Appointment of Auditor

Overview

The first Auditor of the company other than a Government Company must be appointed by the Board of Directors within 30 days from the date of incorporation of company. In case of Government Company first auditor will be appointed within 60 days from the date of incorporation by the comptroller and auditor general of India.

Eligibility and Qualification of Auditor

As per companies act, 2013 following can be appointed as the auditor of the company:

• A firm or LLP can be appointed as an auditor of a company only if majority of partners practicing in India are qualified for appointment as an auditor of a company (i.e. they are Chartered Accountants).
• Where a firm including LLP is appointed as an auditor of a company, only the partners who are CA shall be authorized to act and sign on behalf of firm.
• An individual shall be eligible for appointment as an auditor of a company only if he is chartered accountant (holding certificate of practice under the Chartered Accountant Act, 1949).

Procedure

• The Board or Audit committee of the company shall consider qualification and experience of individual or firm proposed to be appointed as the auditor of the company.
• The Board shall consider and recommend an individual or firm as auditor to the members in the AGM of the company.
• The appointment of the auditor shall be made at duly convened AGM by the members of the company.
• The auditor must be intimated about his appointment along with the certified copy of the resolution passed at the meeting.
• The company is required to file a notice about appointment of auditor in form ADT-1 to the ROC within 15 days of appointment.
  • The notice of appointment of auditor (form ADT-1) is filled in following steps:
  • Download ADT-1 from MCA portal
  • Fill in the details of the form of the auditor and the previous term if served any
  • Attach Copy of resolution passed by the board/company, copy of written consent given by auditor and Copy of the intimation sent by company
• Check form attach the DSC of the director and prescruitny the form and upload it on MCA portal

Conditions for Appointment

For the purpose of appointment of auditor following conditions should be fulfilled:

• Before appointment the company shall obtain a written consent from the proposed auditor to such appointment.
• Company shall obtain a certificate from the proposed auditor that the appointment if made shall be in accordance with the conditions as prescribed under rules. Such conditions are:
  • The individual or firm is eligible for appointment and is not disqualified for appointment under the companies act, the chartered accountant act, and rules and regulations made thereunder.
  • The proposed appointment is within the term allowed under the companies act.
  • The proposed appointment is within the limit laid down in the act.
  • The list of proceedings against the auditor or audit firm or any partner of audit firm pending with respect to the professional matters of conduct, as disclosed in the certificate, is true and correct.

The certificate shall also indicate whether the auditor satisfies the criteria provided u/s 141 of the Companies Act, 2013.

Document Required

• Complete details of auditor
• Copy of Board Resolution appointing the auditor
• Appointment letter issued to the auditor
• Consent letter of the auditor
• DSC of the authorizing director
• Certificate from the auditor that he/it is not disqualified to be appointed as an auditor

Government Fees

The fees for filing Form ADT-1:

Penalty

Late filing of Form ADT 1 will attract following penalty:

Auditors not to render certain services

An auditor is eligible to provide such other services as are approved by the Board or Audit Committee of the company but which shall not include any of the following services:

• a) Accounting and Book Keeping services.
• b) Internal audit.
• c) Designing and implementing financial information system.
• d) Actuarial services.
• e) Investment advisory services.
• f) Investment banking services.
• g) Rendering of outsourced financial services.
• h) Management services.
• i) Any other services as may be prescribed.

Rotation of Auditors

The Companies Act, 2013 has introduced the system of rotation of auditors which is applicable to all listed companies and all other companies as prescribed by the rules but this provision is not applicable for One Person Company and Small Company.

Rotation of auditors shall be done in following manner:
In case of an individual auditor-

• No individual shall be appointed or re-appointed as an auditor for more than 1 term of 5 consecutive years.
• An individual auditor who has completed his term shall not be eligible for re-appointment as auditor in the same company for 5 years from the date of completion of term.

In case of an Audit firm-

• An audit firm can serve the company for maximum 2 terms of 5 consecutive years.
• An audit firm which has completed its 2 term shall not be re-appointment as auditor in the same company for 5 years from the date of completion of its terms.
• If two or more audit firms have common partners and one of them has completed 2 terms of 5 consecutive years then none of such firms shall be eligible of appointment or re-appointment in the same company for the period of 5 years from the date of completion of such terms.

Re-Appointment of Retiring Auditor

A retiring auditor of the company may be re-appointed at an annual general meeting, if:

• He is not disqualified for re-appointment.
• He has not given a notice to the company of his unwillingness to be re-appointed.
• A special resolution has not been passed at such AGM appointing new auditor or providing expressly that he shall not be re-appointed.

Where no auditor is appointed or re-appointed at an AGM then the existing auditor shall continue to be the auditor of the company.