Appointment of Auditor
Appointment of Auditor
The appointment of an auditor is a statutory requirement under the Companies Act, 2013 to ensure transparency and accuracy in financial reporting. An auditor is an independent professional who examines a company’s books of accounts, verifies financial statements, and expresses an opinion on whether they give a true and fair view of the company’s financial position.
First Auditor:
Every company must appoint its first statutory auditor within 30 days of incorporation by the Board of Directors.
If the Board fails, the shareholders must appoint the auditor within 90 days at an Extraordinary General Meeting (EGM).
Subsequent Auditors:
Appointed in the Annual General Meeting (AGM) of the company.
Holds office for a term of 5 consecutive years, subject to ratification (where applicable).
Filing with ROC:
The company must file Form ADT-1 with the Registrar of Companies (ROC) within 15 days of appointment.
Eligibility:
Only a Chartered Accountant (individual or firm) is eligible to be appointed as auditor.
The appointment ensures independent oversight, enhances stakeholder confidence, and strengthens corporate governance.
Features – Appointment of Auditor
Mandatory Requirement – Appointment of an auditor is compulsory for every company under the Companies Act, 2013.
Independent Professional – Only a Chartered Accountant (CA) or a CA firm can be appointed as an auditor, ensuring independence in financial verification.
First Auditor – Must be appointed within 30 days of incorporation by the Board of Directors; if not, by shareholders within 90 days.
Subsequent Auditor – Appointed at the Annual General Meeting (AGM) for a term of 5 years, subject to approval.
Filing Requirement – Appointment must be reported to the Registrar of Companies (ROC) through Form ADT-1 within 15 days.
Tenure & Rotation – Certain classes of companies are required to rotate auditors after a specific period to avoid dependency.
Role & Duties – Auditor examines books of accounts, financial statements, compliance with laws, and issues an independent audit report.
Disqualification Provisions – Relatives, employees, officers, or persons with conflicts of interest cannot be appointed as auditors.
Shareholder Approval – Final authority lies with shareholders in the AGM for regular appointment and re-appointment.
Corporate Governance Tool – Enhances transparency, accountability, and investor confidence in the company’s operations.
Documents Required – Appointment of Auditor
Board Resolution – Passed for the appointment of the auditor (for first or casual vacancy appointments).
Shareholders’ Resolution (if applicable) – Passed in the Annual General Meeting (AGM) for regular appointment.
Consent Letter from Auditor – Written consent from the proposed auditor under Section 139 of the Companies Act, 2013.
Certificate of Eligibility – Auditor’s certificate confirming eligibility under Section 141 (i.e., not disqualified and fulfilling criteria).
Notice of Appointment – Copy of notice sent to members for AGM/EGM (if appointment is made in general meeting).
Form ADT-1 – Filed with the Registrar of Companies (ROC) within 15 days of appointment.
Attached with:
Board Resolution / Shareholders’ Resolution
Consent Letter from Auditor
Eligibility Certificate
Communication with Previous Auditor (if applicable) – In case of change of auditor, a formal communication is sent to the outgoing auditor.
Other Supporting Documents (if required by ROC) – Any additional papers like minutes of meeting or auditor’s profile.
Step-by-Step Procedure for Appointment of Auditor under the Companies Act, 2013:
1. For First Auditor (after incorporation)
Time Limit: Board of Directors must appoint the first auditor within 30 days of incorporation.
If the Board fails → members appoint the auditor within 90 days at an Extraordinary General Meeting (EGM).
Tenure: Till the conclusion of the first Annual General Meeting (AGM).
2. For Subsequent Auditor (regular appointment)
Appointed in the First AGM by the shareholders.
Tenure: 5 years (till the conclusion of the 6th AGM).
The appointment must be ratified by shareholders in every AGM (earlier mandatory, now optional post-2017 amendment).
3. Process
Obtain Consent & Eligibility Certificate
Proposed auditor gives:
Written Consent to act as auditor.
Certificate under Section 141 confirming eligibility & not disqualified.
Board Meeting
Pass a Board Resolution for appointment.
Approve draft notice of AGM (if appointment to be done by shareholders).
General Meeting (if required)
Members pass an Ordinary Resolution in AGM/EGM for appointment of auditor.
Filing with ROC
File Form ADT-1 within 15 days of appointment.
Attach:
Copy of Resolution
Auditor’s Consent
Certificate of Eligibility
Intimation to Auditor
Company sends a formal appointment letter to the auditor.
Acceptance by Auditor
Auditor confirms acceptance of appointment in writing.
Frequently Asked Questions
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