Why Company needs to audit its Accounts? | Top Management

Every Company needs to appoint an Auditor and audit its accounts on annual basis as per the Companies Act. Why the Companies Act makes it mandatory to appoint an Auditor? Company form of Business is started keeping in mind that one set of people’s funds that is shareholders funds will be managed by another set of people that is, the Board of Directors and the Management of the Company. When funds of one person is used by another person there comes a possibility of funds mismanagement. The shareholders invests their money in the Company to carry on their agreed business also known as Objects of the Company. This is the responsibility of the Management of the Company to use the funds of the Company only for those objects. As the Management is in full control of the funds there is a scop for the Management to use the funds of the Company for some other activities and hence there is a need to keep a check on the usage of funds by the Management. This is the place where An Auditor plays an important role. Auditors are qualified and professionally skilled to look into the accounts and report the shareholders whether the management has conducted the operations within their power and have done nothing which will adversely impact the shareholders. Auditors also report whether the Company has complied with all the legal formalities or not. If the Auditors find anything wrong, they will state the same in Auditors Report which is circulated alongwith the audited Financials of the Company. Based on the Report of the Auditors the Shareholders in the Annual General Meeting of the Company question the Management where the Auditors will also be present. And if the Shareholders are not getting satisfactory response from management or there is any mismanagement, the Shareholders have the power to remove the responsible Director from the Directorship of the Company. To be independent, the Auditors are appointed by the Shareholders of the Company and not by the Board of Directors or Management of the Company. The Auditors without the fear of losing their work if they ask or report adversely to the Management, they are appointed by the Shareholders in Annual General Meetings. As per the Companies Act, 2013, an Auditor must be appointed for a term of 5 years and even the shareholders of that Company cannot remove the Auditor without the permission of the Government.

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#Auditor #Auditors #Auditors_Appointment #Appointment_of_Auditor #Company_Audit #Company_Auditors

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