Appointment of Auditors

Do you think Directors, having enormous authority and power to take day to day decisions of Company, perform their task with integrity and responsibilities? The directors may mismanage the finances of the organization in which the public has invested their hard-earned money with trust. So, there is a requirement to conduct a check on activities/decisions performed by the Board of Directors. Here comes the role of Auditor of the Company. To protect the interest of Company and its stakeholders, the Companies Act, 2013 mandates the appointment of a Practicing Chartered Accountant as Statutory Auditor of the Company. Thus, members appoint auditor to look into the true and fair view of the financial affairs of the company. Auditors are the industry experts who are independent from the management of the Company. Hence, they can express an unbiased opinion on the financial aspects of the Company.

Aspects of appointment of auditors

Appointment of First Auditor:

• Who will appoint and to whom: First Auditor of the Company shall be appointed by the Board of Directors of the Company. First Auditor shall be either a Practicing Chartered Accountant or a firm of Practicing Chartered Accountants in which the maximum partners are practicing members of ICAI
• When to Appoint: The First Auditor of the Company shall be appointed within 30 days from the date of registration of the Company.
• Term of Appointment: Till the Conclusion of first AGM.

Appointment of Subsequent Auditor:

• Who will appoint and to whom: Subsequent Auditor of the Company shall be appointed by the Members of the Company after taking into consideration the recommendation of the Board of Directors, if any. Subsequent Auditor shall be either a Practicing Chartered Accountant or a firm of Practicing Chartered Accountants in which the maximum partners are practicing members of ICAI
• When to Appoint: Subsequent Auditor of the Company shall be appointed in the First AGM of the Company, and thereafter in every 6th AGM from its appointment.
• Term of Appointment: The listed companies and other prescribed class or classes of companies" (except one person companies and small companies) shall not appoint or re-appoint-

1. an individual as auditor for more than one term of five consecutive years, and
2. an audit firm as auditor for more than two terms of five consecutive years.

Documents Required for the Appointment of Auditor The following documents are required for appointment of Auditor in the Company:

1. Board Resolution: Company shall conduct a Board meeting and pass Board Resolutions for recommendation of Auditor, if any and for authorizing a person for filing Form ADT-1 to ROC.
2. Notice of AGM: After the Board Resolution has passed, company shall draft a Notice, finalize, and dispatch it for calling for AGM to the members of the Company. Notice shall be given 21 clear days before the date of AGM.
3. Resolution passed by Members of the Company: At AGM, Members of the Company shall pass an ordinary resolution for appointment of Auditor in the Company.
4. Consent Letter from the auditor of the Company: Before appointing a person as Auditor, Company has to obtain a Consent letter from such person to act as an Auditor of the Company.
5. Certificate from the auditor claiming his eligibility: Before the appointment of auditor in a Company, he shall submit a certificate that - He is eligible for appointment and is not disqualified for appointment under the Act, the Chartered Accountants Act, 1949 and the rules or regulations made thereunder; the proposed appointment is as per the term provided under the Act; the proposed appointment is within the limits laid down by or under the authority of the Act; the list of proceedings against the auditor or audit firm or any partner of the audit firm pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct. The certificate shall also indicate whether the auditor satisfies the criteria provided in section 141 of the Companies Act, 2013.
6. PAN card of Auditor: Self Attested copy of PAN card is required for filing form ADT-1 to ROC

Resignation of Auditor

When an auditor wishes to resign from their position, they must follow the prescribed procedures outlined in the Companies Act, 2013.

The process involves notifying the company's Board of Directors about the intention to resign and submitting a formal resignation letter.

Casual Vacancy of Statutory Auditor In the event of a casual vacancy arising due to the resignation of an auditor, it is crucial to address the situation promptly and in compliance with the law.

As per the Companies Act, 2013, the Board of Directors is responsible for filling the casual vacancy within thirty days from the date of the resignation and the appointment of new auditor shall be valid till the ensuing AGM.

Features

• An auditor may resign at any time before the expiry of his tenure and there is nothing which can prevent him from doing so.
• The resignation must be in writing as it is required to be filed with the Registrar of Companies along with Form ADT-3.
• Any casual vacancy in the office of an auditor of a company (other than a company whose accounts are subject to audit by an auditor appointed by the CAG) must be filled by the Board of the Company within 30 days of the occurrence of it. But if the casual vacancy has arisen by resignation of auditor, it must be filled by the company at a general meeting (by an ordinary resolution) within three months of the recommendation of the Board. The resolution may be passed by postal ballot.
• The Auditor appointed shall hold the office till the conclusion of the ensuing Annual General Meeting.
• The Companies Act 2013 seeks to ensure that the appointment of auditor is not in the hands of the directors. So, the same is vested in the general body of shareholders.
• The directors may abuse the power to fill a casual vacancy by forcing a vacancy to come into existence, that is why it is enacted that casual vacancy caused by resignation shall be filled by the shareholders only.

Procedure for the resignation of the auditor

• Tendering Resignation Letter
• File E-form ADT-3
• Proposal to the Auditor to be appointed in case of casual vacancy caused due to resignation
• Eligibility of auditor
• Notice of Audit Committee meeting
• Conducting an audit Committee meeting
• Notice of Board Meeting
• Conducting a Board Meeting
• Notice of general meeting (where the casual vacancy caused by resignation)
• Conducting extra ordinary general meeting (where the casual vacancy caused by resignation)
• Issue of appointment letter
• File E-form ADT-1