The Companies Act, 2013, and related rules regulate the appointment and tenure of auditors in companies. Section 139(2) specifies that listed companies, public companies with paid-up capital of ₹10 crores or more, private companies with paid-up capital of ₹50 crores or more, or companies with borrowings exceeding ₹50 crores must follow specific auditor appointment guidelines. An individual auditor can serve for one 5-year term, while a firm can serve for two consecutive 5-year terms, with a cooling-off period of 5 years before reappointment. First auditors must be appointed within 30 days of incorporation by the Board of Directors (BOD). If the BOD fails, shareholders or the Comptroller and Auditor General (CAG) may appoint the auditor within specified timelines. After the first term, subsequent appointments are made at general meetings for terms lasting until the sixth AGM. Vacancies due to resignation must be filled by shareholders within three months. Key forms include ADT-1 (auditor appointment), ADT-2 (auditor removal), ADT-3 (auditor resignation), and ADT-4 (fraud reporting). Auditors must report fraud exceeding ₹1 crore to the central government within 62 days and lesser frauds to the BOD or audit committee within two days. If the BOD or committee fails to respond within 45 days, the auditor must escalate the report to the government. Reports must include details like the auditor’s contact information and membership number and comply with Form ADT-4. These regulations ensure transparency and accountability in company audits.
> SECTION 139(2) OF THE COMPANIES ACT, 2013 read with Rule-6 of the Companies (Audit and Auditors) Rules, 2014
1. Every listed company
2. Public companies having paid up capital of 10 crore rupee or more
3. Private companies having paid up capital of rupee 50 crore Rupee or more
4. All companies having loan or borrowings from financial institutions of rupee 50 crore rupee or more
> Such company shall not appoint
- Individual as an auditor for more than 1 term of 5 consecutive year
- Firm of auditors for more than 2 terms of 5 consecutive years
> No firm having common partners shall be eligible to be appointed for the period of 5 years after completing the 2 term of consecutive 5 years.
> If audit firm audits a company for 8 years and then other auditor audits a company for a year then audit firm can do audit firm do audit for next 5 years.
♦ FIRST AUDITOR OF THE COMPANY:
a) Section-139: First auditor to be appointed within 30 days of incorporation of the company by BOD who shall hold the post till 1st AGM (No need to file form-ADT1 with ROC)
b) If BOD does not appoint the first auditor within 30 days of appointment then shareholders shall appoint the auditor within 90 days of incorporation.
c) In case of Company auditor shall be appointed within 60 days of incorporation by CAG, [Comptroller & Auditor General of India] if it fails to do so by BOD within next 30 days, and if it fails to do so by shareholders within next 60 days at an EGM.
d) Then after the auditor shall be appointed by OR passed at the GM of the company who shall hold the office till the conclusion of 6th AGM and thereafter at conclusion of every 6th AGM of the company.(File Form ADT-1 within 15 days of appointment)
e) In case of resignation of auditor, such vacancy shall be filled by shareholders only in general meeting of the company within 3 months of resignation and such auditor shall hold position till the conclusion of next general meeting of the company.
♦ Important Forms:
1. Form ADT-1: Appointment of auditor
2. Form ADT-2: Removal of auditor
3. Form ADT-3: Resignation of auditor
4. Form ADT-4: Reporting of fraud by auditor to the CG
♦ Reporting of fraud by auditor to the CG According to section 143 of Companies Act, 2013, read with Companies (Audit and Auditors) Rules, 2014,
a) If fraud is more than 1 crore then it shall be reported to the CG within 62 days of knowledge of the fraud
b) If less than 1 crore it shall it shall be reported to the BOD or Audit committee within 2 working days of knowledge of fraud.
> PROCEDURE FOR REPORTING OF FRAUD
√ Auditor will forward his report to the board of directors or the audit committee, within 2 days of his knowledge of the fraud, seeking their reply or observations within 45 (forty-five) days of intimation.
√ Auditor shall forward his report and the reply or observations of the board or the audit committee along with his comments to the central government within 15 fifteen days of receipt of such reply or observations.
√ In case the auditor fails to get any reply or observations from the board or the audit committee within the said period of 45 days, he shall forward his report to the central government along with a note containing the details of his report that was earlier forwarded to the board or the audit committee.
♦ The report shall be on the letter-head of the auditor containing:
√ Postal address
√ e-mail address
√ Contact number (telephone/ mobile)
√ Signed by the auditor with his seal
√ Indicate his membership number
√ Report shall be in the form of a statement as specified in Form ADT-4
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