Disqualifications of an Auditor

Certain categories of persons are legally barred from being appointed (or from continuing) as a company's auditor, precisely because their circumstances would compromise the independence an audit depends on. At a general/conceptual level (appropriate to this unit — the detailed statutory list under the Companies Act, 2013 is studied in more depth when auditor appointment is revisited in Class XII, Company Law), a person is typically disqualified from being a company's auditor if they are:

• An officer or employee of the company (or of an associate/subsidiary company) — an employee cannot independently audit their own employer.
• A partner or employee of an officer/employee of the company.
• Indebted to the company beyond a specified limit, or has given a guarantee for a third party's indebtedness to the company.
• Holding any security or interest in the company (e.g. shares) beyond a specified threshold — a financial stake would compromise independence.
• A person convicted of fraud, or against whom an order of conviction involving moral turpitude has been passed, within a specified period.
• A body corporate (other than a limited liability partnership registered as such) — an auditor must generally be a natural person or an eligible partnership, not a company.
• Not holding a valid certificate of practice as a Chartered Accountant.

If a person already appointed as auditor becomes subject to any of these disqualifications during their term of office, they are deemed to have vacated the office of auditor from the date the disqualification arises.