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Resignation of Auditor

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.

Process of Resignation of Auditor

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.

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Documents Required for Appointment of New Auditor

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.

  • Name of new auditor/ Firm of auditor
  • Address with City, State, PIN code of auditor/ Firm of auditor
  • Email ID of the auditor/ Firm of the auditor
  • Number of years for which the firm is being appointed.
  • Information about the resignation of auditor firm
  • Date of appointment of the new auditor firm
  • Digital Signature Certificate (DSC) of auditor to be affixed to the form ADT-1 with the signature of the director of the company.

Particulars of Form ADT-3

The following are the details that are to be filled by the resigning auditor in the Form ADT-3:

  • Corporate Identification Number (CIN)
  • Name, Registered address and Email ID of the company
  • Category of auditor if Individual or Firm
  • Income Tax PAN of auditor/ Firm of auditor
  • Membership number of the auditor/ Firm of auditor
  • Name of auditor/ Firm of auditor
  • Address with City, State, PIN code of auditor/ Firm of auditor
  • Email ID of the auditor/ Firm of the auditor
  • Reasons for resignation of auditor and any other relevant facts for resignation
  • Digital Signature Certificate (DSC) of auditor to be affixed to the form. The resignation letter must be attached to this form by the auditor.
  • The auditor has to pay the prescribed fees with Form ADT-3 at the time of filing the form. The fee depends upon the share capital of the company of the resigning auditor.

Format of Resignation Letter of Auditor

The Board of Directors
Subject: Resignation from the office of Statutory Auditor
Dear Sir/Ma’am,
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.
Thanking you,
Yours Faithfully,
For ___________& Associates
Chartered Accountants
FRN: ___________
(Name of the CA)
Membership Number: ___________

Reasons for Resignation of the Auditor

There are five situations when the auditor resigns before the expiry of their term:

1.Hiding of Information on the Material Impact on the Accounts

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.

2. Reputation Impact

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.

3. Code of Ethics requirement by the Institute of Chartered Accountants of India (ICAI)

The Code of Ethics is laid down as a requirement given by ICAI. The fundamental principles are given as:

1 : Self–Interest

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.

2 : Self-Review

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.

3 : Advocacy

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.

4 : Familiarity

When a member of an audit firm is a relative of an officer or director of the company.

5 : Intimidation

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.

4. Investigation by Regulatory Bodies

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.

5. Termination

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.

Duties of 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:

1. Prepare an Audit Report

  • An audit report is an appraisal of a business's financial position. The auditor is mainly responsible for preparing an audit report based on the financial statements of the company.
  • An auditor must ensure that the financial statements comply with the relevant provisions of the Companies Act, 2013 and Accounting Standards.

2. Form a Negative Opinion

  • The auditor’s report has a high degree of assurance and reliability because it contains the auditor’s opinion on the financial statements.
  • Where the auditor feels that the statements do not show a true and fair view of the financial position of the business, he can form an adverse opinion on the same.

3. Make Inquiries

One of the auditor’s vital duties is to make inquiries, when it finds necessary which for avoiding the resignation of auditor includes:

  • Whether loans and advances made on the basis of security are properly secured and the terms relating to the same
  • Whether any type of personal expenses is charged to the revenue account
  • Where loans and advances are made, they are shown as deposits.
  • Whether the financial statements are made in compliance with the Indian accounting standards.

4. Lend Assistance in case of Branch Audit

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.

5. Comply with Auditing Standards

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.

6. Reporting of Fraud

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.

7. Comply with the Code of Ethics and Code of Professional Conduct

The auditor must follow the code of ethics and professional conduct which include confidentiality and due care in the performance of his duties.

8. Assistance in an Investigation

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.

Resignation of Auditor Process

Checking Name Availability

Documents Required

  • Name of resigning auditor
  • Address with City, State, PIN code of auditor
  • Email ID of the auditor
  • Reasons for resignation of auditor
  • Date of resignation
  • Resignation letter
  • DSC of auditor

Filing of Documents

Signing of Form ADT-3

The resigning auditor must send the letter of resignation with reason for resignation.

Filing of Documents

Details of Form ADT-3

  • Income Tax PAN of auditor
  • Membership number of the auditor
  • Name of auditor
  • Address with City, State, PIN code of auditor
  • Email ID of the auditor
  • Reasons for resignation of auditor
  • DSC of auditor

Filing of Documents

Submit Documents with ROC

The Form ADT-3 is submitted with the attachments like resignation letter and payment of prescribed fees for filing the form.

Frequently Asked Questions

Which MCA form for resignation of auditor?
The application is to be filled by the auditor intimating the resignation through Form ADT-3 to the Registrar after resigning from the company.
Who can remove the auditor from office using resolution?
The auditor appointed under the relevant section of the Companies may be removed from his office before the expiry of his term only by a special resolution of the company for auditor removal, after obtaining the approval of the Central government on the behalf of the prescribed manner.
What is the penalty for resignation of auditor?
When the auditor does not submit the application of resignation with the Registrar, then he will be liable for a penalty of Rs. 50,000 or an amount equal to the remuneration of the auditor or whichever is less. In case of a continuing failure, the auditor will be liable to pay a penalty of Rs. 500 for each day after the first day during such failure, subject to a maximum of Rs. 2 lakhs.
When can an auditor be removed before the expiration of the term?
As per the Companies Act, 2013, the auditor appointed under the relevant provision of removal of auditor states can be removed from his office before the expiry of his term only by passing a special resolution of the company, once the previous approval of the Central government is obtained on that behalf in the manner prescribed.
What is Section 140 removal and resignation of auditor?
Form ADT-2 has the grounds for seeking auditor removal. The reasons for removal are filled as an attachment to the E-Form with any other optional attachments. The auditor can be removed when he is not providing satisfactory services to the company.
What are the E-Forms filled in case of resignation of auditor and appointment of new auditor?
There are three E-Forms involved in the case, E-Form MGT-14, E-Form ADT-1 for the appointment of a new auditor and E-Form ADT-3 for the resignation of the auditor.
What is the casual vacancy of the office of auditor?
The term casual vacancy is not defined in the Companies Act, 2013. The reference which falls under casual vacancy is the resignation of auditor and when an auditor incurs a disqualification under the Companies Act, 2013.

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