Appointment of Auditors in a Company [Vanshika Aggrawal]



APPOINTMENT OF 1st AUDITOR [Section 139 & Rule 3 of Companies (Audit and Auditors) Rules, 2014]

The Board of Directors of a company shall appoint an individual or firm as the first auditor of a company, other than a Government company, within thirty days from the date of registration of the company. The auditor so appointed shall hold the office from the conclusion of that meeting till the conclusion of first Annual General Meeting.

Provided further that before such appointment is made, the written consent of the auditor to such appointment, and a certificate from him or it that the appointment, if made, shall be in accordance with the conditions as may be prescribed, shall be obtained from the auditor.

Conditions for Appointment and Notice to Registrar

(1) The auditor appointed under rule 3 shall submit a certificate that -

(a) the individual or the firm, as the case may be, is eligible for appointment and is not disqualified for appointment under the Act, the Chartered Accountants Act, 1949 and the rules or regulations made thereunder;

(b) the proposed appointment is as per the term provided under the Act;

(c) the proposed appointment is within the limits laid down by or under the authority of the Act;

(d) the list of proceedings against the auditor or audit firm or any partner of the audit firm pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct.

In the case of failure of the Board to appoint the first auditor, it shall inform the members of the company, who shall within ninety days at an extraordinary general meeting appoint such auditor and such auditor shall hold office till the conclusion of the first annual general meeting.

Note: The Company shall inform the concerned auditor about his appointment and also file a notice of his appointment with the ROC in Form ADT-1 within 15 days from the date of his appointment.

APPOINTMENT OF SUBSEQUENT AUDITOR (Section 139(1) of Companies Act, 2013)

Every company other than the Government Company shall, at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting and thereafter till the conclusion of every sixth AGM.

APPOINTMENT OF AUDITOR IN GOVERNMENT COMPANY

The appointment of auditor in Government Company shall be appointed as per the following provisions:

1st Auditor:

The First auditor shall be appointed by the Comptroller and Auditor General within 60 days from the date of incorporation and in case of failure to do so, the Board shall appoint auditor within next 30 days and on failure to do so by Board of Directors, it shall inform the members, who shall appoint the auditor within 60 days at an extraordinary general meeting (EGM), such auditor shall hold office till conclusion of first Annual General Meeting.

Subsequent Auditors:

In case of subsequent auditor for existing government companies, the Comptroller & Auditor General shall appoint the auditor within a period of 180 days from the commencement of the financial year and the auditor so appointed shall hold his position till the conclusion of the Annual General Meeting.

MANNER AND PROCEDURE OF APPOINTMENT OF AUDITORS [Rule 3 of Companies (Audit and Auditors) Rules, 2014]

In case, a company that is not required to constitute an Audit Committee under section 177:

The Board will take into consideration the qualification and experience of the individual or firm proposed to be appointed as an auditor and thereafter recommend the name of the auditor to the members to be appointed at AGM.

When a company is required to constitute the Audit Committee under section 177:

 

  • The Audit Committee shall recommend the name of an individual or a firm as auditor to the Board of Directors.

  • If the Board agrees with the recommendation of the Audit Committee, it shall further recommend the appointment of auditor to the members in the AGM.

  • If the Board disagrees with the recommendation of the Audit Committee, the board shall refer back the recommendation to the committee for reconsideration.

If the Audit Committee reconsiders its decision and agrees with the Board then the Board's recommendation will be proposed at the AGM.

If the Audit Committee does not reconsider its decision, then the Board shall send its own recommendation to the AGM along with reasons for disagreement.

Casual Vacancy in the office of auditor

Any casual vacancy arises (except as a result of the resignation of an auditor) in the office of an auditor of a company, other than a Government company, shall be filled by the Board of Directors within thirty days. If casual vacancy arises as a result of the resignation of an auditor, the Board of Directors shall fill the vacancy within thirty days but such appointment shall also be approved by the company at a general meeting convened within three months of the recommendation of the Board and he shall hold the office till the conclusion of the next annual general meeting.

Eligibility & Qualifications of auditor (Section 141)

Act prescribed the following eligibility and qualifications of auditor which are as under:-

(i) Only a Chartered Accountant (individual) or a firm where majority of partners practicing in India are Chartered Accountants can be appointed as auditor.

(ii) Where a firm including a limited liability partnership (LLP) is appointed as an auditor of a company, only the partners who are chartered accountants shall be authorized to act and sign on behalf of the firm.


Disqualifications of Auditor (Section 141)

The Act prescribed the following persons shall not be eligible for appointment as an auditor of a company, namely:

Ø  A body corporate, except LLP;

Ø  An officer or employee of the company;

Ø  Any partner/employee of officer or employee of company;

Ø  A person who himself or his relative/partner

· Is holding any security or interest in the company, or any company which is its holding, subsidiary, associate;

· A person whose relative 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, may hold security or interest in the company of face value not exceeding one thousand rupees or such sum not exceeding Rs. One Lacs. This shall wherever relevant be also applicable in the case of a company not having share capital or other securities. 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 above shall be taken by the auditor within sixty days of such acquisition or interest.

· A person who or whose relative or partner is indebted to the company or its subsidiary or its holding or associate company or a subsidiary of such holding company, in excess of rupees five lakh shall not be eligible for appointment;

· A person who or whose relative or partner 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 one lakh rupees shall not be eligible for appointment;

· 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; The term “business relationship” shall be construed as any transaction entered into for a commercial purpose, except –

(i) Commercial transactions which are in the nature of professional services permitted to be rendered by an auditor or audit firm under the Act and the Chartered Accountants Act, 1949 and the rules or the regulations made under those Acts;

(ii) Commercial transactions which are in the ordinary course of business of the company at arm’s length price - like sale of products or services to the auditor, as customer, in the ordinary course of business, by companies engaged in the business of telecommunications, airlines, hospitals, hotels and such other similar businesses.

· A person whose relative is a director or is in the employment of the company as a director or KMP;

· A person who is in full time employment elsewhere; Person who is auditor of more than 20 companies; In case of private company –a person is ineligible if such person or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies other than one person companies, dormant companies, small companies and private companies having paid-up share capital less than one hundred crore rupee;

· 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;

· A person who, directly or indirectly, renders any service referred to in section 144 to the company or its holding company or its subsidiary company.

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