Disqualification of Auditor

Who can be appointed as Auditor?

1) A person shall be eligible for appointment as an auditor of a company

● only if he is a chartered accountant or that a firm whereof

● majority of partners practicing in India are qualified for appointment as aforesaid may be appointed by its firm name to be an auditor of a company.

Where a firm including an LLP is appointed as an auditor of a company,

● only the partners who are chartered accountants shall be authorized to act and sign on behalf of the firm


In simple term, disqualification means to stop someone from being in competition or doing something because they are unsuitable or they have done something wrong

Disqualification of a Company Auditor:

As per the companies’ act, the following persons shall not be eligible for appointment as an auditor of a company, namely

  • a body corporate other than an LLP registered under the LLP Act, 2008;
  • any employee of the company;
  • a person who is a partner, or who is in the employment, of an officer or employee of the company;
  1. a person or his relative* or partner –
  • If holding any security or interest in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company;
  • the relative cannot hold security or interest in the company of face value exceeding ` 1,00,000.
  • the condition of Rs 1,00,000 shall be also applicable in the case of a company not having share capital or other securities.


Acquiring any security or interest held by a relative, above the threshold limit, the corrective action shall be taken or to maintain the limits as said above by the auditor within 60 days of such acquisition or interest.

Point to remember:

The following points merit consideration in this regard:

  • The value of shares of 1,00,000 that can be held by a relative is the face value, not the market value.
  • The limit would be applicable where the securities are held by the relative of an auditor and not where the securities are held by an auditor himself or his partner. If an auditor or his partner holds securities of even small value shall be a disqualification.
  • The corrective action shall be taken or applied within sixty days only in respect of securities held by relatives. The same does not apply to the auditor or his partner.

The term “relative”, as defined as means anyone who is related to another as members of a 

Hindu Undivided Family; 

husband and wife; Father (including stepfather), 

Mother (including step-mother), 

Son (including step-son), 

Son’s wife, 


Daughter’s husband,

Brother (including step-brother),

Sister (including step-sister).

For Example:

M/s XY & Co. is an Audit Firm having partners Mr. x and Mr. y, and Mr. A, the relative of Mr. y, is holding securities of MWF Ltd. having a face value of 1,01,000. Whether M/s XY & Co. is qualified from being appointed as an auditor of QPR Ltd.?

In the instant case, M/s XY & Co. will be disqualified for appointment as an auditor of MWF Ltd. as the relative of Mr. Y (i.e. partner of M/s XY & Co.) is holding the securities in QPR Ltd. which is exceeding the limit   1,00,000.   

  1. Indebted to the company, or its holding or its subsidiary or associate company or a subsidiary of such holding company, not exceeding of `Rs 5,00,000; or
  2. In the case given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its holding or it’s subsidiary or associate or a subsidiary of such the holding company, not exceeding Rs. 1 00000
  3. A person or a firm (whether directly or indirectly) as a business relationship with the Company, or its Subsidiary, or its Holding or Associate Company of such nature as may be prescribed
  4. A person whose relative is in the employment of the Company as a director or KMP (Key Managerial Personnel).
  5. A person who has been convicted by a Court of an offense involving fraud and a period of ten years has not elapsed from the date of such conviction.
  6. A person who, rendering directly or indirectly any service referred to in section 144 to the company or its holding company or its subsidiary company

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