Government Clears Air on CAG Audit Provision in New Companies Act

The Corporate Affairs Ministry today said that provisions regarding appointment of auditors by CAG for 'deemed government companies' would remain unchanged under the new Companies Act regime.

The issue has been clarified in the wake of doubts being raised by various stakeholders with regard to the applicability of the provisions related to appointment of auditors by the Comptroller and Auditor General of India (C&AG) to 'deemed government companies', that is firms owned or controlled by two or more government entities.

In a general circular issued today, the Corporate Affairs Ministry said that "the issue has been examined and it is clarified that the new Act does not alter the position with regard to audit of such deemed government companies through C&AG" and therefore such firms would be subjected to the concerned provisions.

As per the relating provision in the new Companies Act, in case of a government company or any other company directly or indirectly owned or controlled by the Central or state government, the C&AG will appoint an auditor within 180 days from the commencement of a financial year.

The act also says that the first auditor for such companies would need to be appointed by the C&AG within 60 days from the date of registration of the company. In case the Comptroller and Auditor-General of India does not appoint such an auditor within the said period, the company's board would have to appoint such an auditor within the next 30 days.

In its today's circular, the Ministry also said that the documents like articles of association and shareholder agreements, envisaging control, would need to be taken into account to decide whether an individual company would be covered under these provisions.

Clarification was also sought about the manner in which the information about incorporation of a company subject to audit by an auditor to be appointed by the C&AG is to be communicated to the C&AG for the purpose of appointment of first auditors.

To this, the ministry said that "such responsibility rests with both, the government concerned and the relevant company.

"To avoid any confusion it is further clarified that it will primarily be the responsibility of the company concerned to intimate to the C&AG about its incorporation along with name, location of registered office, capital structure of such a company immediately on its incorporation.

"It is also incumbent on such a company to share such intimation to the relevant Government so that such Government may also send a suitable request to the C&AG."