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The companies act, 2013 has come into existence on 29.08.2013 that replaces a nearly six decade-old legislation and overhauls the way corporate function and are regulated in the country.

This article contains the description of some provisions related to audit and auditors which have been modified in companies Act, 2013.

1). Appointment of first auditor in case of every company except govt. company or company owned/ controlled by CG/SG/CG and SG [139(6)]:-

Appointment of first auditor shall be made by board within 30 days of registration of company. If Board fails to appoint the first auditor within given time then it shall inform to members and members shall make the appointment of first auditor within 90 days of information at an EGM. The First Auditor shall hold office till the conclusion of first AGM.

NOTE: No time period is mentioned for Board to inform the members about the Non appointment of first auditor.

2). Appointment of first auditor in case of govt. company or company owned/ controlled by CG/SG/CG and SG139(7):-

Appointment of first auditor shall be made by CAG within 60 days of registration of the company. If CAG fails to appoint the first auditor within given time then Board of such company shall appoint first auditor within 30 days. If Board fails to appoint the first auditor within given time then it shall inform to members and members shall make the appointment of first auditor within 60 days of information at an EGM. The First Auditor shall hold office till the conclusion of first AGM.

NOTE: No time period is mentioned for Board to inform the members about the Non appointment of first auditor.

3). Appointment of Subsequent Auditor in case of every company except Govt. Company or company owned/ controlled by CG/SG/CG and SG[139(1)]:-

Appointment of auditor shall be made by members at First AGM and every subsequent 6th AGM. Company shall intimate the auditor about appointment. After intimating, company shall obtain written consent and certificate (in accordance with the conditions prescribed in section 141) from auditor. Then, company is required to file a notice with  the registrar about the appointment within 15 Days of the meeting.

Note: The Auditor shall hold office for a period of 5 Years.

Note: Company can ratify such appointment at any AGM falling between 5 years from such appointment.

4). Conditions for appointment of Subsequent Auditor in case of Listed Companies or companies of such class [139(2)]:-

If an individual is appointed as an auditor for 1 term i.e. for 5 consecutive years then that individual will not be eligible for reappointment for next 5 years from the expiry of his term as an auditor of company.

Whereas, if an audit firm is appointed as auditor for 2 term i.e. for 10 consecutive years then that audit firm will not be eligible for reappointment for next 5 years from the expiry of its term as an auditor of company

Note: Audit firm having common partner to the old audit firm of the company will not be eligible for appointment.

Note: Any existing listed company is required to comply with the above mentioned provisions within 3 years from the commencement of this act.

6). Appointment of Subsequent Auditor in case of Govt. Company or company owned/ controlled by CG/SG/CG and SG [139(5)]:-

Appointment of auditor shall be made by CAG within 180 days from the commencement of financial year. The Auditor shall hold office for a till the conclusion of AGM.

7). Appointment of auditor in Casual Vacancy in every company except Govt. Company or company owned/ controlled by CG/SG/CG and SG [Section 139(8)(i)] :-

If casual vacancy is arising by resignation then vacancy shall be filled by the Company in its meeting within 3 months from the date of recommendation of the Board.

Whereas casual vacancy is arising by other than resignation then vacancy shall be filled the Board within 30 days.

8). Appointment of auditor in Casual Vacancy in case of Govt. Company or company owned/ controlled by CG/SG/CG and SG [Section 139(8)(ii)]:-

Casual vacancy shall be filled by CAG within 30 days. If CAG fails to fill the vacancy within given time then BOD shall fill the vacancy within 30 days.

9). Rotation of Auditors [ 139(3)]:-

  • Member can rotate auditing partner and his team for any interval
  • Audit can be conducted by 1 or more auditor

10). Audit Committee [177] and Role Audit Committee in appointment of auditors[139(1 1)]:-

Every Listed Company shall form Audit Committee consisting of minimum 3 directors. Whereas, Majority of directors should be independent and ability to read & understand financial statement

Role: Appointment, remuneration and term of appointment of auditor shall be made after considering the recommendations of the Audit Committee

Note: Committee existing before commencement of this act shall be reconstitute within 1 year of commencement in accordance of above mentioned provisions

11). Duty of auditor when he or it resign [140(2)]:-

Auditor is required to file a statement specifying the reasons and fact of resignation within 30 days of resignation with ROC and company or CAG in case of Govt. Companies. If auditor fails to comply with above mentioned provisions then he shall be punishable with fee of Rs. 50,000- Rs. 500,000.

12). Duty of Company in case of representation received from auditor [140(4)]:-

Company is required to send a copy of the representation to every member and if copy of representation is not sent then a copy shall be filed with registrar.

13). Role of Tribunal in case auditor found guilty of fraud [140(5)]:

Tribunal may by itself or on application by CG/any concerned person order to change the auditor. And if the application is made by CG then tribunal shall pass an order within 15 days of application. In case of final order is passed then the auditor shall not be appointed for a period of five years in any other company and be further liable for monetary as well as penal punishment.

14). Eligibility LLP’s as auditors [141(2):

LLP’s can be appointed as auditors of company but only chartered accountant partners are authorized to act and sign on behalf of firm.

15). Disqualifications of Auditors [141(3)]:

I. If any partner of the person holding interest or security in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company

II. If any relative of the person holding interest or security whose face value exceeds Rs. 1000 or such sum as may be prescribed in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company. Note: Relative means member of HUF, Husband and wife or related with person as may be prescribed

III. If any relative of the person is a director or employee of director or key managerial personnel

Note: Director means a director appointed to board of the company. Note: Key managerial personnel means CEO/MD/Manager, CS, WTD, CFO and such other officer as may be prescribed

IV. Limit of indebt or guarantee is not mentioned and specified that any amount which may be prescribed

V. If person or firm has business relationship with in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company or associate company

VI. Any person whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialized services Note: consulting and specialized services means-

a) accounting and book keeping services;

b) internal audit;

c) design and implementation of any financial information system;

d) actuarial services;

e) investment advisory services;

f) investment banking services;

g) rendering of outsourced financial services;

h) management services; and

i) any other kind of services as may be prescribed

VII. Any person convicted by court of offence involving fraud and 10 years has not elapsed from the date of such conviction

VIII. Person holding appointment as auditor of more than 20 companies.

IX. Person in full time employment

16). Remuneration of Auditors [142(1)]:-

Remuneration shall be decided by members at a general meeting except for the remuneration of first auditor which shall be decided by board.

17). Power of Auditor [143(1) Proviso]:-

Auditor of holding company has the right of access to the records of all subsidiaries in so far as it relates to the consolidation of its financial statements with that of its subsidiaries.

18). Duties of Auditor [143(9),(12),(13),(15) and 146]:-

i. Every auditor need to comply with auditing standard [143(9)].

ii. Auditor shall report the fraud to the CG within prescribed time and manner and the same shall not be construed as breach of duty[143(12) & (13)]

iii. If auditor fails to comply with above mentioned provisions then he shall be punishable with fee of Rs. 100,000 Rs. 500,000 [143(15)].

iv. Auditor has to attend general meeting unless exempted by the company [146].

19). Auditor not to render certain services [144]:-

Auditor cannot provide following services to the company, its holding company or its subsidiaries, or associate company:

i. Accounting and book keeping service; Internal audit;

ii. Design and implementation of any financial information system;

iii. Actuarial services;

iv. Investment advisory services;

v. Investment banking services;

vi. Rendering of outsourced financial services;

vii. Management services; and

viii. Any other kind of consultancy services.

Note: If auditor is providing such services before the commencement of this act then he has to comply with the above mentioned provision before the closure of the first financial year after the date of such commencement.

CONCLUSION: Companies act 2013 has bring many new amendments which are required in current scenario.

Disclaimer: This write up is intended to initiate academic debate on a pertinent question. It is not intended to be a professional advice and should not be relied upon for real life facts.

(Author -Abhilash Singh –

(EMAIL ID-abhilash.singh96@sify.com)

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

0 Comments

  1. Vijay Kumar Garg says:

    The penalty prescribed to be paid by auditors under the New Companies Act is unjustifiably very high.Penalty must be imposed but Nominal.
    However allottment of audit work & audit fee must also be regulated .
    At present preference is given to partnership firms that is not correct. Individual experience must be given advantage.

    Audit allottment procedure should be regulated through Govt. body instead Management of the organisation.

  2. Yashasvi agarwal says:

    I feel a confusion regarding one of the rights & power of an auditor that in act it is drafted that auditor has right to access the books and papers and in section 2(12)&2(13) their is some difference in books of a/c

  3. J.K. Sharma says:

    we are the auditor of a company from past 3 years (2012-13, 2013-14, 2014-15)…
    Now the Question is, Can we audit the same company for more 5 years as per The Companies Act, 2013.

  4. J.K. Sharma says:

    If an auditor, already appointed by the company. Now that co. want to appoint an another auditor before 5 years. tell us the process.

  5. Kunal Jai Singhani says:

    I appreciate the disclaimer at the end of the article but few corrections that I would like to make here are –

    1- The limit prescribed under section 141 for the maximum about of indebtedness at any time of the year for an auditor is Rs 500000/-

    2- Attending the general meeting is the right of an auditor and not his duty. Therefore, the auditor is in no way bound to compulsorily attend the General Meeting.

  6. CA K C Ahuja says:

    passing CA is one of the most toughest and uncertain exam but even after passing the same with the grace of God, getting a suitable job and/or getting in to practice is difficult.
    now various penalties makes the life of CA;s more vulnerable. I hope some one listen to the misery of this profession.

  7. VIKAS says:

    AN AUDITOR CAN ONLY BE APPOINTED FOR MAXIMUM TENURE OF 5 YEAR OR 10 YEAR AS THE CASE MAY BE AFTER THAT IS HE / SHE NOT ELIGIBLE AGAIN FOR BEING AN AUDITOR IN SAME COMPANY

  8. VIKAS says:

    CAN ANYONE TELL THAT THE AUDITOR CAN ONLY BE APPOINTED FOR MAXIMUM OF 5 OR 10 YEAR AFTER THAT PERIOD AUDITOR IS NOT ELIGIBLE FOR THE SAME COMPANY IN FUTURE FOR BEIN AN STATUTORY AUDITOR

  9. Naina Baid says:

    Please guide me what would be the procedure to appoint a new auditor in case of death of existing auditor when 30 days have already elapsed from the date of death. Actually more than 6 months have elapsed. So what would be the procedure to appoint a new auditor in this casual vacancy?

  10. VINOD JAIN says:

    pLEASE TELL ME HOW TO APPOINT A AUDITOR IN CASE OF CASUAL VACANCY IN CASE OF DEATH

    AND PLEASE EXPLAIN PENAL PROVISION IF ANY FOR ANY DEALY IN APPOINMNT

    FURTHER EXPLIN IF ANY ROC FILING REQUIRNMENT

  11. shubham pareek says:

    sir i sec. 141(3) disqualification of auditors

    If any relative of the person holding interest or security whose face value exceeds Rs. 1000 or such sum as may be prescribed in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company. Note: Relative means member of HUF, Husband and wife or related with person as may be prescribed

    its not 1000 its exceeds 100000 from 1000rs

  12. Anuj Agrawal says:

    any bady tell me please if one company is incorporated under existing act and board could not appoint first auditor in priscribe time.

    what will they do for appointment of first auditor & is any form priscribe under new act for appointment of auditor?

  13. Rahul Nadkarni says:

    The financial audit is so monopolised and lucrative that even though there is some penal provisions nobody would relinquish the practice. Let us see due to this how many surrender their COP.You will have power,monopoly without any control from the Govt. then why you always ask exclusivity in each and every aspect financial attestation to be done by CAs only. Now do not tell just you breeds are of superior knowledge and exclusively trained and passed the most tough exam blah blah… 🙂 hence only CAs to be entrusted such task.If honesty is the best policy. Let us be honest and accept all that come our way.

  14. sriram says:

    the penalty imposed on auditors is not fair.This may leads to a situation that every auditor will scared to act as company auditor.The resposibility of auditors is increasing day by day but powers has beed cutting down.if the appointment of auditors of the pvt companies also taken care by the central govt in the form of empanelment ,the situation may changes.

  15. Jayant L Aasher says:

    The penalty prescribed to be paid by auditors under the New Companies Act is unjustifiably very high. A nominal charge like interest for delay can be charged.

    The Institute gradually seems to get inclined more on the side of Government rather than taking care of the members. If such a thing was to happen to advocates, they would certainly join and revolt. But we CAs will keep quiet with Faith in our esteemed Institute.

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