FAQs on Auditor Appointment- Companies Act, 2013

FAQs ON AUDITOR APPOINTMENT

In this article, the author has discussed about the provisions related to Auditor Appointment as given under the Companies Act, 2013.

Q1. Who is required to appoint/ re-appoint an Auditor?

-Every company shall

-at the first annual general meeting (AGM)

-appoint an individual or a firm as an auditor

Q2. What is the manner and procedure of selection and appointment of auditors?

(Where a company is required to constitute an Audit Committee under section 177, all appointments, including the filling of a casual vacancy of an auditor under this section shall be made after taking into account the recommendations of such committee.)

Q3. What are the Pre-requisites to appointment?

Following shall be obtained from the Auditor, before making such appointment: –

• Written consent of the Auditor
• A certificate that such appointment is made in accordance with the conditions as prescribed under the Act

Q4. What are the conditions to appointment?

• the individual or the firm, as the case may be, is eligible for appointment and is not disqualified for appointment under the Act, the Chartered Accountants Act, 1949 and the rules or regulations made thereunder;
• the proposed appointment is as per the term provided under the Act;
• the proposed appointment is within the limits laid down by or under the authority of the Act;
• the list of proceedings against the auditor or audit firm or any partner of the audit firm pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct.

Q5. What is the eligibility criteria, qualifications/ disqualifications of Auditor?

The Auditor has to provide a certificate indicating that he/she satisfies the criteria as given under section 141 of the Act, which reads:

ELIGIBILITY

i) Individual who is a chartered accountant can be appointed;

ii) A firm with majority of its partners practising in India, may be appointed by its firm name;

iii) A limited liability partnership (LLP) whose partners are chartered accountants can act and sign on behalf of the firm

NON-ELIGIBILITY/ DISQUALIFICATION

i) a body corporate other than a LLP registered under the Limited Liability Partnership Act, 2008;

ii) an officer or employee of the company;

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

iv) a person or his relative or partner, who in relation with the company/ its subsidiary/ associate/ holding or subsidiary of such holding company—

• • holds security or interest (exception: relative may hold security or interest in the company of face value not exceeding Rs. 1000/-);
  • is indebted in excess of such amount as may be prescribed;
  • has given a guarantee or provided any security in connection with the indebtedness of any third person for such amount as may be prescribed;
  • a person or a firm having business relationship directly/ indirectly;
  • relative is a director or is in the employment of the company as director or key managerial personnel;
  • 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;
  • a person convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction;
  • a person who, directly or indirectly, renders any service referred to in section 144

Q6. What is the effect of disqualification of Auditor?

If the auditor appointed incurs any of the disqualifications (as mentioned above) after his appointment, he shall vacate his office as such auditor and such vacation shall be deemed to be a casual vacancy in the office of the auditor.

 Q7. What is the tenure of auditor appointed?

The following companies-

• listed company;
• all unlisted public companies having paid up share capital of rupees ten crores or more;
• all private limited companies having paid up share capital of rupees fifty crores or more; and
• all companies having paid up share capital of below threshold limit as mentioned above, but having public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more

shall not appoint/ re-appoint: –

(i) an individual as auditor for more than one term of 05 consecutive years; and

(ii) an audit firm as auditor for more than two terms of 05 consecutive years

Q8. In what cases re-appointment is not allowed?

(i)   an individual auditor cannot be re-appointed in the same company for five years from the completion of his term

(ii)  an audit firm cannot be re-appointment in the same company for five years from the completion of such term

(iii) an audit firm having a common partner(s) to the other audit firm, whose tenure has expired in a company immediately preceding the financial year, cannot be appointed as auditor of the same company for a period of five years

Provided also that every company, existing on or before the commencement of this Act which is required to comply with the provisions of this sub-section, shall comply with requirements of this sub-section within a period which shall not be later than the date of the first annual general meeting of the company held, within the period specified under sub-section (1) of Section 96, after three years from the date of commencement of this Act.

For e.g.- Let’s assume that date of commencement of the Act is 01.04.2014, then all companies existing before that date will have to comply with the requirements of the Act, by meeting such provisions, upto the due date of ensuing Annual General Meeting of such companies to be held as per section 96 after 01.04.2017 (i.e. due date of AGM shall be 30.09.2017)

Provided also that, nothing herein shall affect the right of the company to remove an auditor or the right of the auditor to resign from such office of the company.

Q9. What is the appointment process?

• the company shall inform the auditor concerned of his or its appointment, and
• file a notice of such appointment with the Registrar within 15 days of the such meeting wherein the auditor is appointed in e-Form ADT-1.

Q10. What is the role of Comptroller and Auditor-General of India (CAG)?

The Comptroller and Auditor-General of India shall-

• in respect of a financial year,
• appoint an auditor duly qualified to be appointed,
• within a period of 180 days from the commencement of the financial year,
• who shall hold office till the conclusion of the AGM

in the case of following companies-

1. a Government company; or
2. any other company owned or controlled, directly or indirectly, by the Central Government, or by any State Government or Governments; or
3. partly by the Central Government and partly by one or more State Governments

FIRST AUDITOR to be appointed–

• The first auditor shall be appointed by the CAG of India within 60 days from the company incorporation;
• in case the CAG of India does not appoint such auditor within the said period, the Board of Directors of the company shall appoint such auditor within the next 30 days; and
• in case of failure by the Board, it shall inform the members of the company who shall appoint such auditor within the 60 days at an extraordinary general meeting (EGM), who shall hold office till the conclusion of the first annual general meeting.

Q11. When does the Board appoint Auditor in the company?

1. The first auditor of a company, other than a Government company, shall be appointed by the Board of Directors within 30 days from the date of registration of the company and
2. in the case of failure of the Board to appoint such auditor, it shall inform the members of the company, who shall within 90 days at an extraordinary general meeting (EGM) appoint such auditor and such auditor shall hold office till the conclusion of the first annual general meeting.

Q12. What is the course of action in case of casual vacancy in the office of Auditor?

Q13. What is the status of retiring Auditor?

A retiring auditor may be re-appointed at an annual general meeting, if—

(a) he is not disqualified for re-appointment;

(b) he has not given the company a notice in writing of his unwillingness to be re-appointed; and

(c) a special resolution has not been passed at that meeting appointing some other auditor or providing expressly that he shall not be re-appointed

(Where at any annual general meeting, no auditor is appointed or re-appointed, the existing auditor shall continue to be the auditor of the company.)

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RESOLUTION FOR AUDITOR APPOINTMENT BY THE BOARD OF DIRECTORS

CERTIFIED TRUE COPY OF THE RESOLUTION PASSED AT THE FIRST BOARD MEETING OF THE BOARD OF DIRECTORS OF ________________ HELD ON ___________, AT _______AM/PM AT THE REGISTERED OFFICE OF THE COMPANY SITUATED AT ____________________________.

“RESOLVED THAT pursuant to Section 139 and other applicable provisions, if any, of the Companies Act, 2013 as amended from time to time or any other law for the time being in force (including any statutory modification or amendment thereto or enactment thereof for the time being in force) M/s. __________________, Chartered Accountants (Firm Registration No. ___________), be and is hereby appointed as the first Statutory Auditors of the Company to hold office until the conclusion of first Annual General Meeting on a remuneration plus out of pocket expenses as may be decided by the Chairman in consultation with the Auditors.

RESOLVED FURTHER THAT any director of the Company be and is hereby authorized to do all such acts, deeds, matters and things as may be necessary, proper, expedient or incidental for giving effect to this resolution and to file necessary e-forms with the Registrar of Companies.”

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RESOLUTION FOR AUDITOR APPOINTMENT BY THE SHAREHOLDERS

CERTIFIED TRUE COPY OF THE RESOLUTION PASSED AT THE ANNUAL GENERAL MEETING OF THE SHAREHOLDER OF _______________________ PRIVATE LIMITED HELD AT THE REGISTERED OFFICE OF THE COMPANY SITUATED AT ______________________________________ ON _____________ DAY, AT __________AM/PM.

“RESOLVED THAT pursuant to the provisions of Section 139, 142 and other applicable provisions of the Companies Act, 2013, if any, read with the Companies (Audit & Auditors) Rules, 2014, including any statutory enactment or modification thereof, Mr. ____________________ & Co, Chartered Accountants, (Firm Registration No. ________________) be and is hereby appointed as the Statutory Auditors of the Company and to hold the office from the conclusion of this Annual General Meeting till the conclusion of the sixth Annual General Meeting of the Company, at a remuneration to be decided by the Board of Directors in consultation with the Auditors plus applicable goods and services tax and reimbursement of traveling and out of pocket expenses incurred by them for the purpose of audit.

RESOLVED FURTHER THAT the Board of Directors of the Company be and is hereby authorized for and on behalf of the Company to take all necessary steps and to do all such acts, deeds, matters, and things which may deem necessary in this behalf.”

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Author: ARSHPREET K. & CO., Practicing Company Secretaries based at Chandigarh.

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Disclaimer: The contents of this article are based upon the significant provisions of the Companies Act, 2013 existing at the time of its compilation.  This initiative is just for information purposes and not to be treated as any professional advice and is further subject to change without notice. Therefore, I do not assume any responsibility for the consequences arising out of use of such information.