AUDITOR APPOINTMENT

AUDITOR APPOINTMENT

Companies will not receive a rubber stamp certification; this is an in-depth program that requires an exhaustive and thorough audit of one’s processes”.

–John Kania

The health of a business is shown by the books of account of the company. The company is maintaining the records through the books as required by statute or as per the need of the hour. But, the maintenance of the books of account is not enough. The verification and checking is also important.

The checking of books of account is known as auditing. The auditing is also known as post mortem of books. The auditing is done by the auditor. The appointment of auditor, his rights, duties and functions are governed by the legislations under which he is appointed. The emphasis of all these regulation is that the auditor should be independent.

Who is an Auditor?

Any Individual registered under the Chartered Accountant Act 1949 (CA) and he is trained enough to review and verify the Financial Records of the company and ensures that Company is complying with all the financial and tax provisions is deemed to be an auditor.

Eligibility or Qualifications of the Auditor

  • A person shall be eligible for appointment as an auditor of a company only if he is a chartered accountant.
  • A firm whereof majority of partners practising in India are chartered accountants may be appointed by its firm name to be auditor of a company.
  • If a limited liability partnership firm is appointed as an auditor of a company, only the partners who are chartered accountants shall be authorised to act and sign on behalf of the firm.

Disqualification of the Auditor

The following persons shall not be eligible for appointment as an auditor of a company, namely:

  • A body corporate, except LLP;
  • An officer or employee of the company;
  • Any partner/employee of officer or employee of company;
  • A person who himself or his relative/partner is holding any security or interest in the company, or any company which is its holding, subsidiary, associate;
  • A person whose relative is holding any security of or interest in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company, may hold security or interest in the company of face value not exceeding one thousand rupees or such sum not exceeding Rs. One Lacs. This shall wherever relevant be also applicable in the case of a company not having share capital or other securities.
  • In the event of acquiring any security or interest by a relative, above the threshold prescribed, the corrective action to maintain the limits as specified above shall be taken by the auditor within sixty days of such acquisition or interest.
  • A person who or whose relative or partner is indebted to the company or its subsidiary or its holding or associate company or a subsidiary of such holding company, in excess of rupees five lakh shall not be eligible for appointment;
  • A person who or whose relative or partner has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of one lakh rupees shall not be eligible for appointment;
  • A person or a firm who, whether directly or indirectly, has “business relationship” with the company, or its subsidiary, or its holding or associate company;
  • A person whose relative is a director or is in the employment of the company as a director or KMP;
  • A person who is in full time employment elsewhere; Person who is auditor of more than 20 companies; In case of private company –a person is ineligible if such person or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies other than one person companies, dormant companies, small companies and private companies having paid-up share capital less than one hundred crore rupee;
  • A person who has been 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 to the company or its holding company or its subsidiary company.

 

 

Appointment of Auditor

ParticularsNon-Government

Company

Listed/Specified

Company

Government Company
Application of 1st Auditor after IncorporationBy BOD

(Within 30 days from the date of Registration)

 

OR

 

By Members at EGM

(Within 90 days of

Information)

By BOD

(Within 30 days from the date of Registration)

 

OR

 

By Members at EGM

(Within 90 days of

Information)

By CAG

(Within 60 days from the date of Registration)

OR

 

By BOD

(Within 30 days from the date of Registration)

 

OR

 

By Members at EGM

(Within 60 days of

Information)

Auditor at First AGMBy Members

To hold office till

Conclusion of 6th AGM.

By Members

(for maximum one term of 5/10 consecutive years)

Cooling off period of 5 years before next appointment.

By CAG

(Within 180 days from 1st April)

Appointment of Subsequent AuditorBy Members

To hold office till

Conclusion of 6th AGM.

By Members

(for maximum one term of 5/10 consecutive years)

By CAG

(Within 180 days from 1st April)

Casual Vacancy due to

• Resignation

• Other Reasons

By BOD

(Within 30 days from the date of vacancy)

 

AND

 

Approval by Members in General Meeting within 3 months of

recommendation of Board and till next AGM

By CAG within 30 days

 

OR

 

By BOD within next 30 days

 

  1. Appointment of Auditor after Company Incorporation:-

According to Companies Act, 2013 U/s 139 (6) After Company Incorporation, Every Company shall appoint their First Auditor by the Board of Directors within Thirty days.

If any Company fails to appoint their First Auditor, the Members of the Company shall appoint their First Auditor in the Extra Ordinary General Meeting within Ninety Days of the Company Incorporation and Auditor shall hold its position till the conclusion of the First General Meeting.

Procedure to Appoint First Auditor By Board:-

  • Obtaining Director’s DSC
  • Holding a Board Meeting,
  • Passing a Board Resolution
  • Obtain Appointment Letter from the Company
  • Obtain Written Consent & Certificate of his/her eligibility as Statutory Auditor
  • E filling of Forms with MCA
  • Form ADT-1
  • Intimation to the Company

Information required form the Auditor:-

  • Category of Auditor (Individual or Firm)
  • Permanent account number of auditor
  • Name of Auditor/ Auditor’s Firm
  • Membership Number of auditor/ FRN
  • Address of the Auditor
  • Email ID of the Auditor
  • Period of account for which Auditor Appointed

 

  1. Appointment of Auditor in First AGM

Every Company registered under Companies Act, 2013 shall appoint a Statutory Auditor to get their books audited at the end of every Financial Year that safeguards the interest of the investors. Every Auditor after auditing Financial Statements provides true and fair position of the Company.

U/s 139(1) Every Company shall appoint an Individual or firm at the First General Meeting who shall the position from the conclusion of that meeting till the conclusion of its sixth annual general meeting.

 

 

Procedure for Appointing Auditor in AGM:-

  • Obtaining Director’s DSC
  • Hold general Meeting,
  • Passing an Ordinary Resolution
  • Obtain Appointment Letter from the Company
  • Obtain Written Consent & Certificate of his/her eligibility as Statutory Auditor
  • E filling of Forms with MCA
  • Form ADT-1
  • Intimation to the Company

 

  • CASUAL VACANCY OF THE AUDITOR

The term Vacancy has not been defined under Companies Act, 2013 but vacancy may arise due to resignation, Death or due to disqualification.

Under Companies Act, 2013 U/s 140(2) any auditor resigning shall file his resignation within Thirty days from the date of resignation.

Casual Vacancy Procedure:

  • Obtain DSC of Auditor
  • Obtain resignation letter from resigning auditor
  • Convene Board meeting within 30 days of resigning
  • File Form with MCA
  • Form ADT-3
  • Intimation of resignation to auditor

Information required from Auditor:

  • Category of Auditor
  • Pan Number of Auditor/Auditor’s Firm
  • Auditor’s Firm Name
  • Membership No./FRN
  • Auditor’s Address & Email Id
  • Auditor’s Appointment date

 

 

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