Under section 228, the provision in regard to the audit of accounts of branches of a company is as given below:
Branch Auditors:
When a company has a branch office, the accounts of the office shall be audited by the company’s auditor appointed under section 224 or by a person qualified under section 226. Where the branch office is situated in a country outside India, either by the company’s auditor or a person qualified as aforesaid or by an accountant duly qualified to act as an auditor of the accounts of the Branch Office in accordance with the laws of that country.
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ADVERTISEMENTS:
Appointment:
The company in General Meeting may decide to have the accounts of a Branch Office audited otherwise than by the company’s auditor in which case the meeting should appoint any qualified person as auditor of the Branch or authorize the Board of
Directors to appoint a qualified person as auditor for the Branch in consultation with the company’s auditors.
ADVERTISEMENTS:
Rights and Duties:
The person so appointed as the branch auditor shall have the same powers and duties in respect of audit of the accounts of the Branch office as the Company’s auditor has in respect of the same.
Report: The Branch auditor shall prepare a report on the accounts of the Branch office examined by him and forward the same to the Company’s auditors, who shall, in preparing the Auditor’s Report, deal with the same in such manner as he considers necessary.
Remuneration:
ADVERTISEMENTS:
The Branch Auditor shall receive such remuneration and shall hold his appointment subject to such terms and conditions as may be fixed either by the company in General Meeting or by the Board of Directors, if so authorised by the company, in General Meeting.
Central Government and Exemption to Branch Audit:
The Central Government may make rules providing for the exemption of any Branch office to the extent specified in the rules, viz. ‘Companies (Branch Audit Exemption) Rules, 1961’.
The circumstances under which exemption may be granted there under the above rules are given as below:
Exemption based on quantum of Activity. If the total amount of the goods manufactured or sold or the services rendered, or the total amount of expenditure, whether capital or revenue of the branch concerned does not exceed Rs. 2 lakhs or 2 percent of the average of the total turnover of the company including all its branches and the earnings from services rendered and from any other source during the same financial year, whichever is higher, a company may be exempted from the provisions of section 228 of the Companies Act, 1956.
The quantum of activity shall be the average for the three years immediately preceding the financial year.
Exemption in other Cases:
Other grounds are:
(i) That the company engaged in trading has made satisfactory arrangements for the audit of accounts of the Branch office.
(ii) That the company has made arrangements for the audit of the Branch Accounts by a person (though he is an employee of the company) to get the Branch Accounts audited.
(iii) That a branch auditor is not likely to be available at a reasonable cost due to one reason or the other.
If an application is made on the ground stated above, it must be accompanied by:
(i) A certificate by the Managing Director or Manager of the company that satisfactory arrangements for internal audit of the Branch office have been made.
(ii) A certificate from the auditor of the company that such arrangements are adequate.
If exemption is granted, the auditor of the company will have the right to visit the Branch office and have access to the books of accounts, vouchers, etc., of the Branch office.
It is also a rule that the auditor so appointed will prepare a report for each year of the period for which exemption has been granted and send it to the auditor of the company.
When an application is moved for exemption from audit, on the basis that no auditor is available at any cost, a statement showing the names of auditors approached, remuneration demanded by them, fees etc., will have to be submitted.
Where, in any financial year, the accounts of the Branch office of a company have not been audited by an auditor mentioned in sub-section (1) of section 228, the auditor of the company will expressly write in his report the fact that the Branch office is exempt from the requirements of section 228 by virtue of Rule 3 or that an exemption has been granted under rule 4.