The Hindu Business Line : Concern over mandating auditors to attend AGMs

The Parliamentary Standing Committee on Finance, considering the Companies Bill 2009, is understood to have raised concerns over the Bill mandating the auditor of a company to attend its general meetings.

Pointing out that currently there are only around 150,000 chartered accountants in the country to audit as many as 800,000 companies, some members opined that such a massive shortage of auditors will make it nearly impossible for them to be present at general meetings – including annual general meeting and extraordinary general meeting – of so many companies, official sources told Business Line.

The Bill says only practising CAs – not connected to the company’s management or indebted to the company or holding the security of the company and its subsidiaries – are eligible to be appointed as auditors of a company.

It says the auditor of the company must be given notices on general meetings. An auditor, if exempted by the company, needs to send his/her authorised representative – also a qualified auditor – to such meetings.

Companies found guilty of violating this provision would be fined between Rs 25,000 and Rs 5 lakh. Officers found guilty would be imprisoned for a year or fined between Rs 10,000 and Rs 1 lakh or both.

Expert view

Experts said while half of the 800,000 companies are defunct, another 200,000-300,000 are multiple entities owned by large corporate groups where auditors have virtually no role.

An auditor’s role is somewhat prominent only in the 7,500-odd listed companies, and more particularly in the 3,000 firms whose stocks are traded in exchanges.

Some auditors, who are busy with companies during the period such as September when several companies hold AGMs, can even send their qualified juniors.

Mr Prithvi Haldea, CMD, Prime Database, told Business Line that the rule mandating auditors to attend general meetings of companies should be valid only for listed companies.

However, he added that “with AGMs of most listed companies thinly attended and the role of auditors only namesake, it is important to tighten responsibilities of auditors.”

A senior chartered accountant said there was no need to ease any norms as 1.5 lakh CAs are enough to attend general meetings of listed entities and take care of the related auditing needs.

Lobbying

Sources said some corporate firms were lobbying for easing of norms to suit their needs, adding that the provision mandating auditors to attend general meeting was important for protection of shareholders’ interests too.

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