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The resignation of auditor is prescribed by the Companies Act, 2013 with the rules to the registrar. A company needs to appoint an auditor to maintain its books of accounts and for preparing the audit reports of the company. An auditor is appointed in its first annual general meeting.
A company can appoint any individual or a firm as its auditor. An auditor can give a resignation letter to the company for any reason.
The Companies Act, 2013 and the Companies (Audit and Auditors) Rules, 2014 provide the rules and procedure for auditors resignation from the company.
The steps for resignation followed by an auditor as per Companies (Audit and Auditors) Rules, 2014 are:
Step 1 : The auditor shall send to the company his/her resignation letter along with Form ADT-3, filled by the auditor with the Registrar of companies.
The application for resignation is filled by the auditor resignation intimation related formalities are provided in the rules. The rules provide that an auditor shall file the application form ADT-3 on the Ministry of Corporate Affairs (MCA).
Step 2 : Once the auditor submits his resignation letter and Form ADT-3 to the company. The company shall convene a board meeting for accepting the resignation of auditor.
Step 3 : The company shall fill the casual vacancy as arise by the resignation of the auditor and approve the Notice of the Extraordinary General meeting of the company or by calling a board meeting. The company may also appoint a casual auditor to fill the vacancy in a general meeting within three months and such auditor holds the post until the conclusion of the next annual general meeting.
Step 4 : Hold an Extraordinary General meeting (EGM) and approve the appointment of a new auditor/ auditor’s firm. The company shall obtain a consent letter from the new auditor/ auditor’s firm. In the case of a government company, the appointment of auditor by the Comptroller and auditor-general of India within thirty days from the resignation of auditor.
Step 5 : The intimation regarding the date of appointment is made to the appointed auditor/ auditor’s firm.
Step 6 : File Form MGT-14 with the ROC within thirty days from the date of EGM.
Step 7 : File Form ADT-1 for the appointment of a new auditor within 15 days from the date of his appointment.
The following details are to be filled in by the appointment of the auditor are:
1. E-Form MGT-14 filled with a copy of the resolution passed in the board meeting.
2. Form ADT-1 to be filled with the ROC.
The following are the details that are to be filled by the resigning auditor in the Form ADT-3:
The Board of Directors
Subject: Resignation from the office of Statutory Auditor
This is to inform you that due to personal reasons, I am unable to continue as the Statutory auditor of the company.
I submit for the resignation of auditor from the office of the Statutory Auditor of the company with immediate effect.
I have no objection to the appointment auditor or resignation intimation of any other Auditor of the company.
Please accept my resignation and kindly acknowledge it.
For ___________& Associates
(Name of the CA)
Membership Number: ___________
There are five situations when the auditor resigns before the expiry of their term:
The Companies Act, 2013 gives powers to the auditors for accessing the books of accounts of the company at any time. The resignation of auditor process can take place when the inquired information or explanation from the officers of the company is not disclosed. There are a few times when a company does not disclose important information to the auditor. Thus, an auditor may approve the financial statements without access to information that resulted in the disapproval of the same.
There is huge competition between accounting firms and independent auditors. Thus, a firm’s reputation is very important in the market. If there is fraud committed by any of the parties then it can result in an issue for their clients in the market. Due to the high internet connectivity, the news spreads in the blink of an eye. Thus, firms may take the resignation of auditor from such accused companies with an irreparable loss to their reputation due to their association.
The Code of Ethics is laid down as a requirement given by ICAI. The fundamental principles are given as:
When an auditor is concerned about losing a client or has developed a business relationship with them, then it can develop a self-interest threat for the auditor. This is against the code of ethics requirement by ICAI, the auditor shall resign from the company.
When an auditor has been a director or officer of the client or in a position where he or she could have significant control over the subject. This will create a self-review, the auditor should avoid taking up these assignments or take a resignation of auditor.
It includes circumstances where the auditor is acting as a representative for a client in litigation or disputes. The auditor shall consider resigning from the auditing assignments as there is an intention of defending their client in litigation or disputes that leads to biased opinion.
When a member of an audit firm is a relative of an officer or director of the company.
When an auditor is threatened to resign from the company where the fees are reduced. This also leads to intimidation threats which are against the code of ethics and imply the resignation of the auditor from assignments.
The Central government has made strict principles for resignation of auditor in corporate governance to enhance the level of transparency in the business. In the recent amendment, the Companies Act, 2013 has imposed a penalty for fraud or contravention. As a result, the companies are becoming compliant and avoiding violation of the rules and regulations of the Act.
The auditor does not resign at their own will in all cases. The company terminated the contract in case of violation of terms by the auditor.
The duties of an auditor are given under the Companies Act, 2013 in the relevant section of the Act. The following are the duties of the auditor or can lead to the resignation of auditor:
One of the auditor’s vital duties is to make inquiries, when it finds necessary which for avoiding the resignation of auditor includes:
When the auditor is the branch auditor and not the statutory auditor of the company then he will lend assistance and help in the completion of the branch audit.
The auditing standards are issued by the Central government in consultation with the National Financial Reporting Authority (NFRA). These standards help in performing his duties with ease and accuracy for preventing the resignation of auditor.
The auditor may be suspicious about the fraud within the company, in these situations where the figures of financial statements are misleading. The auditor must report to the Central government in the stipulated manner given in the Act.
The auditor must follow the code of ethics and professional conduct which include confidentiality and due care in the performance of his duties.
The duties of the auditor are diverse and impactful. Thus, the officers of the company must provide assistance in the satisfaction of the duties. The level of assurance by an audited financial statement is higher as compared to unaudited financial statements.
The resigning auditor must send the letter of resignation with reason for resignation.
The Form ADT-3 is submitted with the attachments like resignation letter and payment of prescribed fees for filing the form.
In addition to registration or incorporation, a business may require other registrations depending on the business activity undertaken. Talk to an Advisor to find out registrations your business may require post registration.
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