Only individual, possessing the requisite knowledge and skill, can be appointed as auditor of the company. The auditor should be independent in carrying out his work so that he is able to give an unbiased opinion based on an objective assessment of facts. Thus, he should have no interest, financial or otherwise and whether directly or indirectly, in the company and/or its management.
A person, who is Chartered Accountant within the meaning of Chartered Accountants Act, 1949 and holds a certificate of practice, or a partnership firm where of all the partners are Chartered Accountants holding certificates of practice, may be appointed as auditor of a company. However, in the latter case, the appointment as an auditor may be made in the firm name and any of its partners may act in the name of the firm.
The following persons cannot be appointed as auditor of a Company:
(a) An officer or employee of the company;
(b) A person who is partner with an employee of the company or employee of an employee of the company;
(c) Any person who is indebted to a company for a sum exceeding Rs. 1,000/- or who have guaranteed to the company on behalf of another person for a sum exceeding Rs. 1,000/-.
(d) A person who is holding any security of that company, after a period of one year from the date of commencement of Companies (Amendment) Act, 2000.
If an auditor, after his appointment, becomes subject to any disqualification mentioned above, he shall be deemed to have vacated as such.