Appointment Of An Auditor Under Companies Act, 2013

Published on 17 Jan 2019 by Shivi

A company is subjected to several legal compliances once its incorporation is done to keep it in check with the company laws and rules. It needs to compulsorily adhere to the requirement of annual compliance filing every financial year, including the appointment of an Auditor.

Who Is An Auditor?

An Auditor is an individual or firm trained and certified to review and verify the accounts of a company. An auditor is a recognised Chartered Accountant under the Chartered Accountants Act, 1949. The following are qualified to become an auditor under Section 141 of the Companies Act, 2013:

  1. A Chartered Accountant to be appointed as auditor of a company.
  2. A firm, whose majority of partners are Chartered Accountants. Only the partners who are Chartered Accountants are authorised to act and sign on behalf of the firm as auditors.

Who Cannot Be An Auditor Of A Company

The following persons are disqualified from being appointed as an auditor of a company:

  1. A body corporate.
  2. An officer or employee of the company.
  3. A person who owes more than Rs 1000 to the company.
  4. A person who is disqualified for appointment as an auditor of the company's holding company or a subsidiary held by the company.
  5. A person who holds any security of the company.

READ: Business Incorporation Done: What Next?

Purpose Of Appointment Of An Auditor

An auditor is appointed for the protection of interest of shareholders of the company. The auditor is assigned with the task of examining the accounts of directors and highlight the actual financial status of the company.

The auditor can access the books and accounts of the company and ask the directors and officers for further information on any account details. The auditor of the company makes the report on the balance sheet, profit and loss account and director accounts. These reports are presented to the members of the company in the general meeting. The audit report is certified by the auditor before it is sent to the Company Secretary.

The audit is also under the obligation to report any fraud or disqualification in company records within 30 days of noticing it. In the case of non-adherence, the auditor may face a fine of up to Rs 25 lakh.

Appointing An Auditor Of The Company

Once incorporation of the company is done, the company is required to conduct its first Annual General Meeting and appoint an Auditor. The first auditor of the company has to be compulsorily appointed by the Board of Directors within 30 days of business registration as per Section 139 of the Companies Act, 2013. An auditor can be appointed every 1 year, subject to renewal at every Annual General Meeting (AGM). The same auditor can only be appointed to a maximum 5 times by the company, after which, a new auditor must be appointed.

If the Board of Directors fails in the appointment of first auditorwithin 30 days, it is mandatory to inform the members of the company about it. The members will then be required to appoint an auditor within 90 days at an Extraordinary General Meeting (EGM). Such an auditor would only hold office until the first Annual General Meeting is conducted.

Removal Of The Auditor

A company can remove an auditor from the office after giving him reasonable opportunity to be heard and by passing a special resolution and get approval from the central government by submitting the relevant form within 30 days of passing the special resolution.

Resignation By The Auditor

An auditor can resign by submitting a notice to the company and filing the required forms with the Registrar of Companies within 30 days from the date of resignation.

Legistify has been helping young companies with their ROC Annual Compliances, including the appointment of an Auditor within 30 days of incorporation. You can connect to the best business experts in India by giving us a call at 846-883-3013 or sending us an email at [email protected].


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