Appointment of Auditor under Companies Act

Published On: Oct 19, 2020Last Updated: Oct 19, 20204.3 min read

Each business operator is expected to perform the audit regularly or quarterly or monthly, or a half yearly or annually by means of auditor appointment. The Company shall be required to complete a financial stability audit to check the Company’s annual statements, compliance, risk policies and other rules.

The purpose of the appointment of the Auditor?

The auditors in the company seek to protect the shareholders’ interests. The auditor is obliged by statute to review the managers’ accounts and notify them of the company’s actual financial status. To ensure that the company is safe and stable, the Auditor gives its independent opinion to the company’s owners or shareholders.

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Here is a procedure for the Appointment of Auditor according to the Companies Act, 2013

First Auditor Appointment

In compliance with the Companies Act’s provisions, the Company’s first Auditor is named by its Board in 2013 within 30 days from the date of incorporation. If the Board does not select the auditor, the Member shall appoint an auditor at the Extra-Ordinary General Meeting within 90 days. At the end of the first Annual General Meeting, an auditor would retain the office. The Company must file the ADT-1 form with the Company Registrar and the specified fees.

In the case of government companies, the Comptroller and Auditor-General of India shall appoint the first auditor within sixty days from the date of the company’s incorporation. If the Auditor General of India does not nominate such an auditor within that time, the auditor is appointed by the Board of Directors within the following thirty days. The auditor is appointed The First Auditor shall hold office until the close of the First Annual General Assembly.

Subsequent Appointment of Auditor

The subsequent auditor can be appointed an  the office shall remain until the end of the sixth Annual General Meeting.

Auditor’s Tenure

Auditors named in compliance with the Business Act of 2013

The following business class shall not nominate or reappoint:-

(a) an auditor for more than a period of five years in a row; and

(b) an accounting company for more than two terms of five consecutive years as an auditor:

The business class shall mean the following company types, except for one individual company and small company:-

(a) all non-listed entities which have paid out rupee share capital ten or more crore;

(b) all businesses with private limited registration that have paid up twenty or more crore share capital of rupees;

(c) all companies that have paid up their share capital below the threshold of (a) and (b) above have public credit from financial institutions, banks, or public rupee deposits of fifty crores or more.

Appointment Of Auditor Other Than Retiring Auditor By A Special Notice

If a person other than the retired auditor is proposed as an auditor or if the former auditor is not reappointed, a special notification under section 115 of the company Act must be released in 2013, recommending that such a resolution be moved to the next general meeting of the year.

If the previous auditor has a consecutive five-year term or, where applicable, ten years, such a special notice may be avoided.

The critical points for the special notice are as follows:

  • If the auditor makes a written representation and asks the members to be informed, the organization shall;
    • State the reality of representation in any resolution notice.
    • A copy of the representation is to be submitted before or after receipt of the representation. It must come from the organization to which a notice of the meeting is sent.
    • If the representation copy is not submitted, the copy of the representation must be filed with the Registrar.
  • The organization should submit a copy of the special notice for the auditor’s dismissal to the retired auditor on receipt of the special notice.
  • Such representation should have a reasonable and not too long length.
  • The organization does not obtain the special notice too late for circulation to members.
  • The auditor may require the company if it does not inform the members of the meeting to read the representation because it was too late or due to its default.
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If the Tribunal is convinced that the privileges are violated by the auditor based on the company’s or some other person’s applications, then:

  • A copy might not be sent off the representation and
  • At the conference, the representation does not need to be readout.

Whether or not the ADT-1 is required?

It is optional for the organization to file ADT-1 with ROC for the appointment of the first auditor. The question arises when we file Aoc-4 what is needed in ADT-1’s SRN. But it is safe to note that the appointment of the first ADT-1 auditor is optional.

The company must nominate the subsequent auditor to file ADT-1 within 15 days of the auditor’s appointment.

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Shalini Mathur
About the Author

Shalini Mathur

Shalini Mathur is associated with as Operational Executive of the Company, handling various MCA related compliance and various legal drafting.