Company Audit — Eligibility and Disqualification of Auditor under Section 141
## Section 141: Eligibility, Qualification and Disqualification of Auditor
### Who is Eligible?
A Chartered Accountant (individual).
A firm where majority of partners practicing in India are qualified CAs — appointed in the firm name.
Where the firm is an LLP, only CA partners can sign the audit report on behalf of the LLP.
### Disqualifications — Section 141(3)
The following persons cannot be appointed as auditor:
#### (a) Body Corporate (other than LLP)
A company or other body corporate (except LLP registered under LLP Act, 2008) cannot be an auditor.
#### (b) & (c) Employees and Connected Persons
An officer or employee of the company.
A person who is a partner or in employment of an officer/employee of the company.
#### (d) Financial Interest or Indebtedness
A person (or their relative or partner) who:
Disqualification
Monetary Limit
Holds any security or interest in the company / subsidiary / holding / associate company
Relative may hold securities of face value up to ₹1,00,000
Is indebted to the company / subsidiary / holding / associate / subsidiary of holding
Indebtedness must not exceed ₹5,00,000
Has given guarantee or security for indebtedness of any third person to the company or related entities
Guarantee must not exceed ₹1,00,000
Corrective action rule: If a relative acquires security beyond ₹1,00,000, the auditor must take corrective action within 60 days of such acquisition.
#### (e) Business Relationship
A person or firm who — directly or indirectly — has a business relationship with:
The company, OR
Its subsidiary, holding company, or associate company, OR
Subsidiary of such holding company.
(Content continues — further sub-clauses of 141(3) are in subsequent pages)
Worked example
### Example 1
Example 1 — Relative Holding Securities
CA Ramesh is the statutory auditor of GHI Ltd. His wife (relative) holds shares of GHI Ltd with face value of ₹80,000. This is within the ₹1,00,000 limit — Ramesh is NOT disqualified. However, if his wife later buys additional shares taking the face value to ₹1,20,000, Ramesh has 60 days to correct this (e.g., she must sell the excess) or he becomes disqualified.
### Example 2
Example 2 — LLP as Auditor
ABC & Associates LLP is appointed as auditor of XYZ Ltd. The LLP has 4 partners: 3 are CAs and 1 is a company secretary. The audit report must be signed only by the 3 CA partners — the CS partner cannot sign. The LLP appointment is valid since majority partners are CAs.
### Example 3
Example 3 — Indebtedness Trap
CA Priya has an outstanding loan of ₹6 lakh from JKL Ltd (the company she is auditing). This exceeds the ₹5 lakh limit — she is disqualified and cannot act as auditor of JKL Ltd until the loan is repaid below the threshold.
⚠️ Common exam mistakes
Confusing the three monetary limits: ₹1,00,000 (relative's securities), ₹5,00,000 (indebtedness), ₹1,00,000 (guarantee) — these are different thresholds for different disqualifications
Missing that the ₹1,00,000 security limit applies to relatives, but ANY security holding by the auditor himself is disqualifying regardless of amount
Forgetting the 60-day corrective action window — if a relative breaches the security limit, the auditor is not immediately disqualified; 60 days are available to remedy
Assuming a non-CA partner of an LLP cannot be part of the audit team — only the signing of the report is restricted to CA partners; the LLP itself can still be appointed
Treating all body corporates as disqualified — LLPs registered under LLP Act, 2008 are specifically EXCLUDED from the disqualification, so an LLP CAN be an auditor
Bare-Act text Section 141(3) · Companies Act, 2013 · click to expand
Section 141(3): The following persons shall not be appointed as the auditors of the company: (a) A body corporate other than limited liability partnership registered under the LLP Act, 2008; (b) An officer or employee of the company; (c) A person who is a partner or who is in the employment of an officer or employee of the company; (d) 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 (the relative may hold security or interest in the company of face value not exceeding Rs.1,00,000; in the event of acquiring any security or interest by a relative above the threshold prescribed, the corrective action to maintain the limits as specified shall be taken by the auditor within 60 days of such acquisition or interest); or is indebted to the company, or its subsidiary, or holding or associate, or subsidiary of such holding company, in excess of Rs.5,00,000; 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, in excess of Rs.1,00,000; (e) A person or firm who whether directly or indirectly, has business relationship with the company, or subsidiary, or its holding company, or associate company or subsidiary of such holding company.