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Audit and Auditors under Companies Act

Appointment of Auditors

The various laws require the appointment of auditors. The law under which we appoint lays down the procedure of appointment of auditors and also the rights, duties and the functions of the auditor. An auditor shall be independent. Here we will discuss the appointment of an auditor as per the provisions of the Companies Act, 2013.

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Appointment of Auditors

Within thirty days from the date of the registration of the Company other than the Government Company, it’s Board of Directors need to appoint an individual or a firm as the first auditor of the company. The members shall ratify the appointment of the first auditor in the first annual general meeting of the company.

The first auditor of the company holds office from the conclusion of the first annual general meeting until the conclusion of the sixth annual general meeting and after this until the conclusion of every sixth meeting. However, the members of the company ratify the appointment of auditors at every annual general meeting.

However, in a case where the Board of Directors fails to appoint the first auditors of the company they shall inform the members of the Company. Thus, the members shall appoint the first auditors of the company within ninety days at an extraordinary general meeting. The auditor so appointed shall hold the office until the conclusion of the first AGM.

The Board of Directors shall fill any casual vacancy in the office of the auditor of a company other than a Government Company within thirty days. This does not include any casual vacancy arising out of the resignation of an auditor. However, in case of a casual vacancy arising out of the resignation of an auditor, the Board of Directors shall fill the vacancy within thirty days. But, the company needs to approve this appointment at a general meeting within three months of the Board’s recommendation. Such an auditor shall also hold the office till the conclusion of the next annual general meeting.

Appointment of Auditors

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Re-appointment of a Retiring Auditor

The members can re-appoint the retiring order at the annual general meeting of the company:

  1. If he is not disqualified for re-appointment.
  2. If he has not given a notice in writing to the company expressing his unwillingness to be re-appointed.
  3. When a special resolution has not been passed by the members at that meeting appointing some other auditor or expressly providing that he should not be re-appointed.

It is noteworthy here that if at any annual general meeting the members do not appoint or re-appoint any auditors, the existing auditor shall continue to be the auditor of the company.

Appointment of Auditors of Government Companies

Government Company refers to the companies that are owned or controlled, directly or indirectly, by the Central Government or by any State Government or Governments, or partly by the Central and State Government.

In the case of a Government Company, the Comptroller and Auditor-General of India shall appoint the first auditor within sixty days from the date of registration of the company.

If the Comptroller and Auditor-General of India fail to appoint such auditor within the period of sixty days, the Board of Directors shall appoint the first auditors within the next thirty days.

However, if the Board of Directors also fails to appoint the first auditors within thirty days they shall inform the members of the Company.

Thus, the members shall appoint the first auditors of the company within sixty days at an extraordinary general meeting. Also, the auditor so appointed shall hold the office until the conclusion of the first AGM.

In respect of a financial year, the Comptroller and Auditor-General of India shall appoint an auditor within a period of one hundred and eighty days from the commencement of the financial year. Such auditor shall hold office until the conclusion of the annual general meeting.

Also, the Comptroller and Auditor-General of India shall fill any casual vacancy in the office of the auditor of the Government Company within thirty days. If the Comptroller and Auditor-General of India fail to fill such vacancy within the period of thirty days, the Board of Directors shall fill such vacancy within next thirty days.

Solved Example For You

Question: What do you understand by the Mandatory Rotation of Auditors?

Ans. The Companies Act, 2013 states that the system of rotation of auditors is applicable to all:

  1. listed companies.
  2. Unlisted Public companies having paid up share capital of Rs. 10 crores or more.
  3. Private limited companies having paid up share capital of Rs. 20 crores or more.
  4. Companies that have the paid-up share capital below the above limits but have public borrowings from financial institutions, banks or public deposits of Rs. 50 crores or more.

However, this concept of rotation is not applicable to one person companies and small companies.

All the above companies cannot appoint or re-appoint an individual as an auditor for more than one term of consecutive five years. Thus, an individual auditor is not eligible for re-appointment in the same company for five years from the date of completion of his term of consecutive five years.

Also, all the above companies cannot appoint or re-appoint an audit firm as an auditor for more than two terms of consecutive five years. Thus, an audit firm is not eligible for re-appointment as an auditor in the same company for five years from the date of completion of his term of consecutive five years.

It is noteworthy here that when two or more audit firms have a common partner or partners and one of these firms complete its two terms, none of these firms is eligible for re-appointment as an auditor in the same company for five years. 

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