The appointment and re-appointment of a Statutory Auditor is a critical compliance requirement for every company under the Companies Act, 2013 (the Act). Section 139 of the Act, read with the Companies (Audit and Auditors) Rules, 2014, governs the procedure, tenure, and conditions for the appointment and subsequent re-appointment of auditors.
Here is the complete compliance Roadmap for Subsequent Auditor Appointment (Section 139 & ADT-1):-
Pre-Board Process
1st Step: Board to discuss with the existing auditor for their re-appointment or can approach a new auditor
- if the existing auditor is considered for re-appointment than the auditor needs to give his/her consent
+ eligibility certificate to the Board - but if the board wants to consider a new auditor than:
-> First, proposal letter will be given the prospective auditor
-> than the new prospective auditor needs to give their consent + eligibility certificate to the company
2nd Step: Audit Committee to hold their Committee Meeting (only if Audit Committee is applicable)
- Audit Committee shall recommend the Board the name of the Auditor
Board Process
3rd Step: Notice of BM need to be sent
- Notice of atleast 7 days need to be sent or shorter notice can also be given
- along with agenda & notes to agenda (draft resolution, if any)
4th Step: Holding of BM
- taking one of the agenda as auditor appointment.
- if Board agrees with the Audit Committee recommendation, it shall pass the resolution and place the same before AGM for shareholders’ approval.
- if Board disagrees with the Audit Committee recommendation, then it shall record reasons and sent its own recommendation to the shareholders’ and pass the resolution.
- fixing day, date, time and venue of AGM.
- approving draft of Notice of AGM (21 clear days’ notice or Shorter Notice can also be sent)
Shareholder’s Approval
5th Step: Holding & Convening of AGM
- Members to Consider & pass Ordinary Resolution (members also has power not to consider the board’s recommendation)
- tenure/term of auditor is of 5 years, and re-appointment of auditor (i.e. rotation) as per the act is as follows:
[A] 1 Term of 5 years for an Individual Auditor & 2 Terms of 5 years for and Audit Firm: –
- listed company
- Unlisted company having paid up share capital of Rs. 10 cr or more
- Private company having paid up share capital of Rs. 50 cr or more
- all companies having public borrowing from Financial Institution, Banks, Public deposit of Rs. 50 cr or more
[B] No Tenure / Term for: –
- Small Company & OPC
6th Step: Company to inform the Auditor about his/her appointment:
- by sending appointment letter & CTC of resolution
7th Step: Filing of e-form ADT-1 within 15 days* of Appointment by the Company
- attachments in e-form ADT-1 :- CTC of Ordinary Resolution, Appointment Letter, Consent of Auditor + eligibility certificate
*note: 15 days from Step 5
*note: from auditors perspective, the auditor needs to check his/her limit to act as statutory auditor
*note: MGT-14 is not required for Ordinary Resolution
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