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Appointment of Auditor: Details Relevancy As Per Company

appointment of auditor in private company

Following the incorporation of a new business, it is required that its Board of Directors collectively approach the Appointment of Auditor for the business who is accountable for reviewing and evaluating the business's financial statements for five years.

Why Is It Required Appointment Of Auditor?

The Auditor is a crucial function in the stakeholder role of the business. Appointment of Auditor is enacted to prepare and scrutinize a company's financial records and ensure they comply with the laws. 

They review the company's books of accounts and provide reports to shareholders about the business's operations performed by the company's directors. Only Chartered Accountants who are qualified following the Chartered Accountants Act 1949 can be appointed auditors.

Duration After Appointment Of Auditor

The Auditor's office is vacant following the conclusion of the initial general assembly until the sixth annual general meeting is concluded.

Appointment Of Auditor Rules

According to section 139(6) the auditor must be designated

Within 30 days of incorporating the company or

The Extraordinary General Meeting (EGM) is called to appoint an auditor within the next 90 days.

A certified independent auditor lets a company and its creditors know what it is doing concerning accounting standards and standards. 

Auditors ensure that the financial records of the company and accounts comply with the laws. Appointment of an auditor helps businesses prevent fraud by reviewing their counting methods and process to ensure that the company's accounts are legitimately authentic.

What Are The Obligations Entrusted With Appointment Of Auditor?

Book of accounts: Auditors can access the company's accounting journals anytime. It is essential that there is complete transparency about the Auditor's role and the financials of the business as the Auditor evaluates the integrity of the records and analyzes the financial records.

To get information: Auditors have the right to inquire questions of Directors and members about the financials, and they can also include the information in their reports.

Visit branches: Whether it's the main office or the corporate headquarters. The Auditor may pay visits to get information whenever they want.

The right to attend the meeting: The Auditor has the right to attend all general meetings and is deemed equally necessary as other members. The Auditor also receives similar notifications from the board members.

Right to be paid back: The company is responsible for any claims against the Auditor who defends himself against legal or criminal proceedings brought by the company if it is proven that the Auditor did not act professionally or that the decision is favourable to him.

Legal advice is available: Auditors are entitled to seek legal advice or seek expert opinions.

Appointment Of Auditor Eligibility

Any CA with a certificate of practice can be employed to act & can be available for appointment of the independent auditor on behalf of the company.

Any CA with a certificate or is an associate in one particular firm. Then the entire company is appointed as the Auditor.

Be aware that anyone in his company can take over his tasks if an absence occurs.

Things To Consider When Appointment Of Auditor

Before accepting the position, the Auditor must ensure that his audits are within the limits of the post.

When the Auditor happens to be a close relative of the director, the Auditor must declare his relationship with the director.

If the remuneration prescribed for the Auditor is more than the prescribed amount, the Auditor could be appointed by an express resolution.

Note: In certain instances, the government's approval is required

A statutory auditor is not designated as an internal auditor.

The procedure to follow for the Appointment of Auditor

Who Is Responsible For The Appointment Of The Auditor To A Company?

The Board makes the appointment of Directors

The appointment of the first Auditor of the company is controlled by section 139(6) and the non-obstante clause. The Auditor is scheduled within thirty days after the company's incorporation. ADT-1 is required to be filed along with ROC and other documents, such as:

  • Written permission from the Auditor
  • The Auditor's certificate proving his right to vote
  • Copy of resolutions on the Board

Appointment By A General Assembly

If BOD cannot appoint an Auditor within the period, the annual general meeting is called to elect the position of Auditor after 90 days. Anyone in the company can nominate someone for the position of Auditor.

Note: 14 days before the meeting, an announcement is made to members to inform them of the date for the meeting.

Appointment By Shareholders

At every AGM, the shareholder can appoint an auditor to hold the office until the end of the following general meeting. The Auditor has to be informed of the appointment within seven days. The Auditor is required to submit his acceptance or rejection to the ROC within 30 days.

Nomination By Central Government

If no auditor is chosen by BOD or through a special resolution, or the Auditor doesn't sign off or consent, the appointment is declared null and void. The Auditor and the company must apply for approval from the Central Government. Together with the names and addresses of auditors selected from the firm, they are chosen by the Central Board appoints one. If the company fails to submit its application within the stipulated time, the company is entitled to a penalty of the amount of INR 500or INR 500

Re-Appointment Of Auditor

If no resolution is adopted to remove the Auditor in charge, the Auditor may be appointed regardless of when he has completed his term. At the AGM, If the Auditor is willing to accept his current role in the firm and isn't disqualified by any members, he may be appointed again.

Rotation of Auditor

Following section 139(2), Companies are not permitted to be able to appoint or reappoint:

A person who is an Auditor who's been a part of the business for longer than five consecutive years

A firm that audits as the Auditor, who has been running a business for the business for more than two consecutive years

Who Cannot Eligible For Appointment Of Auditor?

  • No corporation or legal entity can be designated as the Auditor because auditing is a human service. It also helps the Auditor by not letting his liabilities become limited.
  • Any member who holds voting rights in the company or holds any security in the company is not eligible.
  • Individuals who are indebted to the company
  • A person who has given security or acted as a granter to the company about any indebtedness of a third person.
  • Any employee of the company
  • If the person is disbarred from the role of the company's Auditor, then he cannot become the Auditor of either its subsidiary or holding company.
  • A person having direct financial investment in the company
  •  A person has a business relationship or has a relative who is an employee in the company.


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