A company XYZ Ltd. had been mis-reporting its financial statements since more than 10 years which none of the stakeholders noticed for years. When the situation of the Company went from bad to worse and it had no option

Yes, the given case definitely brings out the importance of independence of auditors which has been re-iterated at various places and through various provisions in the Companies Act, 2013. If the Auditors had exercised independent judgement and not under the influence of the client they would have performed their duties diligently as was expected of them rather than signing inaccurate financial statements. Some of the Provisions of Companies Act, 2013 which promote independence of Auditors are discussed below: Eligibility for appointment as Auditor - Section 141 of the Companies Act 2013 provides that the following cannot be appointed as Auditors - a body corporate other than a limited liability partnership registered under the Limited Liability Partnership Act, 2008; an officer or employee of the company; a person who is a partner, or who is in the employment, of an officer or employee of the company; a person who, or his relative or partner- is holding any security of or interest in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company: Provided that the relative may hold security or interest in the company of face value not exceeding one thousand rupees or such sum as may be prescribed; is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of such amount as may be prescribed; or has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, for such amount as may be prescribed; a person or a firm who, whether directly or indirectly, has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of its holding company or associate company of such nature as may be prescribed; a person whose relative is a director or is in the employment of the company as a director or key managerial personnel; a person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies; a person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction; any person whose subsidiary or associate company or any other form of entity is engaged as on the date of appointment in consulting and specialized services as provided in Section 144 (auditors not to render certain services). Rendering of Non - Audit Services by Auditors : The rendering of following services by Auditor of the Company are prohibited under Section 144: accounting and book keeping services; internal audit; design and implementation of any financial information system; actuarial services; investment advisory services; investment banking services; rendering of outsourced financial services; management services; and any other kind of services as may be prescribed. Oversight of Auditors : To ensure independence and effectiveness of statutory auditors, the audit committee is required to review and monitor the auditor's independence, the audit scope and process, and performance of the audit team and accordingly recommend appointment, remuneration and terms of appointment of auditors of the company. Appointment and Mandatory presence of Auditors at general meetings of the Company : In terms of Section 139, the appointment of auditors is done by the members of the Company who are independent of its management. This ensures that the selection of Auditors is done in an impartial manner. Further, the Auditors are mandatorily required to attend all general meetings of the Company which enables the shareholders to raise queries to the auditors concerning the accounts of the Company. Duty to Report about Fraud : Section 143(12) imposes duty on the auditors by prescribing that if an auditor of a company in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud involving such amount or amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government and in case of a fraud involving lesser than the specified amount, the auditor shall report the matter to the audit committee constituted under section 177 or to the Board in other cases. Mandatory Rotation of Auditors : Companies Act, 2013 for the first time introduced the concept of mandatory rotation of auditors. Section 139(2) read with Rule 5 of the Companies (Audit and Auditors) Rules, 2014 provides that no listed company or a company belonging to the following classes of companies excluding one person companies and small companies: all unlisted public companies having paid up share capital of rupees 10 crore or more; all private limited companies having paid up share capital of rupees 50 crore or more; all companies having paid up share capital of below threshold limit mentioned in (a) and (b) above, but having public borrowings from financial institutions, banks or public deposits of rupees 50 crore or more shall appoint or re-appoint - An individual as auditor for more than one term of five consecutive years; and an audit firm as auditor for more than two terms of five consecutive years Also, an individual auditor who has completed his term of five consecutive years shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term. An audit firm which has completed two terms of five consecutive years shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term. Provided further that as on the date of appointment no audit firm having a common partner or partners to the other audit firm, whose tenure has expired in a company immediately preceding the financial year, shall be appointed as auditor of the same company for a period of five years.