Putting stringent norms for compliance professionals, Rule 9 of the Companies (Audit and Auditors) Rules, 2014 has now been omitted from the Companies Act 2013 inconsequent to which, audit firms can be punished for an offence done by one of its partner who acted in a fraudulent manner or abetted or colluded in any fraud.
As per the Notification issued by the Ministry of Corporate Affairs ( MCA )on 7th May 2018, the entire audit firm, either jointly or severally, along with the partner concerned, will now have to pay up for the penalties arising under the company law for any fraudulent act of an audit partner.
In the year 2012, the Government proposed to bring stringent regulations for auditing firm and its partners as the earlier legislation lacked such penalty for auditing partners in specific. As per the amended legislation, if partners of an audit firm are found involved in a fraud or have abetted or colluded in any fraud, then they will be penalized under the law.
The omission of the above Rule has been done with a view to make auditors accountable for their job and to promote good accounting practices.
As per the Act amended Companies Act in 2013, once an auditor is appointed for five years, there will be no need to get the appointment ratified by shareholders every year at the AGM. If the auditor has to be removed, there is always a process for his removal and requiring yearly ratification to continue as an auditor is seen as a compliance burden in certain quarters.
The amended Rules prescribe that a cost accountant can be appointed as cost auditor by the Board of Directors. The earlier Rules mandated appointment of a ‘cost accountant in practice’ as cost auditor.
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