Auditor Appointment As Per Companies Act, 2013

We know that all big company are operated to earn profits apart from serving to society. And when it comes to profits, it directly relates to numbers i.e. financials of companies. The person who is responsible for financial working of the company.

Auditor is eligible person, who audits the financial part and working of company. Hence, every company needs to appoint auditor. Lets us understand its basic questions relating to auditor appointment under the Companies Act, 2013.

Who is auditor?

An auditor is a person authorized to review and verify the accuracy of financial records and ensure that companies comply with tax laws. They protect businesses from fraud, point out discrepancies in accounting methods and, on occasion, work on a consultancy basis, helping organizations to spot ways to boost operational efficiency. Auditors work in various capacities within different industries.

A person who oversee the financial part of company are auditors. As per The Companies Act, 2013 a person shall be eligible for appointment as an auditor of a company only if he is a chartered accountant and a member of Institute of Chartered Accountant of India.

Provided that a firm whereof majority of partners practising in India are qualified for appointment as aforesaid may be appointed by its firm name to be auditor of a company.

Who are eligible to be appointed as auditor?

The following person/(s) or firm shall not be eligible for appointment as an auditor of a company, namely:—

1. a body corporate other than a limited liability partnership registered under the Limited Liability Partnership Act, 2008;

2. an officer or employee of the company;

3. a person who is a partner, or who is in the employment, of an officer or employee of the company;

4. a person who, or his relative or partner—

5. is not 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 of face value not exceeding rupees one lakh

6. 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

7. 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, of one lakh rupees

8. person or a firm who, whether directly or indirectly, has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company.

9. a person whose relative is a director or is in the employment of the company as a director or key managerial personnel

10. a person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies.

11. 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;

What are duties of auditor?

The auditor shall make a report to the members of the company on the accounts examined by him and on every financial statements which are required by or under this Act to be laid before the company in general meeting. The auditor’s report shall also state—

1. whether he has sought and obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit and if not, the details thereof and the effect of such information on the financial statements;

2. whether, in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books and proper returns adequate for the purposes of his audit have been received from branches not visited by him;

3. whether the report on the accounts of any branch office of the company audited by a person other than the company’s auditor has been sent to him under the proviso to that sub-section and the manner in which he has dealt with it in preparing his report;

4. whether the company’s balance sheet and profit and loss account dealt with in the report are in agreement with the books of account and returns;

5. whether, in his opinion, the financial statements comply with the accounting standards

6. the observations or comments of the auditors on financial transactions or matters which have any adverse effect on the functioning of the company;

7. whether any director is disqualified from being appointed as a director

8. any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith;

9. whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls;

Which companies required to appoint auditor?

Every company is required to appoint, whether its:-

1. One person company

2. Private Company

3. Public Company

4. Section 8, etc.

What section/ provisions governs the appointment of auditor for companies?

As per the section 139 of The Companies Act, 2013, every company required to appoint auditor of company.

For how many years auditor can be appointed in a company?

Auditor should be appointed for a term of five (5) years. Although practically, term may be less than five (5) years.

When to appoint auditor in a company?

Every 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 (6) annual general meeting.

Note that, appointment of auditor is always approved by members of company.

What are the formalities regarding appointment of auditor?

We can divide this into two (2) parts:-

1. First appointment of Auditor within thirty (30) days from the incorporation of company:-

In this case passing the Board resolution and taking consent from the proposed auditors is done. The company needs to file form ADT-1 within fifteen (15) days from the passing of Board resolution.

2. Appointment of auditor in First Annual General meeting and all subsequent meeting:-

In this case, first pass Board resolution proposing the appointment of concerned auditor. Fixing the annual general meeting and approving the notice of Annual general meeting. In the General meeting pass the resolution by members. The company needs to file form ADT-1 within fifteen (15) days from the passing of resolution in the general meeting.

What are various documents which are prepared to appoint auditor?

There are various documents required like:-

1. Consent from proposed Auditor

2. Certificate that they are eligible to be appointed as auditor

3. Board resolution

4. Annual General Meeting resolution and notice of Annual General Meeting

5. Non objection certificate from old auditor

What if company fails to appoint auditor within time prescribed?

The company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees, or with both.

Disclaimer: – The above article is prepared keeping in mind all the important and basic question while appointing a auditor under the Companies Act, 2013. The author has tried to cover all the important and basic question. Under no circumstance, the author shall not liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.

(The Author is Corporate Consultant and provides varied array of services including Start-ups mentor, Secretarial, Legal, Trademark, taxation, Audit, GST, Book keeping and other ancillary advisory service in Delhi, Chandigarh as well as The National Capital Region (NCR) and can be contacted through email id:- [email protected] and Contact Number: 91-8178515005)