All Company registered in India is required to appoint an Auditor and have its book of accounts audited each year.
Sections 139 to 148 of the Companies Act, 2013 give a complete and thorough summary of the role of an auditor as well as the different requirements, for example, their appointments or removal from the company.
Provisions related to the appointment of Auditors as under Section 139 of Companies Act, 2013:
As per section 139(6), the first Auditor of a Company shall be appointed by Board within 30 days from registration of the Company or otherwise by members within 90 days at an Emergency General Body Meeting, who shall hold office till the conclusion of first AGM. At first AGM an auditor has to be appointed to hold office till the conclusion of 6th AGM.
Thereafter auditor should be appointed at every 6th AGM. This is liable to ratification by shareholders at every AGM by passing Ordinary Resolution. A retiring auditor might be re-appointed if he is not disqualified and no other auditor is appointed. In any case, if ratification is not given then Board would appoint another auditor following procedure for appointment.
Written consent from the auditor, with adequate proof to suggest that the individual (or firm) qualifies the criteria given in Section 141 of the Act, should be submitted before an appointment.
The Company must issue an appointment notice towards the auditor, and a Form, ADT- 1 is needed to be submitted with the registrar within 15 days of the meeting in which the auditor is appointed.
The Terms and Rotation of Auditors under Section 139(2) and Rule 5 of Companies (Audit & Auditors) Rules, 2014:
There should be a restriction on the appointment of auditors in:
1. Listed Companies.
2. All Public Companies who have paid-up share capital of more than Rs. 10 Crores.
3. Private Ltd Co. who have paid-up share capital of more than Rs. 20 Crores.
4. Companies having public borrowing/deposits of more than Rs. 50 Crores.
The above-mentioned Companies shall not appoint:
1. An individual for more than 1 Term ( i.e 5years).
2. An auditors firm for more than 2 Terms.
The auditors who have finished their term(s) should not be reappointed for 5 years from completion of the term(s). Also, an audit firm having a common partner with other firms whose term has expired in a Company, should not be appointed in that Company for 5 years.
The aforementioned Companies shall abide by the aforesaid provisions within 3 years from the date of commencement of these provisions.
The members of a Company might resolve that:
1. In the audit firm appointed by it, the auditing associate and his team should be rotated at such intervals as may be resolved
2. Or the audit should be conducted by more than one auditor
Re-appointment of an Auditor
At the annual general meeting, the retiring auditor appointed (board, annual general meeting or central government) should be re-appointed except the following cases:-
• If the individual is not disqualified for re-appointment.
• If an individual has given a notice in writing of their unwillingness to be re-appointed.
• A resolution is passed to that effect that they shall not be re-appointed or that somebody else is appointed at their place.
• Where notice was issued to appoint anyone else and the resolution could be proceeded with, on account of death, incapacity or disqualification of the proposed auditor.
Removal of Auditor
As per Section 140(1) of the Act, the Company could remove an auditor, subsequent to giving him a reasonable chance to be heard, bypassing Special Resolution. First, the Board would pass the resolution for the same and within 30 days shall apply to Central Government in Form ADT-2.
The Company shall pass Special resolution within 60 days from the date of getting approval from Central Government.
Section 140(4) of the companies act has mentioned the following process for removal of auditors:-
• Special notice of intention of removing the auditor should be given to the Company by the shareholders, not less than 14 days before the annual general meeting.
• A copy of such resolution must be forthwith sent towards the retiring auditor.
• The retiring auditor has got a right to make written representation towards the Company.
• His representation must not exceed a reasonable length and he could request the Company towards notifying such representation to the members of the Company.
• In case the copy of representation was not sent towards the members because it was received too late or because of the Company default, the auditor might request that this representation may be read out in the meeting.
• The auditor has can attend the meeting where his removal is being discussed.
Casual Vacancy
In accordance with Section 139(8), any casual vacancy arising in the office of an auditor:
• must be filled by the Board of Directors within 30 days.
• The resignation must be first passed by Board within 30 days and then approved by shareholders in general meeting within 3 months from passing Board resolution.
• Such an individual must hold office till the conclusion of next AGM.
Roles and Responsibilities of Auditor
As per Section 143 the Roles and Responsibilities of Auditor are:
1. Every auditor has a right of access to the books of account and vouchers of the Company at all times, whether they are at the registered office of the Company or at any other place.
2. The auditor of a holding company also has a right of access to the records of the subsidiary and associate Company if they are necessary for the purposes of the consolidation.
3. An auditor also has a right towards receiving notice of any general meeting. He might attend it himself or through his authorized representative who is also qualified to be an auditor. He also has a right to be heard on any part of the commerce which concerns him.
4. The auditor also has a right to receive information and explanation concerning the matters which are needed for the performance of his responsibilities. He must know whether:
• The Company makes loans and advances against proper security and the terms of these are prejudicial to the interests of the Company.
• Transactions that represent book entry are prejudicial to the interests of the Company.
• In the case of a Company which is not an investment or banking Company, it sells the assets. They are in the form of shares, debentures, and other securities at a price less than their purchase price.
• The Company shows the loans and advances that it makes as deposits.
• It charges the personal expenses to revenue account.
• It states in the books and documents that where it has allotted the shares in cash, it has received the cash or not. Also, whether the position in the books and Balance Sheet is correct and not deceptive.
eStartIndia is the professional tech-based online business and legal services platform which help the clients to simplify the procedures of Auditor appointment and removal and any additional legal compliances and services related to the business in India.
Get free Consultation services for any registration with Our Top-skilled Experts.
Author:
Leave a Comment
Previous Comments