Expert Advisory Committee
ICAI-Expert Advisory Committee
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1.1 Query:

Appointment and tenure of auditor under

Societies Registration Act, 1860.

 

1. A firm of chartered accountants was appointed orally as statutory auditor by the management of an educational society duly registered under the Societies Registration Act. The said firm conducted the audit for three years and was duly paid for. The said firm commenced the audit for the fourth year with the books of account duly provided by the society. It is to mention here that the financial year of the fourth year had already ended and four months had already passed.

 

2. In the meantime, the management of the society changed and the new management appointed another firm of chartered accountants as their statutory auditors for the fourth year.

 

3. The new firm sent a letter to the first firm of chartered accountants seeking their no objection. The first firm of chartered accountants has denied to give no objection as it had already commenced the audit for the year for which it was seeking no objection.

 

4.  The querist has sought the opinion of the Expert Advisory Committee on the following issues:

                       

    (i) In the absence of any written appointment letter, what will be the tenure of the auditor?

     

    (ii) Whether commencement of audit of the books of account duly provided by the management and non-receipt of any letter/communication to the effect of non-continuance of audit is deemed to be continuance in the office of the statutory auditor.

 

                                                                                               Opinion                    April 3, 1995

           

1.  The Committee notes that unlike in the Companies Act, 1956, under which procedure for appointment and removal of the auditor and his tenure have been specifically prescribed, the Societies Registration Act, 1860, and the Rajasthan Societies Registration Act, 1958, do not seem to contain any such provisions regarding appointment, tenure and removal of the auditor.

 

2. The Committee is of the view that in the absence of any specific provisions in the aforesaid Acts, the appointment, tenure and removal of the auditor will be governed by the terms and conditions of the appointment. The Committee is also of the view that the appointment of an auditor should be in writing; in the form of an engagement letter. In this regard the Committee notes that para 4 of the Guidance Note on Audit Engagement Letters, issued by the Institute of Chartered Accountants of India, inter alia, states that “The purpose of an engagement letter is to confirm verbal arrangements by defining the nature and scope of work and auditor’s responsibilities which will help in avoiding misunderstanding with respect to the engagement…” However, it is possible that the aforesaid matters may be contained in the bye-laws of the society. Where the terms and conditions of the appointment are not in writing, and the bye-laws also do not contain any specific requirement in this regard, matters like tenure, removal etc., would be governed by the facts and circumstances of the case. Thus, in the present case also, the tenure of the auditor and the continuation of audit are questions of fact.

 

3.On the basis of the above, the Committee is of the following opinion in respect of the issues raised in para 4 of the query: -

                       

                        (i)            Please see para 2 above

                       

                        (ii)            Please see para 2 above

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