The expression 'specified number' means—
(i) in the case of a person or firm holding appointment as auditor of a number of companies each of which has a paid-up share capital of less than rupees twenty-five lakhs, twenty such companies;
(ii) in any other case, twenty companies, out of which not more than ten shall be companies each of which has a paid-up share capital of rupees twenty-five lakhs or more.
In computing the specified number of companies in respect of which or any part of which any person or firm has been appointed as an auditor, whether singly or in combination with any other person or firm, shall be taken into account in computing the specified number as defined in Explanation I of section 224(1C).
The following types of companies shall be excluded from reckoning specified limits, in terms of share capital:—
(a) Guarantee companies (Department's Letter No. 8/12/(224)/74-CL-V, dated 28-9-74)
(b) Foreign companies (Circular No. 21 of TSF No. 35/3/75-CL-III, dated 24-9-1975)
As mentioned above, as per the Companies (Amendment) Act, 2000 private companies will not be taken into account for counting the 20 number of companies audit as specified as per sub-section (1B) of section 224.
(c) Branch audit of the Indian Companies not counted for calculating the specified number.
The Department is of the view that the branch auditor appointed under section 228 of the Act audits the accounts of the particular branch only and forwards his report to the auditor appointed u/s 224 of the Act and hence he cannot be equated with the company auditor appointed u/s 224 of the Act who has to report to the AGM on the accounts of the company as a whole including the branches audited by a branch auditor. Hence the branch audits are not to be included while calculating the specified number of 20 units.
(d) Foreign Company
Foreign companies are outside the scope of section 224 since the definition of the company u/s 3 of the Companies Act, 1956 does not include a foreign company. Hence the audit of the accounts of foreign companies is also not to be included within the specified number of 20 as laid down under Explanation I to sub-section (1C) of section 224 of the Act. [Circular No. 21 of 1975, dated 24 September, 1975]