Article explains Why does a company need to appoint an auditor, What are different types of Audit under companies Act, 2013, How is Statutory Auditor Appointed, How will the Auditor be appointed to fill the Casual Vacancy and Rotation of Auditor of Companies under Companies Act, 2013.
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1. Why does a company need to appoint an auditor?
The company is regulated by two bodies the shareholders and the directors. The shareholders provide funds to the director of the company and in return the directors of the company perform business from the funds that are received from the shareholders.
Therefore the Board of directors is under an obligation to present the books of accounts to the shareholders in the General meeting; so that the shareholders can have to a close look on where there funds are being invested by the company, for the purpose the same the board of directors appoint an Independent person who is practicing Chartered accountant to conduct Statutory Audit.
2. What are different types of Audit under companies Act, 2013
| Types of Audit | Statutory Audit | Secretarial Audit | Cost Audit | Internal Audit | ||
| Section | Section 139 | Section 204 | Section 148 | Section 138 | ||
| Conducted by | Practicing chartered Accountant | Practicing Company Secretary | Practicing Cost Accountant | By the employees of the company /practicing professional | ||
| Audit of | Financial statements of the company | Legal compliances | Cost Records | Internal Control | ||
| Mandatory/optional | Mandatory for all types of companies | Mandatory only for certain companies | Mandatory only for certain companies | Mandatory only for certain companies | ||
| How the Auditor will be appointed | In case of First Auditor-by Passing S/R Subsequent Auditor-by passing-B/R | Always by passing B/R irrespective of appointment of First Auditor or Subsequent Auditor. | Always by passing B/R irrespective of appointment of First Auditor or Subsequent Auditor. | ways by passing B/R irrespective of appointment of First Auditor or Subsequent Auditor. | ||
| Al | ||||||
3. How is Statutory Auditor Appointed?
Case-1 Appointment of First auditor
| In case of government companies | In case of Non-Government companies |
| The 1st Auditor shall be appointed by the Comptroller and Auditor General of India within a period of 6o days from the date of registration/incorporation of the company.
In case of Failure to appoint the Auditor, Board of Director by passing B/R appoint the 1st Auditor within a period of 30 days. In case of Failure to appoint the Auditor, the Board of directors shall intimate about the same to shareholders of the company. Shareholder shall appoint such Auditor at the Extraordinary General meeting within a period of 60 days. Such Auditor shall hold office till the conclusion of 1st AGM. |
The 1st Auditor shall be appointed by the Board of Directors by passing B/R within a period of 30 Days from the date of Incorporation/Registration of the company.
In case of Failure to appoint the Auditor, the Board of directors shall intimate about the same to shareholders of the company. Shareholder shall appoint the 1st Auditor at the Extraordinary General meeting within a period of 90 days from the date of receiving intimation from the Board of Directors. Such Auditor shall hold office till the conclusion of 1st AGM. |
Case-2 Appointment of Subsequent Auditor
| In case of government companies | In case of Non-Government companies |
| The Comptroller and Auditor General of India shall appoint Subsequent Auditor within a period of 180 days from the commencement of Financial year till the conclusion of annual general meeting. | The Subsequent Auditor shall be appointed at the 1st AGM by the shareholders of the company by passing O/R and such Auditor shall hold office for next 5 years. |
4. How will the Auditor be appointed to fill the Casual Vacancy?
Casual Vacancy shall arise in the following circumstances:-
1. Death of the Auditor.
2. Disqualification of the Auditor.
3. Resignation of the Auditor.
Appointment of Auditor to fill the casual vacancy
| In case of government companies | In case of Non-Government companies |
| The casual vacancy shall be filled by the Comptroller and Auditor-General of India within a period of 30 days.
If CAG is unable to fill the casual Vacancy, the same shall be filled by the Board of Directors by passing B/R within next 30 days. |
If the casual vacancy is due to the reason other the Resignation The casual vacancy shall be filled by the Board of Directors by passing B/R Within a period of 30 days.
If the casual vacancy is due to Resignation The casual vacancy shall be filled by the Board of Directors by passing B/R Within a period of 30 days and such casual vacancy shall be approved by the shareholder within a period of 3 months. |
5. Rotation of Auditor
Rotation of Auditor depends upon the class or type of a company i.e. Rule 5 (Audit and Auditor rules, 2014) company
Rule 5 companies include the following:-
1. Every listed company or
2. Unlisted public company having a paid up share capital of ≥ 10 crores.
3. Unlisted private company having a paid up share capital of ≥ 50 crores.
4. All types of companies having total borrowings of ≥ 50 crores.
| In case of Rule 5 companies | In case of companies other than the Rule 5 companies |
| In case the company has appointed an Individual Auditor, then such auditor cannot be re-appointed after the expiry of 5 years of its term. There should be a cooling off period of at least another 5 years.
In case the company has appointed firm of Auditors, then such auditors can be reappointed subject to the maximum of 2 terms i.e. (10 years) and after the expiry of 2 terms, it is not eligible for appointment for another term. There should be a cooling off period of another 5 years. |
An Auditor is appointed for a period of 5 years and is eligible for Re-appointment after the expiry of period of 5 years. Hence he/she can be appointed over and over again without any restriction. |
Author Bio
can a company reappoint a person as an auditor (who was being an auditor of that same company preceding 15 years) ??
Hi, Can an auditor be appoint for Pvt company for 1 year, and appoint Auditor every year?
Auditor shall be appointed for 5 years at once
Suppose shareholders did not approved the re-appointment of statutory auditors at the agm what will be the remedy available for the company?
If audit firm appointed in EGM due to Casual Vacancy for 01.04.2015 to 31.03.2016
Than reappointed for 5 years from 01.04.2016 to 31.03.2021
Is it counted as 2 terms?? As per 139(2)?
As per section 139(6) The 1st auditor holds office till the conclusion of 1st AGM. Is that considered to be a term? An individual auditor can hold office only for 1 term of 5 years and as per rule 6 explanation II(a) a break in the term of 5 continuous years is considered as fulfilling the requirement of rotation.
In case of appointment of First auditor (within 30 days from the date of incorporation of Company) till the conclusion of 1st AGM, this will not be considered as the term.
The term of 5years starts from the 1st AGM.
Very helpful article, thanks for the help.
Welcome dear @Radhika Jain