APPOINTMENT OF STATUTORY AUDITOR – COMPANIES ACT – 2013
APPOINTMENT OF STATUTORY AUDITOR – COMPANIES ACT – 2013
COMPILATION OF PROVISIONS
REALTING TO APPOINTMENT OF AUDITOR
BACKGROUND
Need of Auditor: All
the companies registered under the Companies Act, 2013 or any previous Company
law, whether public or private and whether having a share capital or not, are
required to maintain proper books of accounts under the provisions of section
128 of the Companies Act, 2013. Companies have also to get their Books of
accounts audited as required under section 139 of the Act. Audit is an
examination of accounting records undertaken with a view to establish the
correctness or otherwise of the transactions reflected therein. It involves an intelligent
scrutiny of the books of account of a Company with reference to documents,
vouchers and other relevant records to ensure that the entries made therein
give a true picture of business Therefore, there is need to appoint Statutory
Auditor.
SITUATIONS FOR APPOINTMENT OF
AUDITOR:
i.
In all the Companies except Government
Companies
ii.
In Government Companies
B. Appointment
of Auditor in First Annual General Meeting
i.
In Government Companies
ii.
In Companies Other than Government
Companies
C. Appointment
of Auditor due to Casual Vacancy
i.
Casual Vacancy due to resignation of
Auditor
ii.
Casual Vacancy due to any other Reason
D. Appointment
of Auditor due to non ratification of Auditor
E. Appointment
of Retiring Auditor
F.
In case of No auditor is appoint in AGM,
then how to appoint auditor
WAYS OF CHANGE IN AUDITOR: These points will discuss in next
article.
A. Resignation
of Auditor
B. Non
ratification of Auditor
C. Removal
of Auditor
APPOINTMENT OF AUDITOR:
Section 139 of CA-2013 governs the
aspects of appointment of auditors. Section 139 of the Companies Act, 2013
deals with all the cases, circumstances with respect to appointment of auditors
and therefore, it is a complete code in itself with respect to appointment of
Auditors. Corresponding section of 139 was 224, 224A, 619 of CA-1956. Audit is
useful only if it is conducted by some independent and qualified authority. The
auditor must possess requisite qualifications and must act in an independent
capacity. I will discuss the qualification/disqualification of auditor in
separate article. Forms for appointment of auditor are ADT-1.
Role of Audit
Committee: As
per sub-section (11) of Section 139 of the Act, where a Company is required to
constitute an Audit Committee under section 177, all appointments, including
the filling of a casual vacancy of an auditor under this section shall be made
after taking into account the recommendations of such committee.
Process along with flow
charts for appointment of auditor in all the conditions will share in a
separate article.
A. APPOINTMENT OF FIRST
AUDITOR OF THE COMPANY
All the Companies except Government Companies
i.
In case of appointment
by Board of Directors:
Section 139(6) read with rule 4 sub
rule 2 of the Companies (Audit and Auditors) Rules, 2014:
As per section 139(6), the first auditor of all types of
companies, except a Government Company, shall be appointed by the Board of
Directors within 30 days from the date of registration of the Company.
Before the appointment of auditor is
made, the written consent of the auditor to such appointment, and a certificate
from him that if the appointment, if made, it shall be in accordance with the
conditions as may be prescribed, shall be obtained from the auditor.
Certificate shall also indicate whether the auditor satisfies the criteria
provided in [3]section
141.
Company shall inform the auditor
concerned of his or its appointment and there is no need to file ADT-1 for
appointment of the First auditor.
Tenure: First Auditor appointed by Board shall
hold office till the conclusion of the first annual general meeting of the Company.
Remuneration: Section 142 of the Act prescribed
that Board may fix remuneration of the first auditor appointed by it. The
remuneration will be in addition to the out of pocket expensed incurred by the
auditor in connection with the audit of the Company and any remuneration paid
to him for any other service rendered by him at the request of the Company.
Resolution involved: Appointment of First auditor by Board
Resolution whether in the Meeting of Board of Directors or by Circular
Resolution.
Form Involved: There is no need to file ADT-1 for
appointment of the First auditor.
ii.
In case of Board fails to appoint
First Auditor:
Section 139(6) also provides that in the case of
failure of the Board to appoint the first auditors within 30 days of
incorporation of the Company, it shall inform the members of the Company, who
shall within 90 days at an extraordinary general meeting appoint the first
auditor and such auditor shall hold office till the conclusion of the first
annual general meeting.
As states above, the duty of the Board
to inform members about their failure to appoint first auditor, triggers immediately
on expiry of the 30 days period whereas the duty of the members of the Company
to appoint first auditor, triggers immediately on receipt of information of non
–appointment by the Board. The members, shall within 90 days from the date of
information being sent to them, appoint auditor and such auditor shall hold
office till the conclusion of the first annual general meeting.
The Board of Director will recommend
the name of auditor or auditor firm to Shareholder. Shareholder in after
discussion EGM will appoint the auditor by passing of Ordinary Resolution.
Remuneration: Section 142 of the Act prescribed
that the remuneration of the auditor of a Company shall be fixed in its general
meeting or in such manner as may be determined therein.. The remuneration will
be in addition to the out of pocket expensed incurred by the auditor in
connection with the audit of the Company and any remuneration paid to him for
any other service rendered by him at the request of the Company.
Resolution involved: Appointment of First auditor by EGM by
passing of Ordinary Resolution.
Form Involved: There is no need to file ADT-1 for
appointment of the First auditor.
Government Companies
iii.
In case
Government Company by C&AG:
As per section 139(7), The appointment of auditor in
Government Company or 4 Audit and Auditors government controlled
(directly/indirectly) Company shall be held in accordance with the following
provisions:
The First auditor shall be appointed by
the Comptroller and Auditor General within 60 days from the date of
incorporation. The Board of Director take note of the same in the Board Meeting
held after such appointment.
Further, all appointments made by the
C&AG are required to be intimated by the Company to auditor.
Remuneration: Section 142 of the Act prescribed
that Board may fix remuneration of the first auditor appointed by it.
Resolution involved: Appointment of First auditor by passing
of Board Resolution whether in the Meeting of Board of Directors or by Circular
Resolution on the recommendation of the Comptroller and Auditor General.
Form Involved: There is no need to file ADT-1 for
appointment of the First auditor.
iv.
In case of
failure of appointment by C&AG:
As per section 139(7), In case the Comptroller and
Auditor-General of India does not appoint such auditor within the said period
of 60 days, the Board of Directors of the Company shall appoint such auditor
within the next 30 days (60+30=90).
Remuneration: Section 142 of the Act prescribed
that Board may fix remuneration of the first auditor appointed by it.
Resolution involved: Appointment of First auditor by passing
of Board Resolution whether in the Meeting of Board of Directors or by Circular
Resolution.
Form Involved: There is no need to file ADT-1 for
appointment of the First auditor.
v.
In case of
failure of appointment by C&AG and Board Both:
In the case of failure of the Board to
appoint such auditor within the next 30 days, it shall inform the members of
the Company who shall appoint such auditor within the 60 days at an
extraordinary general meeting, who shall hold office till the conclusion of the
first annual general meeting.
As states above, the duty of the Board
to inform members about their failure to appoint first auditor, triggers
immediately on expiry of the 90 days period whereas the duty of the members of
the Company to appoint first auditor, triggers immediately on receipt of
information of non –appointment by the Board. The members, shall within 60 days
from the date of information being sent to them, appoint auditor and such
auditor shall hold office till the conclusion of the first annual general
meeting.
Tenure: First Auditor appointed by EGM shall
hold office till the conclusion of the first annual general meeting of the Company.
B. APPOINTMENT OF AUDITOR
IN FIRST ANNUAL GENERAL MEETING (AGM):
i.
In case of appointment
in the Companies except Government Companies:
In term of section 139(1) of the
Companies Act, 2013 read with rule 3 of Companies (Audit and Auditors) Rules,
2014 every Company
shall at the first annual general meeting, appoint an individual or a firm as
an auditor who shall hold office from the conclusion of that meeting till the
conclusion of its sixth annual general meeting (AGM).
Before the appointment of auditor is
made, the written consent of the auditor to such appointment, and a certificate
from him that if the appointment, if made, it shall be in accordance with the
conditions as may be prescribed, shall be obtained from the auditor.
Certificate shall also indicate whether the auditor satisfies the criteria
provided in [4]section
141.
Company shall inform the auditor
concerned of his or its appointment and also file a notice of such appointment
with the Registrar in Form ADT-1 within 15 days of the meeting in which the
auditor is appointed.
Manner and Procedure
of Selection of Auditors: the Manner and Procedure of Selection
of Auditors by the members of the Company at such meeting shall be such as
prescribed under:
In case Company
not required to constitute Audit Committee:
Recommendation
by audit Committee: Section
139(11) of the Companies Act, 2013 read with Rule 3(1) provides in case of a Company
that is required to constitute an Audit Committee u/s 177, the committee, shall
take into consideration the qualifications and experience of the individual or
the firm proposed to be considered for appointment as auditor and whether such
qualifications and experience are commensurate with the size and requirements
of the Company.
The committee shall recommend the name
of an individual or a firm as auditor to the Board for consideration and in
other cases, the Board shall consider and recommend an individual or a firm as
auditor to the members in the AGM for appointment.
If the Board agrees with the
recommendation of the Audit Committee, it shall further recommend the
appointment of auditor to the members in the AGM otherwise, it shall refer back
the recommendation to the committee for reconsideration citing reasons for such
disagreement.
If Board is Disagreement with Committee:
If the Audit Committee decides not to
reconsider its original recommendation, then Board shall record reasons for its
disagreement with the Audit committee and send its own recommendation for
consideration of the members in the AGM and if the Board agrees with the
recommendations of the Audit Committee, it shall place the matter for
consideration by members in the AGM.
In case Company
not required to constitute Audit Committee:
Recommendation
by Board of Directors: In
cases where such a committee is not required to be constituted, the Board,
shall take into consideration the qualifications and experience of the
individual or the firm proposed to be considered for appointment as auditor and
whether such qualifications and experience are commensurate with the size and
requirements of the Company.
The Members shall appoint the auditor
in the AGM by passing of Ordinary resolution. As per section 139(1) the Company
shall inform the auditor concerned of his or its appointment, and also file a
notice of such appointment with the Registrar within 15 days of the meeting in
which the auditor is appointed. The intimation may be given in form ADT-1.
[5]Tenure: The auditor appointed in the AGM
meeting shall hold office from the conclusion of that meeting till the
conclusion of the sixth annual general meeting, with the meeting wherein such
appointment has been made being counted as the first meeting
Remuneration: Section 142 of the Act prescribed
that the remuneration of the auditor of a Company shall be fixed in its general
meeting or in such manner as may be determined therein.
Resolution
involved: Appointment of auditor in Annual General Meeting and the
fixing of the remuneration of the auditors shall be an ordinary business to be
transacted at an annual general meeting of a Company. Company will pass
ordinary resolution for the same.
Form Involved: Company shall inform the ROC in Form
ADT-1 within 15 days of the General meeting in which Company pass Ordinary
Resolution for appointment of the Auditor. There is no need to file form ADT-1
every year.
ii.
In case of appointment
of subsequent auditor in Government
Companies:
In case of subsequent auditor for
existing government companies, the Comptroller & Auditor General shall
appoint the auditor within a period of 180 days from the commencement of the
financial year and the auditor so appointed shall hold his position till the
conclusion of the Annual General Meeting
Audit Committee: The Act also provides that in case the Company
has an Audit Committee, then all appointments of Auditor including filling of
casual vacancy, shall be made after taking into account the recommendations of
the Committee.
Company shall at the first annual
general meeting, appoint an individual or a firm as an auditor on the
recommendation of C&AG who shall hold office from the conclusion of next
Annual General Meeting (AGM).
Company shall inform the auditor
concerned of his or its appointment and also file a notice of such appointment
with the Registrar in Form ADT-1 within 15 days of the meeting in which the
auditor is appointed.
[6]Tenure: The auditor appointed in the AGM
meeting shall hold office from the conclusion of that meeting till the
conclusion of next general meeting.
Remuneration: Section 142 of the Act prescribed
that the remuneration of the auditor of a Company shall be fixed in its general
meeting or in such manner as may be determined therein.
Resolution
involved: Appointment of auditor in Annual General Meeting and the
fixing of the remuneration of the auditors shall be an ordinary business to be
transacted at an annual general meeting of a Company. Company will pass
ordinary resolution for the same.
Form Involved: Company shall inform the ROC in Form
ADT-1 within 15 days of the General meeting in which Company pass Ordinary
Resolution for appointment of the Auditor. There is no need to file form ADT-1
every year.
C. APPOINTMENT OF AUDITOR
IN CASE OF CASUAL VACANCY:
The expression 'casual vacancy' has not been
defined in the Companies Act. Simply stated, a casual vacancy in the office of
an auditor means a vacancy caused in the office of an auditor by his death, disqualification,
resignation, etc. It has been held in the case of the Institute of Chartered
Accountants of India v Jnanendranath Saikia (1955) 25 Comp Cas 53, 56 (Assam)
that casual vacancy is not a vacancy created by any deliberate omission on the
part of the company to appoint an auditor at its annual general Meeting.
i.
In case of appointment
in the Companies except Government Companies:
Filing of Casual Vacancy
by Board of Director:
Section 139(8) of the Companies Act,
2013 prescribed that
the Board of Director fill casual
vacancy in the office of an auditor due to reason other than resignation within
30 days of such resignation.
Before the appointment of auditor is
made, the written consent of the auditor to such appointment, and a certificate
from him that if the appointment, if made, it shall be in accordance with the
conditions as may be prescribed, shall be obtained from the auditor.
Certificate shall also indicate whether the auditor satisfies the criteria
provided in [7]section
141.
In case of a Company that is required
to constitute an Audit Committee u/s 177, the committee shall recommend the
auditor to Board of Directors.
Tenure:
Any auditor appointed in a casual vacancy shall hold office until the
conclusion of the next Annual General Meeting.
Remuneration: Section 142 of the Act prescribed
that the remuneration of the auditor of a Company shall be fixed by board of
director.
Resolution involved: Appointment of auditor due to casual
vacancy by Board Resolution whether in the Meeting of Board of Directors or by
Circular Resolution.
Form Involved: There company is need to file ADT-1 for
appointment of such auditor within 15 days of appointment.
Filing of Casual Vacancy
by Members in EGM:
If any casual vacancy in the office of
an auditor is caused by the Resignation of an
Auditor, such vacancy shall only be filled by
the company in general meeting convened within three months of the
recommendation of the Board.
It is pertinent to note that, in case
of casual vacancy arising out of resignation of existing auditor, Board can
only recommend appointment of an Individual or Audit Firm and the final
authority to appoint such individual or audit firm as Auditor remains with the
members of the Company.
In case of casual vacancy arising out
of resignation of the existing auditor, the board shall recommend appointment
of an Individual or audit firm as auditor within 30 days of the date of casual
vacancy and the shareholders shall appoint within 3 months from the date of
such recommendation of the Board and the said Individual or Audit firm shall
hold the office till conclusion of the next annual general meeting.
Remuneration: Section 142 of the Act prescribed
that the remuneration of the auditor of a Company shall be fixed by members in
General Meeting.
Resolution involved: Appointment of auditor due to casual
vacancy by Shareholders in the extra ordinary general meeting by passing of
ordinary resolution.
Form Involved: There company is need to file ADT-1 for
appointment of such auditor within 15 days of appointment.
ii.
In case of
appointment in the Government Companies:
Filing of Casual Vacancy
by C&AG
In the case of a company whose accounts
are subject to audit by an auditor appointed by the Comptroller and Auditor-General
of India, be filled by the Comptroller and Auditor-General of India within 30
days of such casual vacancy.
Filing of Casual Vacancy by Board in case of failure of C&AG
If vacancy is not filled by the
Comptroller and Auditor-General of India within 30 days, the Board of Directors
shall fill the vacancy within next 30 days (30+30=60).
Common for both Situations
Remuneration: Section 142 of the Act prescribed
that the remuneration of the auditor of a Company shall be fixed by Board of Directors
in their meeting.
Resolution involved: Appointment of auditor due to casual
vacancy by board of director on the recommendation of the C&AG or by
passing of Board Resolution in the Board Meeting in case of failure of
C&AG.
Form Involved: There company is need to file ADT-1 for
appointment of such auditor within 15 days of such appointment.
D. APPOINTMENT OF AUDITOR
DUE TO NON RATIFICATION OF AUDITOR:-
In the Companies Amendment Bill,
The concept of ratification of auditor
Has been deleted.
First proviso to Sub-rule (7) of Rule 3 provides that the auditor appointed at
annual general meeting shall be subject to ratification in every annual general
meeting till the sixth such meeting by way of passing of an ordinary
resolution.
The act has introduced a new concept of
ratification of auditors at every annual general meeting. Here ratification
means formal assent of shareholders for continuance as auditors.
Explanation of Rule 3- For the purposes of this rule, it is
hereby clarified that, if the appointment is not ratified by the members of the
company, the Board of Directors shall appoint another individual or firm as its
auditor or auditors after following the procedure laid down in this behalf
under the Act.
Situation: If in any AGM auditor is not ratified
by the Shareholders then exiting auditor shall be liable to leave its post and
such vacant place of auditor in the Company will be consider as Casual Vacancy.
As per explanation of rule 3 Board of Director shall appoint new auditor after following
the process of casual vacancy.
*There is no provision of ratification of auditor in case
of government Companies because tenure of the auditor in Government Companies
upto next Annual General Meeting of the Company only.
E.
APPOINTMENT OF RETIRING AUDITOR:
As per Section 139(9), subject to
provisions of sub-section (1) and rules made there under, a retiring auditor
may be reappointed at an annual general meeting, if following three conditions
are satisfied:
(a)
he
is not disqualified for re-appointment;
(b)
he
has not given the company a notice in writing of his unwillingness to be
re-appointed; and
(c)
a
special resolution has not been passed at that meeting appointing some other
auditor or providing expressly that he shall not be re-appointed.
As provided by section 139(9) of the
Act at any annual general meeting, a retiring auditor shall be reappointed except,
in three types of cases referred to therein. The expression shall be
re-appointed, postulates some action on the part of the company resulting in
the auditor getting re-appointed or automatically re-appointed at the annual
general meeting.
It has been clarified that passing of
the resolution for that purpose at the annual general meeting is essential for
the re-appointment/ratifying for the appointment of the retiring auditor who is
still qualified and willing to act. Till this is done, a retiring auditor
cannot be said to have been re-appointed as contemplated by the section.
In this view, it is not correct to say
that in the absence of the resolution to the effect that the retiring auditors
shall not be re-appointed; the retiring auditors shall stand re-appointed as auditors
of the company.
It is not mandatory to reappoint the
retiring auditor even if 3 things stipulated in sub-section (9) are not
attracted. The board of director may recommend any person other than retiring
auditor for appointment as statutory auditor of the Company at the time of
completion of term of existing auditor of the Company.
Tenure: The auditor appointed in the AGM
meeting shall hold office from the conclusion of that meeting till the
conclusion of the sixth annual general meeting, with the meeting wherein such
appointment has been made being counted as the first meeting.
Remuneration: As per section 142 remuneration of
auditor shall be decide by the members in its subsequent general meeting.
Filing of e-form: The Company will file e-form ADT-1 with
ROC within 15 days of passing of ordinary resolution in general meeting.
F. IN CASE OF NO AUDITOR
IS APPOINT IN AGM, THEN HOW TO APPOINT AUDITOR:
Sub-Section (10) of section 139
stipulates that where at any annual general meeting, no auditor is appointed or
re-appointed, the existing auditor shall continue to be the auditor of the
company.
Hence, it is clear that the retiring
(existing) auditor even if not re-appointed, may still be automatically
appointed if the Company fails to appoint an Auditor in place of the existing
auditor.
Tenure: If not auditor is appointed in AGM
then retiring auditor will continue as auditor of the company from the
conclusion of this AGM to conclusion of 6th Annual General Meeting
of the Company subject to ratification by shareholder in every AGM.
Remuneration: As per section 142 remuneration of
auditor shall be decide by the members in its subsequent general meeting.
Filing of e-form: There is no need to file any form with ROC for continuation of existing auditor as auditor of the Company.
_________________________________________________________________________________
Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION. This is only a knowledge sharing initiative and author do not intend to solicit any business or profession.
[1]
BM stands for Board Meeting.
[2]
EGM stands for Extra ordinary General Meeting
[3]
Eligibility, Qualification or Disqualification of Auditor.
[4]
Eligibility, Qualification or Disqualification of Auditor.
[5] Provided that such
appointment shall be subject to the ratification in every annual general
meeting till the 6th such meeting by way of passing of an ordinary resolution.
[Proviso to Rule 3(7)]
[6] Provided that such
appointment shall be subject to the ratification in every annual general
meeting till the 6th such meeting by way of passing of an ordinary resolution.
[Proviso to Rule 3(7)]
[7]
Eligibility, Qualification or Disqualification of Auditor.
Needed to compose you a very little word to thank you yet again regarding the nice suggestions you’ve contributed here.accounting firms in dubai
ReplyDelete