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TAXAJ Corporate Services LLP - Financial Doctors

Appointment of Statutory Auditor in Company

All companies registered in India are required to Appoint a Statutory Auditor in Company and have its book of accounts audited each year. In this article, we look at all aspects of audit and appointment of statutory auditors in company 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


It Usually takes 2 to 4 working days.

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.

Auditor Appointment has to be mandatorily done as per Companies Act, Know in Detail:

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 statutory auditor or an statutory 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 statutory auditor for more than consecutive five-year tenure;
2. Appoint an statutory 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 statutory auditing firm who has completed a two-year tenure is not eligible for appointment as a statutory auditor 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 a statutory auditor in company as well as the other requirements, such as their appointments or removal from the company payroll.

While re-appointing a Statutory Auditors for a limited company or specified company, it is important to be aware of the regulations pertaining to rotation of auditors. Individuals as a Statutory Auditor cannot be appointed as an Statutory Auditor for a term of more than 5 years. A firm of Statutory 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 Statutory Auditors in a company, the following points must be taken in to account by the Board of Directors:

In case of a statutory auditor in a company, 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 statutory auditor or statutory 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.

Appointment of an Auditor for Different Kinds of Companies

ParticularsNon-Government CompanyListed/Specified CompanyGovernment Company
Application for 1st Auditor post  IncorporationAppointed by the Board Of Directors.   This has to be done within 30 days from the date of Registration. Appointment can also be done by Members at Extraordinary General Meeting within 90 days of information.Appointed by Board Of Directors. This has to be done within 30 days from the date of Registration. Appointment can also be done by Members at Extraordinary General Meeting within 90 days of the information.Appointed by the  Comptroller and Auditor General of India. This has to be done within 60 days from the date of Registration. Appointment can also be done by Board Of Directors  within 30 days of incorporation. Members can also appoint  at an Extraordinary General Meeting within 60 days of Information.
Auditor at First AGM with the written consent and a certificate of Auditor. The appointment is done by the members He will hold office till the end of the 6th Annual General Meeting (AGM). The appointment shall be in accordance with the conditions laid down by the auditor.
The appointment is done by the members for a Maximum term of 5/10 consecutive years.The appointment is done by the Comptroller and Auditor General of India. He should be appointed within 180 days from the 1st of April.
Appointment of Subsequent AuditorThe appointment is done by the members and he will hold office till the conclusion of the  6th meeting.The appointment is done by the members for a Maximum term of 5/10 consecutive years.
The appointment is done by the Comptroller and Auditor General of India within 180 days from the 1st of April.
Casual Vacancy due to resignation and other reasonsThe appointment is by the members within 3 months of the recommendations of Board and he will hold office till the next AGM.The appointment is by the members within 3 months of the recommendations of Board and he will hold office till the next AGM.The appointment is done by the Comptroller and Auditor General within 30 days. 

Appointment Of Auditor Other Than Retiring Auditor By A Special Notice

Where a person other than the retiring auditor is proposed to be appointed as an auditor, or where it is proposed that the retiring auditor shall not be re-appointed, a special notice under Section 115 of the companies Act, 2013 has to be given proposing that such a resolution would be moved at the next annual general meeting. 

In case where the retiring auditor has completed a consecutive tenure of five years or, as the case may be, ten years then such special notice can be avoided. For the purpose of special notice the relevant points are as under:

  • If the auditor makes a representation in writing to the company and requests for a notification to the members, the company shall-
    • State the fact of representation in any notice regarding the resolution
    • The copy of representation should be sent to those members by the company  to whom notice of meeting is sent, whether before or after the receipt of representation.
    • if the copy of representation is not so sent , copy thereof should be filed with the Registrar.
  • On receipt of the special notice for removing the auditor, the company should send a copy of the same to the retiring auditor.
  • Such representation should be of a reasonable length and not too long.
  • The special notice should not be received by the company too late for the purpose of circulation to members.
  • Auditor may require the company to read out the representation in the meeting if it is not notified to members because it was too late or because of company’s default.

If the Tribunal is satisfied that the rights are being abused by the auditor based on an application either of the company or of any other aggrieved person, then:

  • the copy of the representation may not be sent, and
  • the representation need not be read out at the meeting.

Persons Disqualified for Appointment as Auditor

The following types of persons or entities are debarred from being qualified for appointment as the auditor of a company:

  • Any body corporate, even if all the directors or members are CAs, whether in business or practice
  • An officer or employee of the company
  • A person who is a partner, or who is in the employment, of an officer or employee of the company.
  • A person who, or his relative or partner 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. However, the relative may hold security or interest in the company of face value not exceeding one thousand rupees
    • Indebted 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
    • The giver of any guarantee, or has 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, for an amount which is in excess of one lakh rupees
  • A person or a firm who, whether directly or indirectly, has a business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company
  • A person whose relative is a director or is in the employment of the company as a 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 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 whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in providing consulting and specialised services to the general public

Restricted Services for Statutory Auditor

Auditors of a company can only provide services that are approved by the Board of Directors of the Company or the audit committee. However, the auditor of a company cannot provide the following services to a company or its holding company or subsidiary company:

  • Accounting or book-keeping services
  • Internal audit services
  • Design and implementation of any financial information system
  • Actuarial services
  • Investment advisory services
  • Investment banking services
  • Outsourced financial services
  • Management services
  • Services which are intended to suggest tax-planning measures to the directors or key managerial personnel
  • Cost Accounting or Management Consultancy Services