Author: By Harsha Sharma
All the Companies are required to appoint auditor to get its books of accounts audited every year.
The first Auditor of Company shall be appointed by the Board of Directors within 30 days of Incorporation of the Company and in the case of failure of the Board to appoint such auditor, it shall inform the members of the company, who shall within ninety days at an extraordinary general meeting appoint such auditor and such auditor shall hold office till the conclusion of the first annual general meeting.
Section 139(1) deals with subsequent appointment of Auditor which says that 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 and thereafter till the conclusion of every sixth meeting.
i. The audit committee (where required to be constituted) and Board in case audit committee is not required to be constituted, 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.
Provided that while considering the appointment, the Audit Committee or the Board, as the case may be, shall have regard to any order or pending proceeding relating to professional matters of conduct against the proposed auditor before the Institute of Chartered Accountants of India or any competent authority or any Court.
ii. The Audit Committee or the Board, as the case may be, may call for such other information from the proposed auditor as it may deem fit.
iii. Where a company is required to constitute the Audit Committee, 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 annual general meeting for appointment.
iv. If the Board agrees with the recommendation of the Audit Committee, it shall further recommend the appointment of an individual or a firm as auditor to the members in the annual general meeting.
v. If the Board disagrees with the recommendation of the Audit Committee, it shall refer back the recommendation to the committee for reconsideration citing reasons for such disagreement.
vi. If the Audit Committee, after considering the reasons given by the Board, decides not to reconsider its original recommendation, the Board shall record reasons for its disagreement with the committee and send its own recommendation for consideration of the members in the annual general meeting; and if the Board agrees with the recommendations of the Audit Committee, it shall place the matter for consideration by members in the annual general meeting.
Before appointment is made, the written consent of such appointment and certificate shall be obtained from the auditor. The Auditor shall submit a Certificate that-
a. He is not disqualified for appointment under the Companies Act, 2013 and Chartered Accountants Act, 1949 and the rules or regulations made thereunder.
b. The proposed appointment is as per the term provided under the Act;
c. The proposed appointment is within the limits laid down by or under the authority of the Act;
d. The list of proceedings against the auditor or audit firm or any partner of the audit firm pending, if any, as disclosed in the certificate.
Proviso to Section 139 (1) further states that the certificate shall also indicate whether the auditor satisfies the criteria of Eligibility, qualifications and disqualifications of auditors given in Section 141 of Companies Act, 2013.
Proviso to Section 139 (1) – The company shall inform the auditor concerned of his or its appointment or re-appointment, and also file a notice of such appointment with the Registrar in form ADT-1 within fifteen days of the meeting in which the auditor is appointed.
The listed company and below class of companies excluding one person company and small company-
shall not appoint or re-appoint—
(a) an individual as auditor for more than one term of five consecutive years; and
(b) an audit firm as auditor for more than two terms of five consecutive years:
Provided that an individual auditor or audit form who has completed his term shall not be eligible for re-appointment as auditor in the same Company for five years from the completion of his term;
Provided further that as on the date of appointment no audit firm having a common partner or partners to the other audit firm, whose tenure has expired in a company immediately preceding the financial year, shall be appointed as auditor of the same company for a period of five years:
As provided in sub-section (3) of section 139 of the Act, subject to the provisions of this Act, members of a company may resolve to provide that—
(a) in the audit firm appointed by it, the auditing partner and his team shall be rotated at such intervals as may be resolved by members; or
(b) the audit shall be conducted by more than one auditor.
i. in case of an auditor (whether an individual or audit firm), the period for which the individual or the firm 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;
ii. 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.
Explanation. I– For the purposes of these rules the term “same network” includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control.
Explanation. II – For the purpose of rotation of auditors,-
(a) a break in the term for a continuous period of five years shall be considered as fulfilling the requirement of rotation;
(b) 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 of chartered accountants, such other firm shall also be ineligible to be appointed for a period of five years.
The auditor of a Government company or any other company owned or controlled, directly or indirectly, by the Central Government, or by any State Government, or Governments, or partly by the Central Government and partly by one or more State Governments-
In case of First Auditor– shall be appointed by the Comptroller and Auditor-General of India within sixty days from the date of registration of the company and in case the Comptroller and Auditor-General of India does not appoint such auditor within the said period, the Board of Directors of the company shall appoint such auditor within the next thirty days; and in the case of failure of the Board to appoint such auditor within the next thirty days, it shall inform the members of the company who shall appoint such auditor within the sixty days at an extraordinary general meeting, who shall hold office till the conclusion of the first annual general meeting.
Subsequent auditor appointment– The Comptroller and Auditor-General of India shall, in respect of a financial year, appoint an auditor duly qualified to be appointed as an auditor of companies under this Act, within a period of one hundred and eighty days from the commencement of the financial year, who shall hold office till the conclusion of the annual general meeting.
In the case of a company whose accounts are subject to audit by an auditor appointed by the Comptroller and Auditor-General of India, such casual vacancy shall be filled by the C&AG within 30 days. However, in case the Comptroller and Auditor-General of India does not fill the vacancy within the said period, the board shall fill the vacancy within next 30 days.
In the case of a company other than a Government company, be filled by the board within 30 days. However, if such casual vacancy is as a result of the resignation of an auditor, such appointment shall also be approved by the company at a general meeting convened within 3 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.
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 reappointed; 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.
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