1. Under the Companies Act, statutory auditors are independent professionals appointed to examine a company’s books and report whether its financial statements present a true and fair view. As per Sections 139 and 141, the first auditor (other than in government companies) is appointed by the Board within 30 days of incorporation, failing which shareholders appoint in an EGM. In government companies, the Comptroller and Auditor General (CAG) appoints the first auditor. Subsequent auditors are appointed by shareholders at the AGM for a term of five years, subject to rotation requirements. Eligibility is restricted to practicing Chartered Accountants or firms with majority CA partners, with specified disqualifications. Auditors may resign by filing ADT-3, and removal before term requires special resolution and Central Government approval. Casual vacancies are filled by the Board or shareholders, depending on circumstances. Section 144 prohibits auditors from rendering certain services to preserve independence and ensure financial transparency.
2. Appointment of First Auditor
(a) Other than Government Companies
Section 139(6)
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- Appointed by the Board of Directors within 30 days from the date of incorporation.
- If the Board fails → shareholders appoint the auditor in EGM within 90 days.
- Holds office till the conclusion of the first AGM.
- Appointment to be intimated to the auditor.
(b) Government Companies
Section 139(7)
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- First auditor appointed by CAG (Comptroller & Auditor General of India) within 60 days of incorporation.
- If CAG fails → Board appoints within next 30 days.
- If Board also fails → shareholders appoint within 60 days in EGM.
- Holds office till first AGM.
Filing of ADT 1 with Ministry of Corporate Affairs for appointment of first auditor is not mandatory and first auditor is appointed for first financial year which commences from date of incorporation till succeeding 31st March. The first financial year can extend upto to 15 months.
3. Appointment of Auditor other than First Auditor
Section 139(1)
- Appointed by shareholders at AGM.
- Holds office for 5 consecutive years.
- Individual auditor: maximum 1 term of 5 years.
- Audit firm: maximum 2 terms of 5 years each.
- Mandatory rotation of auditors applies to certain classes of companies.
- In case at any AGM, no auditor is appointed, the existing auditor shall continue to be the auditors of the company.
4. Appointment of Auditor in Government Companies
Section 139(5)
- Auditor appointed by CAG.
- Appointment to be made within 180 days from the commencement of the financial year.
- Auditor holds office till the conclusion of AGM.
5. Eligibility of Auditors (Section 141)
- A Chartered Accountant in practice.
- A firm where majority partners are practicing CAs.
Disqualified:
A person shall not be eligible if he:
- Is a body corporate (other than LLP).
- Is an officer or employee of the company.
- Is a partner/employee of an officer or employee of the company.
- Has financial interest in the company (shares, securities, etc.).
- Has given loans or guarantees beyond prescribed limits.
- Is in full-time employment elsewhere.
- Is auditor of more than 20 companies.
If an auditor becomes disqualified after appointment, office becomes vacant automatically.
6. Resignation of Auditor
Section 140(2)
- Auditor may resign by giving a written notice to the company.
- Auditor must file Form ADT-3 with ROC within 30 days of resignation.
- Reasons and facts for resignation must be stated.
- Casual vacancy caused by resignation:
- Filled by shareholders within 3 months at a general meeting.
- Auditor holds office till the next AGM.
7. Removal of Auditor
Section 140(1)
- Auditor can be removed before expiry of term:
- By special resolution of shareholders.
- Previous approval of Central Government required (except first auditor).
- Auditor must be given reasonable opportunity of being heard.
8. Casual Vacancy of Auditor
- Vacancy other than resignation:
- Filled by Board of Directors within 30 days.
- Vacancy due to resignation:
- Filled by shareholders in general meeting within 3 months.
9. Remuneration of Auditor
Section 142
- Fixed by:
- Shareholders at AGM, or
- Board (if authorized by shareholders).
- Includes audit fees, expenses, and facilities.
- Does not include fees for other services.
10. Prohibited Services
Section 144
Auditors cannot render the following services directly or indirectly:
- Accounting and bookkeeping services.
- Internal audit.
- Design/implementation of financial information systems.
- Actuarial services.
- Investment advisory or banking services.
- Outsourced financial services or management services.
Any other services prescribed by rules are also barred
Auditors play a critical role in ensuring financial transparency and compliance for all companies and building robust legal compliance, stakeholder trust, and operational integrity.
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