Appointment of Auditor

The Appointment of Auditor refers to the process of selecting and hiring an independent and qualified accounting professional to examine and review an organization's financial records and operations.

The primary purpose of appointing an auditor is to provide an objective assessment of the financial health and accuracy of an organization's financial statements.

The appointment of an auditor is typically required by law or regulation in many countries for companies, non-profits, and government entities.

The auditor is expected to perform a variety of tasks, including testing internal controls, reviewing financial statements, assessing the accuracy of financial data, and verifying compliance with relevant laws and regulations.

Auditors are often appointed by the organization's board of directors, shareholders, or other governing bodies, and the selection process typically involves a thorough review of the auditor's qualifications, experience, and independence.

Once appointed, the auditor typically works closely with the organization's management team to gain a comprehensive understanding of the company's financial activities and reporting requirements.

Process for Appointment of Auditor As Per Companies Act, 2013

The Companies Act, 2013 provides the procedure of first auditor appointment for every company shall appoint in its 1st Annual general meeting (AGM) an individual or a firm as an auditor of the company who shall hold office from the conclusion of the first annual general meeting till the conclusion of its sixth annual general meeting.

The term of 5 consecutive years is subjected to ratification by shareholders at every AGM is omitted in the Companies Act, 2017.

The remuneration is given as per the relevant section to the auditor of the company which shall be fixed in its general meeting or in such a manner given there under.

Appointment of Auditor process for selection to be provided under the rules:

1. Consideration of the Appointment –

The Board or the Audit Committee shall consider the qualifications, and experience of the auditor and whether the attributes are appropriate for the size and requirements of the company.

The professional matters must be considered with regard to the proposed auditor in front of the ICAI, court or authority.

2. Recommendation of Name for an Auditor Appointment –

The procedure depends on whether the audit committee is required to be constituted or not.

• Constitution of Audit Committee Requirement:

  In this case, the committee shall recommend the name of the auditor to the board which agrees with the recommendation provided in the appointment of auditor ppt will further recommend to the members. If the board does not agree then it shall refer back the recommendation to the committee which reconsiders its recommendation.

  The Constitution of the audit committee according to the Companies (Meetings of Board and its Powers) Rules, 2014 is applicable to every listed company and the following classes of companies:

• Every Public company with a paid-up share capital of ten crore rupees or exceeding that,
• Every Public company having a turnover of one hundred crore rupees or exceeding that,
• Every public company has outstanding loans or borrowings or debentures or deposits exceeding 50 crore rupees or more.

However, as per the Appointment of Auditor companies act, 2013 if the committee decides not to do so then the board shall record reasons for its disagreement with the committee and send its own recommendation for consideration by the members.

• When an Audit Committee is Not Required:

  The committee shall endorse the name of the auditor to the members.

Written Consent and Certificate from the auditor for an appointment:

As per provision under section 139, the auditor has to give written consent to become the auditor of the company and a certificate stating that the appointment is according to the conditions prescribed.

Content of the Certificate under Companies (Audit and auditor) rules, 2014 are:

• The person being appointed is eligible for appointment of auditor and is not disqualified for appointment under the Chartered Accountant Act, 1949 and rules or regulations are given thereunder.
• The proposed auditor is as per the conditions provided under the Act.
• The proposed auditor is within the limits mentioned by or given by the authority of the act.
• The list of proceedings pending with respect to professional matters of conduct as disclosed in the certificate is fair and correct.
• The certificate shall state that the auditor is eligible and duly qualified or disqualified for the auditor’s appointment.

Intimation to Auditor and ROC

The company shall inform the auditor regarding the appointment and also file an appointment of auditor Form ADT-1 to ROC within 15 days of the meeting in which the auditor is appointed is given in the following steps:

Step 1 : Intimate the proposed auditor regarding the intention of appointing as an auditor and ask for the following information and documents:

• Qualification, experience and matters of professional conduct pending before ICAI, court or any other authority.
• Consent to become an auditor
• Certificate

Step 2 : The company must ensure that the First Auditor is appointed within 30 days from the date of the Company’s incorporation other than government companies. The company needs to prepare a notice of conducting the board meeting for the appointment of auditors pdf of drafting resolutions that need to be passed in the meeting. The purpose of the meeting is to discuss the matter and pass the resolution in following points:

• Considering information and documents provided by the auditor.
• Considering that the qualification and experience are commensurate with the size & operations of the company.
• Recommendation of the name of the auditor to the shareholders.
• Calling of Annual general meeting

Step 3 : Holding and Convening the Annual general meeting for passing an ordinary resolution appointing the auditor passed at the meeting.

Step 4 : Intimate the auditor and file with ROC Form ADT-1 within 15 days of passing the resolution in the meeting.

Re-Appointment of Auditor

Once the tenure of five consecutive years is completed, the auditor may be re-appointed by complying in accordance with the provisions of section 139 which provides that subject to the provisions of the section and rules framed thereunder, a retiring auditor may be re-appointed at an annual general meeting, if –

• He is not disqualified for re-appointment
• He has not sent the company a notice in writing of his unwillingness to be re-appointed as an auditor.
• With respect to the appointment of any other auditor, a special resolution has not been passed at that meeting or providing expressly that he shall not be re-appointment of auditor.

Rotation of Auditors

As per the relevant section of the Companies Act, 2013, no listed company or companies as prescribed shall appoint or re-appoint;

• An individual as an auditor for more than a term of five years consecutively;
• An audit firm appointed as auditors for more than two terms of five consecutive years Note: The gap in the term for a continuous period of 5 years is considered as fulfilment of the criteria given for rotation of auditors.
• The period for which the individual or the firm has held office as auditor prior to the formation of the Companies Act shall be taken into account for calculating the period of five consecutive years or ten consecutive years, as the case may provide.

Documents Required for Appointment of Auditor for a Company

The forms that need to be filled by the company at the time of appointing an auditor for a company.

• Certified copy of member’s resolution
• Notice of board meeting
• Auditor’s consent letter
• Auditor disqualification certificate
• Intimation letter to the proposed auditor
• Submitting Form MGT-14, when the first auditor appointment is taking place with the proof of the resolution
• Form ADT-1 is filled with the Registrar of Companies (ROC)
• The additional information required by ROC are:
• Category of auditor
• PAN of auditor or auditor firm’s
• The auditing firm’s name
• The auditing firm’s address
• Email address
• The time period for an appointment
• Information about the resigned auditing firm
• The new auditor firm’s appointment date
• Date of board’s resolution
• Form ADT-1 signed by the director of the company through DSC.

Appointment of Auditor in Government Company

First Auditor: In the case of a government company or any other company owned or controlled, directly or indirectly by the central government or by any state government, the first auditor shall be appointed by:

• The Comptroller and Auditor-General of India within 60 days from the date of incorporation of the company and in case of the Comptroller and Auditor-General of India does not appoint a such auditor within the given period;
• The board of directors of the company shall appoint such an auditor within the period of next thirty days and in case of failure of the board to appoint an auditor within the next thirty days.
• The board shall inform the members of the company of the appointment of auditor within sixty days at an Extraordinary general meeting, who shall hold office till the conclusion of the first annual general meeting.
• As per section 139 of the Companies Act, 2013, the Company shall inform the auditor of its appointment and file a notice of such appointment with the registrar of companies (ROC) within fifteen days of the meeting where an auditor is appointed. The notice to the registrar about auditor appointment in Form ADT-1.

Appointment of Subsequent Auditor

As per the relevant section in case of a government company or any other company owned or controlled, directly or indirectly by the central government or by any state government;

• The Comptroller and Auditor-General of India shall in respect of a financial year, the appointment of auditor who is duly qualified as an auditor under the Companies Act, 2013 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.
• The company shall inform the auditor concerned of his appointment and also file a notice of such appointment with the Registrar of companies within fifteen days of the appointment. The notice to the Registrar about auditor appointment in Form ADT-1, filed every year after the Annual general meeting in which the auditor was appointed.

Appointment of a Statutory Auditor still Requires Ratification at Annual General Meeting

The amendment of the appointment of auditor companies Act, 2017 has deleted the provision of annual ratification of the auditor appointment. As per the original provision under section 139 of the Companies Act, 2013 with omitted provision given as under:

Every company shall appoint and individual or a firm as an auditor at the first annual general meeting who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting and till the conclusion of every sixth meeting and the manner and procedure of selection of auditors appointment of the members of the company at an AGM shall be such as prescribed.

The company shall place the resolution relating to such appointment of auditor for ratification by members at every annual general meeting. Now during a single term of 5 years, there shall be no requirements for ratification of an auditor appointment.