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CompaniesAct.in: Graduated Role of Auditors-accountable & alert CompaniesAct.in
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Updated On: 12/11/2014

Auditors play a pivotal role in upholding the integrity of financial information which forms basis of all investment and financial decisions of the stakeholders. The mandatory requirement that the financial statements of a company have to pass through external audit rigour enables the stakeholders feel confident using such financial information. In summary, audit is an important and indispensable tool for Corporate Governance. The Companies Act aims at making good governance intrinsic to conduct of business by the company by making audit an effective measure to achieve that through adherence to stronger audit standards along with accounting standards. Requiring all subsidiaries, associates and joint ventures (whether Indian or foreign) to be covered under consolidated financial statements ensures a more transparent presentation in the interest of the stakeholders.

One of the key features in the Companies Act is the rotation of auditors. Under the extant Companies Act 1956, there is no provision for compulsory rotation of auditors. As a result, auditors in some companies continue for over 10-15 years and even more and consequently, the arms length distance with the company, which they are expected to maintain, is somewhat diluted. The consequences of the cozy relationship are borne by the stakeholders. The Companies Act has provided for Rotation of Auditors from time to time to ensure independence of auditors and strengthen diligence in their role and conduct.

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