabilities.

Think of the liability in two layers. Penalty is what the law imposes as punishment: a fine, and in serious cases imprisonment. Civil liability is what the auditor must make good: refund of remuneration and damages for loss caused by the report.

Section 147 is the core section. Sub-section (1) deals with the company and its officers when sections 139 to 146 are contravened. Sub-section (2) deals with the auditor personally when sections 139, 143, 144 or 145 are contravened. Sub-sections (3) and (4) deal with refund and damages. Sub-section (5) deals with audit firms and partners.

The key test for the heavier punishment is the state of mind. If the auditor contravened knowingly or willfully with the intention to deceive the company, shareholders, creditors or tax authorities, the proviso applies. Mere negligence or a simple breach attracts only the fine.

Cost auditors are covered too. Under section 148(8), a cost auditor in default is punishable as provided in section 147(2) to (4). Section 446B gives a lesser penalty to small companies, One Person Companies, start-up companies and Producer Companies, but that section deals with penalties payable by the company and its officers, not with the auditor's liability under section 147(2).

Key rules to remember

Fine on company and officers, section 147(1): Company: ₹25,000 to ₹5,00,000. Officer in default: ₹10,000 to ₹1,00,000; Applies when any of sections 139 to 146 is contravened. Imprisonment for officers was omitted with effect from 21-12-2020, so only fine applies.
Fine on auditor, section 147(2): ₹25,000 to ₹5,00,000 or 4 × remuneration, whichever is less; Applies if the auditor contravenes section 139, 143, 144 or 145. The upper limit is the lower of the two amounts.
Knowing or willful contravention, proviso to section 147(2): Imprisonment up to 1 year and fine of ₹50,000 to ₹25,00,000 or 8 × remuneration, whichever is less; Needs intention to deceive the company, shareholders, creditors or tax authorities.
Consequences of conviction, section 147(3): Refund remuneration received + pay damages; Damages are payable to the company, statutory bodies or authorities, or to members or creditors, for loss from incorrect or misleading statements in the audit report.
Audit firm, section 147(5): Fraud by partner(s) → liability of the partner(s) and the firm, jointly and severally; For criminal liability other than fine, only the partner(s) who acted fraudulently, abetted or colluded are liable.
Cost auditor, section 148(8)(b): Cost auditor in default → punishable as per section 147(2) to (4); The company and its officers in default are punished as per section 147(1).

How to solve Penalties and Liabilities of Auditors questions

Use this order for any question on auditor liability or penalties.

1Identify who is in default: the company, its officers, the auditor, or an audit firm and its partners.
2Identify which section was breached: 139 to 146 for the company, or 139, 143, 144, 145 for the auditor.
3Decide the state of mind: simple contravention or knowing and willful with intent to deceive.
4Pick the punishment: fine only for a simple breach; imprisonment plus a higher fine for intentional deceit.
5Compute the fine ceiling by comparing the fixed limit with the multiple of remuneration and taking the lower figure.
6Add the consequences of conviction: refund of remuneration and damages for loss from misleading statements in the audit report.
7For firms, apply section 147(5); for cost auditors, apply section 148(8). Conclude clearly.

Quickest way: Two-box method for auditor penalty

When to use it: For numerical questions asking the maximum fine or total exposure of an auditor.

Box 1 (simple breach): upper limit = lower of ₹5,00,000 and 4 × remuneration.
Box 2 (deceit): upper limit = lower of ₹25,00,000 and 8 × remuneration, plus imprisonment up to one year.
Check the minimum fine too: ₹25,000 in Box 1, ₹50,000 in Box 2.
If convicted, add refund of remuneration and damages as separate liabilities, not part of the fine.

Common mistakes in Penalties and Liabilities of Auditors

Taking the higher of the fixed limit and the remuneration multiple.
Students read 'or' as giving the larger amount.
Fix: The Act says 'whichever is less'. Always take the lower figure as the upper limit.
Applying imprisonment for every contravention by the auditor.
Students mix up the main provision and the proviso.
Fix: Imprisonment applies only when the contravention is knowing or willful with intent to deceive.
Saying officers of the company can be imprisoned under section 147(1).
Older notes still carry the earlier wording.
Fix: The words on imprisonment were omitted from 21-12-2020. Officers in default now face fine only.
Treating refund and damages as part of the fine.
All are seen as money paid by the auditor.
Fix: Refund and damages under section 147(3) are civil consequences of conviction, in addition to the fine.
Holding all partners criminally liable for one partner's fraud.
Students ignore the proviso to section 147(5).
Fix: The firm and the guilty partners are jointly and severally liable, but for criminal liability other than fine, only the partners who acted fraudulently or colluded are liable.
Forgetting that a cost auditor is covered.
Section 147 is read in isolation.
Fix: Remember section 148(8): the cost auditor in default is punishable under section 147(2) to (4).

Worked examples

Example 1

An auditor of a company, with an audit fee of ₹80,000, contravenes section 143 without any intention to deceive. What is the maximum fine?

Show the solution

The breach is of section 143, so section 147(2) applies to the auditor.
There is no intention to deceive, so the proviso does not apply. Only a fine is imposed.
Fixed limit = ₹5,00,000. Four times remuneration = 4 × ₹80,000 = ₹3,20,000.
The limit is whichever is less, which is ₹3,20,000.
The minimum fine is ₹25,000.

Answer: The fine ranges from ₹25,000 to a maximum of ₹3,20,000. No imprisonment applies.

Example 2

An auditor with remuneration of ₹4,00,000 knowingly and willfully gives a false audit report to deceive creditors, and the company suffers a loss. State the auditor's liabilities.

Show the solution

The contravention is knowing and willful with intent to deceive creditors, so the proviso to section 147(2) applies.
Imprisonment up to one year can be imposed.
Fine: not less than ₹50,000. The upper limit is the lower of ₹25,00,000 and 8 × ₹4,00,000 = ₹32,00,000, which is ₹25,00,000.
On conviction, section 147(3) applies: the auditor must refund the ₹4,00,000 remuneration to the company.
The auditor must also pay damages to the company, statutory bodies or authorities, or to members or creditors, for the loss arising from the misleading statements in the report.

Answer: Imprisonment up to one year, a fine of ₹50,000 to ₹25,00,000, refund of ₹4,00,000 remuneration, and damages for the loss caused.

Exam tips

Write the section number with every penalty you state. Section 147 earns the step marks.
In MCQs, watch for the words 'whichever is less' and compute both limits before choosing.
Separate your answer into penalty (fine, imprisonment) and civil liability (refund, damages). Examiners look for both.
Mention section 147(5) whenever the question speaks of an audit firm or partners.
Do not mix up the fine amounts: ₹25,000 to ₹5 lakh for the ordinary case, ₹50,000 to ₹25 lakh for deceit.

Practice questions from Statutory Audit under the Companies Act, 2013

Penalties and Liabilities of Auditors in other exams

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

Penalties and Liabilities of Auditors: frequently asked questions

Which section gives the penalties for auditors under the Companies Act, 2013?

Section 147 does. Sub-section (1) covers the company and its officers, and sub-section (2) covers the auditor. Sub-sections (3) to (5) cover refund, damages and audit firms.

What is the difference between civil and criminal liability of an auditor?

Criminal liability means punishment such as fine and imprisonment for contravention. Civil liability means making good the loss, including refund of remuneration and damages for incorrect or misleading statements in the audit report.

Can an auditor be jailed under the Companies Act, 2013?

Yes, but only where the auditor knowingly or willfully contravened the specified sections with intent to deceive the company, shareholders, creditors or tax authorities. The imprisonment may extend to one year.

Is a cost auditor liable under section 147?

Yes. Under section 148(8), a cost auditor who is in default is punishable as provided in section 147(2) to (4). The company and its officers in default are punishable under section 147(1).