The Companies Act, 2023, along with the relevant provisions of the Companies Act, 2013, sets out the framework for appointing auditors in a company, ensuring transparency and accountability in financial reporting.
Any individual trained to review and verify accounting data and recognised as a Chartered Accountant (CA) under the Chartered Accountant Act, 1949 is deemed to be an auditor. Every company needs to appoint an auditor as per the provisions of the Companies Act, 2013.
Purpose for Appointment of Auditor:
The purpose of the auditors in the company is to protect the interests of the shareholders. The auditor is obligated by law to examine the accounts maintained by the directors and inform them of the true financial position of the company. Auditor gives his independent opinion to the owners or shareholders of the company to protect and keep the company in a safe financial condition.
Appointment of First Auditor (other than Government Auditor):
Appointment by the Board: As per sub section (6) section 139 of the Act states, notwithstanding anything contained in sub-section (1), the first auditor of a company (other than a government company) is appointed by the Board of Directors within 30 days from the date of registration of the company. The first auditor holds office until the conclusion of the first Annual General Meeting (AGM).
Failure of Board Appointment: If the Board fails to appoint the first auditor within the stipulated 30 days, the company members must appoint the auditor at an Extraordinary General Meeting (EGM) within 90 days. The first auditor holds office until the conclusion of the first Annual General Meeting (AGM).
Appointment of Subsequent Auditors at AGM with written consent and certificate of auditor (other than Government Auditor):
Subsequent auditors are appointed by the company members of the company at the Annual General Meeting (AGM) and he will hold office till the conclusion of the 6th AGM.
Casual Vacancy Due to Resignation and Other Reason (other than Government Auditor):
Casual vacancy may arise out of death, disqualification, resignation or removal etc. of the auditor or non-ratification of appointment by the shareholders as per the first proviso to sub-section (1) of section 139. If there is any casual vacancy arises then appointment is done by the Board of director within 30 days.
However if such casual vacancy arise due to resignation of Auditor then such appointment done by members of the company within 3 months of the recommendations of Board and he will hold office till the next AGM.
Appointment of Auditor in Government Companies under the section 139((7) of the companies’ act 2013:
- As per sub-section (7) of section 139, notwithstanding anything contained in sub-section (1) or sub-section (5), The Comptroller and Auditor General of India (CAG) appoints the First auditor of a government company within 60 days from the date of registration
- In case C&AG does not appoint such auditor within the said period, the board of the company shall appoint such auditor within the next 30 days.
If the board fails to appoint such auditor within the next 30 days, it shall inform the members of the company who shall appoint such auditor within 60 days at an extraordinary general meeting.
Appointment of Subsequent Auditors in Government Companies:
For subsequent auditors, the C&AG appoints the auditor within 180 days from the commencement of the financial year. The auditor appointed by the C&AG holds office until the conclusion of the Annual General Meeting (AGM).
Casual Vacancy Due to Resignation and Other Reason:
Casual vacancy may arise out of death, disqualification, resignation or removal etc. of the auditor or non-ratification of appointment by the shareholders as per the first proviso to sub-section (1) of section 139.If any Casual vacancy arises the CAG must fill the vacancy within 30 days if they fails to fill the Casual vacancy then Board of Director fill the Casual vacancy next 30 days.
Term OR Rotation of Auditor:
Term of auditor and rotation after expiry of term As per sub-section (2) of section 139 read with Rule 5, following companies (excluding one person companies and small companies) shall not appoint an individual as auditor for more than one term of five consecutive years; and an audit firm as auditor for more than two terms of five consecutive years:
- listed company
- all unlisted public companies having paid up share capital of rupees 10 crore or more;
- all private limited companies having paid up share capital of rupees 20 crore or more;
- All companies having paid up share capital of below threshold limit mentioned above, but having public borrowings from financial institutions, banks or public deposits of rupees 50 crores or more.
An individual auditor or an audit firm who has completed his or its term under clause (a) shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term.
Further, an audit firm having a common partner or partners to the other audit firm, whose tenure has expired in a company immediately preceding the financial year, shall not be appointed as auditor of the same company for a period of five years. This status is to be checked as on the date of appointment.
Intimation to Registrar:
The company must inform the Registrar of Companies (ROC) about the appointment of the auditor within 15 days of the meeting where the appointment is made, using Form ADT-1.
Written Consent and Certificate:
Before appointment, the auditor must provide a written consent and a certificate confirming their eligibility and compliance with the relevant provisions.
Punishment and Compoundability :
For contravention by the company of provisions of this section, sub-section (1) of section 147 will be applicable. For contravention of provisions of this section by the Auditors, sub-section (2) of section 147 will be applicable.
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