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

Disqualifications of Auditor under Section 141

Updated 10 October 2026 · Fact-checked

Under Section 141 of the Companies Act, 2013, only a chartered accountant, or a firm with a majority of practising partners who are CAs, can be a company's auditor. Section 141(3) lists who cannot be: body corporates (except LLPs), officers or employees, persons holding securities, indebted persons, and others. Check each fact against the list.

Understand Qualifications and Disqualifications of Auditors

An auditor reports on the accounts to the members. That report is only trusted if the auditor is qualified and independent. Section 141 sets both tests: a qualification (who can be appointed) and a list of disqualifications (who cannot).

On qualification, Section 141(1) says a person is eligible only if he is a chartered accountant. A firm can be appointed by its firm name if the majority of its partners practising in India are qualified for appointment. Under Section 141(2), where a firm including an LLP is appointed, only the partners who are chartered accountants are authorised to act and sign on its behalf.

Section 141(3) then lists persons who are not eligible. Think of them in groups. Status: a body corporate other than an LLP; an officer or employee of the company; a partner or employee of an officer or employee of the company. Financial interest: holding securities of, being indebted to, or having given a guarantee or security for a third person's debt to the company, its subsidiary, holding or associate company or a subsidiary of the holding company. This applies to the person, his relative or his partner. Relationship: a business relationship of the prescribed nature, or a relative who is a director or in employment as a director or key managerial personnel. Other: more than twenty company audits, a fraud conviction within ten years, and rendering services prohibited by Section 144.

Section 141(4) deals with disqualification arising after appointment. The auditor must vacate office, and the vacancy is treated as a casual vacancy.

Section 145 links to this: the auditor signs the report in line with Section 141(2), and adverse qualifications or comments are read before the company in general meeting and are open to inspection by any member.

Key rules to remember

Qualification: Individual: chartered accountant. Firm: majority of partners practising in India are qualified.; Section 141(1). A firm may be appointed by its firm name.
Who signs for a firm: Only partners who are chartered accountants; Section 141(2). Applies to firms including LLPs.
Body corporate: Not eligible, except an LLP registered under the LLP Act, 2008; Section 141(3)(a). A company cannot be auditor.
Officer, employee and their partner or employee: Officer or employee of the company; partner or employee of such officer or employee; Section 141(3)(b) and (c).
Securities, indebtedness, guarantee: Person, his relative or partner holds security or interest, is indebted above the prescribed amount, or has given guarantee or security above the prescribed amount; Section 141(3)(d). Covers the company, its subsidiary, holding, associate and subsidiary of holding company. A relative may hold security of face value up to ₹1,000 or the prescribed sum.
Business relationship: Person or firm with business relationship of the prescribed nature, direct or indirect; Section 141(3)(e). The nature is set by the rules.
Relative as director or KMP: Person whose relative is a director or in employment as a director or KMP; Section 141(3)(f).
Number of audits: Holding appointment as auditor of more than 20 companies at the date of appointment or reappointment; Section 141(3)(g). Also covers a person in full-time employment elsewhere.
Fraud conviction: Convicted of an offence involving fraud and 10 years have not elapsed from the date of conviction; Section 141(3)(h).
Prohibited services: Directly or indirectly renders any Section 144 service to the company, its holding or subsidiary; Section 141(3)(i).
Disqualification after appointment: Auditor vacates office; treated as casual vacancy; Section 141(4).

How to solve Qualifications and Disqualifications of Auditors questions

Use the same checklist for any question asking whether a person can be an auditor.

1Identify the person: individual CA, firm, LLP, company or non-CA.
2Check the basic qualification under Section 141(1) and, for a firm, the majority-partner condition.
3Mark the facts given: employment, shareholding, loans, guarantees, business dealings, relatives, number of audits, convictions, services.
4Match each fact to a clause of Section 141(3). Note whose interest it is: the person, his relative or his partner, and in which company.
5Check any limit in the facts, such as ₹1,000 face value for a relative's securities or the figure of twenty audits. Where the text says the amount is prescribed, say so.
6Decide whether the disqualification existed at appointment or arose later. If later, apply Section 141(4).
7Conclude clearly: eligible or not, citing the clause, and state the consequence.

Quickest way: Three-bucket scan

When to use it: For MCQs and short case questions where you have under two minutes.

Bucket 1, who: not a CA, a company, an officer or employee.
Bucket 2, money: shares, loans, guarantees, business dealings, prohibited services.
Bucket 3, links and limits: relative as director or KMP, more than 20 companies, fraud conviction within 10 years.
Match the fact to one bucket, then confirm whose interest it is and the exact limit.

Common mistakes in Qualifications and Disqualifications of Auditors

Saying a company can be appointed auditor if it has CA directors.
Students confuse a firm with a body corporate.
Fix: A body corporate is barred except an LLP. A partnership firm is allowed if the majority of practising partners are qualified.
Treating any shareholding by a relative as a disqualification.
Students forget the proviso to Section 141(3)(d)(i).
Fix: A relative may hold security of the company of face value up to ₹1,000 or the prescribed sum. The auditor's or partner's own holding has no such exception in the proviso.
Applying the twenty-company limit as twenty or more.
Careless reading of the clause.
Fix: The bar is on holding appointment as auditor of more than twenty companies at the date of appointment or reappointment. Twenty is allowed.
Saying the fraud conviction bar lasts forever.
Mixing it with the director rule for sentences of seven years or more.
Fix: For auditors, it applies until ten years have elapsed from the date of conviction.
Ignoring disqualification arising after appointment.
Students stop at the appointment stage.
Fix: Under Section 141(4) the auditor must vacate office and it is a casual vacancy.
Quoting exact amounts for indebtedness, guarantee or business relationship.
Students memorise figures from rules.
Fix: The Act says 'as may be prescribed'. Write that the limit is as prescribed, and do not invent a figure.

Worked examples

Example 1

CA Meera is the statutory auditor of Sundaram Textiles Ltd. During the year, her brother's wife buys shares of face value ₹800 in the company. Separately, Meera's partner takes a loan from the company, and the loan is above the prescribed limit. Is Meera disqualified?

Show the solution

Meera is a CA, so she meets Section 141(1).
Check the relative's shares: a relative may hold security of face value not exceeding ₹1,000 or the prescribed sum. Face value ₹800 is within it, so this does not disqualify her. (Whether a brother's wife is a 'relative' depends on the definition in the Act, which this answer does not rely on.)
Check the partner's loan: Section 141(3)(d)(ii) covers a person, her relative or her partner who is indebted to the company above the prescribed amount.
The loan is above the limit, so the clause applies through her partner.
Because it arose after appointment, Section 141(4) applies.

Answer: Meera is disqualified because of her partner's indebtedness above the prescribed amount. The relative's ₹800 holding is not the problem. She must vacate office, and the vacancy is a casual vacancy.

Example 2

Rao & Co., a partnership firm with four partners, is proposed as auditor of Kaveri Foods Ltd. Three partners practising in India are chartered accountants and one is not. The firm audits 18 other companies. Can it be appointed, and who signs the report?

Show the solution

Section 141(1) allows a firm if the majority of partners practising in India are qualified. Three of four is a majority.
Check the number of audits: 18 existing, so appointment makes 19, which is not more than twenty. Clause (g) is not triggered.
No other disqualification is stated in the facts.
Under Section 141(2), only the partners who are chartered accountants may act and sign for the firm.
Section 145 requires the report to be signed in accordance with Section 141(2).

Answer: Yes, Rao & Co. can be appointed by its firm name. Only the three CA partners can act and sign the audit report.

Exam tips

Write the section and clause number with each reason, for example Section 141(3)(d)(i). It earns step marks.
In MCQs, look for the trap: LLP versus company, relative's ₹1,000 limit, twenty audits, ten years from conviction.
Always name whose interest it is: the person, relative or partner, and which company in the group.
Where the Act leaves an amount to be prescribed, write 'as prescribed' instead of guessing a figure.
End case answers with the consequence: ineligible at appointment, or vacate office as a casual vacancy under Section 141(4).

Practice questions from Statutory Audit under the Companies Act, 2013

Qualifications and Disqualifications 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.

Qualifications and Disqualifications of Auditors: frequently asked questions

Who is eligible to be an auditor of a company?

Under Section 141(1), a chartered accountant is eligible. A firm can be appointed by its firm name if the majority of its partners practising in India are qualified. Even then, none of the disqualifications in Section 141(3) must apply.

Can an LLP be appointed as auditor?

Yes. Section 141(3)(a) bars body corporates but excepts an LLP registered under the LLP Act, 2008. Under Section 141(2), only partners who are chartered accountants can act and sign for it.

What is the limit on a relative holding securities of the company?

The proviso to Section 141(3)(d)(i) lets a relative hold security or interest of face value not exceeding one thousand rupees or such sum as may be prescribed. Holdings above that disqualify the auditor.

What happens if an auditor becomes disqualified after appointment?

Section 141(4) says the auditor must vacate office. The vacation is deemed a casual vacancy in the office of the auditor.