TAXAJ

Auditor - Appointment, Rotation, Removal in a Company

All companies registered in India are required to appoint an Auditor and have its book of accounts audited each year. In this article, we look at all aspects of audit and appointment of auditors under Companies Act in detail.


All the government and non-government organisations have to keep track of their accounts and audit reports as the financial year approaches. The financial statements of these firms need to be thoroughly analysed and assessed before submitting them to the authorised departments. This assessment of financial documents is done by an Auditor. In case of any discrepancy in the reports, the auditor is held responsible. Thus, the requirement of an auditor is a must for every organisation. 

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About This Plan

While appointing/removing a Auditor for your company, you will need to adhere to a few procedures in accordance to the Government. TAXAJ experts will help you in the same.

Created by potrace 1.15, written by Peter Selinger 2001-2017

Timeline

It Usually takes 2 to 4 working days.

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Services Covered
Who Should Buy
How It's Done
Documents Required
Services Covered

  • Drafting of Auditor appointment letter , Disclosure of interest, Board Resolution
  • Filing of ADT 1
Who Should Buy

  • Companies/LLP that want to appoint/remove Auditor(s).
  • Companies that need assistance in quickly completing the auditor change process with perfection
How It's Done
  • Purchase the plan
  • Provide details required for appointing/changing auditor
  • Get secretarial services to draft director appointment letter, resignation letter, disclosure, resolutions
  • TAXAJ files ADT-1/ADT-3 on your behalf
Documents Required

  1. Name, Contact Number and Email Id of the Stakeholders.

  2. Directors Identification Number, if already.

  3. Self Attested PAN, Aadhar & Passport size photo of the Stakeholders.

  4. Eligibility Certificate & Appointment Letter from CA to be Appointed.

Detailed Analysis of the Law as per Companies Act

Appointment of Auditor

After incorporation of a company in the first annual general meeting, an Auditor must be appointed by the Board of Directors. The Auditor will typically hold term till the conclusion of 6th AGM or 5 years. The appointment of an Auditor can also be made for a period of 1 year, renewable at each annual general meeting.

Before the appointment of the Auditor, a written consent along with Certificate must be obtained from the CA, that he/she is eligible for appointment as Auditor of a company and that the proposed appointment is in accordance with the Companies Act.

The appointment of First Auditor of the Company must be completed by the Board of Directors within 30 days of incorporation. In case the Board of Directors fail to appoint an Auditor, the members of the company must be informed. The members will then be required to appoint an Auditor within 90 days at an Extra Ordinary General Meeting. An Auditor so appointed will hold office until the conclusion of 1st Annual General Meeting.

1. Within 30 days

Every company must appoint its first auditor or an auditing firm within 30 days of registration of the company during the annual general meeting or within 90 days, in an Emergency General Body Meeting by the Board of Directors. The first auditor (or the auditing firm) appointed will hold office from the conclusion of the meeting (in which the appointment of auditor has been made) to the time when the sixth annual general meeting is held (five years). Therein, the auditor appointments are reviewed every sixth year

2. Written Consent

A written consent from the auditor, with sufficient proof to suggest that the person (or firm) qualifies the criteria provided in Section 141 of the Act, needs to be submitted before an appointment.

3. Appointment Notice

The company should issue an appointment notice to the auditor, and a Form, ADT- 1 is required to be submitted with the registrar within 15 days of the meeting in which the auditor is appointed.

4. Section 139

The companies listed in Section 139 (belonging to the class or classes of companies as mentioned in the section) and Rule 5 of the companies (audit and auditor) rules, 2014, will not:


1. Appoint an individual as auditor for more than consecutive five-year tenure;
2. Appoint an auditing firm for more than two terms of five consecutive years


Provided, the auditor who has finished his term will not be eligible for reappointment in the same company or the auditing firm who has completed a two-year tenure is not eligible for appointment in the same company for five years.


A three-year transition period is given to comply with this requirement. Although, according to the rules, the five years is calculated with the retrospective effect.


Sections 139 to 148 of the Companies Act, 2013 give a complete and detailed summary of the role of an auditor as well as the other requirements, such as their appointments or removal from the company payroll.

While re-appointing Auditors for a limited company or specified company, it is important to be aware of the regulations pertaining to rotation of auditors. Individuals as an Auditor cannot be appointed as an Auditor for a term of more than 5 years. A firm of Auditors cannot be appointed as Auditors for more than two terms of 5 years. An Auditor who has completed his/her term of 5 years will also not be eligible for re-appointment for 5 years from completion of his/her term.

While rotating Auditors of a company, the following points must be taken in to account by the Board of Directors:

In case of an auditor, the period for which he has held office as auditor prior to the commencement of the Act shall be taken into account for calculating the period of five consecutive years or ten consecutive years, as the case may be.

The incoming auditor or audit firm shall not be eligible if such auditor or audit firm is associated with the outgoing auditor or audit firm under the same network of audit firms

Break in the term for a continuous period of five years shall be considered as fulfilling the requirement of rotation.

If a partner, who is in charge of an audit firm and also certifies the financial statements of the company, retires from the said firm and joins another firm, such other

Re-Appointing/Rotation of Auditors

Reappointment of auditors/renewal of auditors. An auditor or an auditing firm will be re-appointed at the AGM, unless:

1. The auditor has shown his unwillingness to continue
2. An auditor appointment resolution has been passed at the general meeting to appoint a new auditor or an auditing firm

3. If at the AGM, no auditor is appointed or reappointed, the existing auditor shall continue in the firm.

4. In case of death of the auditor (if it is an individual), the casual vacancy shall be filled within 30 days by the board. He will hold office till the next AGM.
5. In case of resignation of the auditor, the casual vacancy is again filled by the BOD within 30 days, and same approved at the meeting held within 3 months of the appointment.

6. The auditor who has resigned from the company needs to file a Form – ADT 3 stating the resignation and the reasons for the same. If not, the auditor will be deemed responsible for the same.

Roles & Responsibility of Auditor

The Companies Act, 2013 has revised and added new provisions under Role of Auditors as against the provisions made in the Companies Act, 1956. Accordingly, there are some very stringent norms and provisions made to the directors to make corporate governance clear and concise. The new norms also give an auditor a lot of additional responsibilities, and, therefore, liabilities under which, in case of any anomalies seen in the financial reports of the company, the auditor will come under the scanner too.

Removal of Auditor
The Companies Act, 2013 lays the provision for the removal or change of auditor before the completion of his tenure. This happens in those cases where the organisation is not satisfied with the services of the auditor. The procedure of the removal of the auditor has been given in the sub-section (1) of Section 140 of the Act.


Before being removed by the firm, the auditor is given a fair and reasonable chance of laying down reasons for his inappropriate conduct.


If the auditor is being removed before the completion of his term, an approval from the central government is necessary before passing a special resolution by the company.


The application to the Central Government has to be done in the form ADT-2 as prescribed in Rule 7 of the Companies (Audit & Auditors) Rules, 2014.  A prescribed fee provided under Section 12 of the Companies (Registration Offices and Fee) Rules, 2014 needs to be submitted along with this form.


The application has to be made within thirty days of the resolution passed by the board.


The company can hold a general meeting within sixty days of receipt of the approval of the Central Government for passing the auditor appointment resolution.


If you want to hire an auditor for your company, then you need to have a clear overview of the roles and responsibilities of an auditor. The rules related to appointment, reappointment, and removal of the auditor are certain factors that you need to consider before announcing recruitment.

Roles and responsibilities of an auditor as prescribed by the Act:


1. The Companies Act, 2013 has made various amendments in the duties and the powers exercised by the auditors all over the country. Every auditor can access the account statements and vouchers of the company any time and he can ask the officials in-charge to present the documents as and when asked for.

2. He or she has to make sure that the loans and advances have been secured properly and are in the interests of the company and its members. 

3. All the transactions and statements are true and are not detrimental to the company and its rules. 

4. In case of any fraud or discrepancy in the company records, the auditor should report the matter to the higher authorities with proper evidence, failing which, he can be fined for up to Rs.25 lakhs for the error in judgment. 

5. The auditor should not provide services such as internal audits, bookkeeping, investment advisory or banking services and so on, to the company wherein he holds the position of ‘Auditor’ of annual financial records.

6. He/she shall comply with the auditing standards.

7. If the auditor, company secretary or the cost accountant fails to abide by the standards, they shall be punished with a fine amount that ranges from Rs 1 lakh to Rs 25 lakhs.

8. The auditor must exercise rights to access to all records in all subsidiaries if required.

9. He/she must make sure to have all the desired information, and have backups for the same, in certified copies.

The Act prescribes several such essential responsibilities for auditors and thereby giving enough liability and the role of the auditors to perform as per the rules set by the Act.