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.

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.
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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.

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Qualification: CS
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Location: south delhi, Delhi, India
Member Since: 08 Apr 2020 | Total Posts: 6
I am true professional completely dedicated towards the project assigned in Legal, Secretarial & other matters relating to Company Law, Corporate Governance, Legal Drafting and Corporate Planning. Riya holds specialization, in the field of company law matters like Incorporation of Public Company View Full Profile

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