Company Auditor Appointment25/07/2020
The new regime of Companies Act 2013 has changed the requirement for appointment of the auditor in Companies. There has been a paradigm shift in the provisions relating to appointment of Statutory Auditor. This article broadly covers the provisional requirement for appointment of the auditor under Companies Act, 2013. The responsibility of evaluating the validity and reliability of financial statements is to the auditors.
It involves an intelligent scrutiny of the books of account of a Company with reference to documents, vouchers and other relevant records to ensure that the entries made therein giving a clean and clear picture of the business. Hence, the need to appoint Statutory Auditor arises.
Appointment of First Auditor of of Company Auditor under Companies Act, 2013
As per section 139(6) the first auditor of the company other than a government company shall be appointed by the Board within 30 days of Incorporation. In case of Board’s failure, an EGM shall be called within 90 days to appoint the first auditor. The law is silent regarding from when this time limit of 90 days be reckoned, it is better to take a stricter view and interpret that the 90 days limit starts from Incorporation rather than expiry of 30 days.
In case of Government Companies the first auditor shall be appointed by the Comptroller and Auditor-General of India within sixty days from the date of registration of the company and in case the Comptroller and Auditor-General of India does not appoint such auditor within the said period, the Board of Directors of the company shall appoint such auditor within the next thirty days; and in the case of failure of the Board to appoint such auditor within the next thirty days, it shall inform the members of the company who shall appoint such auditor within the sixty days at an extraordinary general meeting
The first auditor shall hold office till the conclusion of 1st Annual General Meeting.
Appointment of Subsequent Auditor of Company Auditor under Companies Act, 2013
Every company shall, at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting and thereafter till the conclusion of every sixth meeting.
Tenure of Auditors appointed under Companies Act, 2013
The following class of Companies shall not appoint or reappoint:
(a) An individual as auditor for more than one term of five consecutive years; and
(b) An audit firm as auditor for more than two terms of five consecutive years:
The class of companies shall mean the following classes of companies excluding one person companies and small companies:
(a) All unlisted public companies having paid up share capital of rupees ten crore or more;
(b) All private limited companies having paid up share capital of rupees twenty crore or more;
(c) All companies having paid up share capital of below threshold limit mentioned in (a) and (b) above, but having public borrowings from financial institutions, banks or public deposits of rupees fifty crores or more.
Purpose for the appointment of the Auditor
The purpose of the auditors in the company is to protect the interests of the shareholders. The auditor is obligated by law to examine the accounts maintained by the directors and inform them of the true financial position of the company. Auditor gives his independent opinion to the owners or shareholders of the company to protect and keep the company in a safe financial condition.
Appointment Of Auditor Other Than Retiring Auditor By A Special Notice
Where a person other than the retiring auditor is proposed to be appointed as an auditor, or where it is proposed that the retiring auditor shall not be re-appointed, a special notice under Section 115 of the companies Act, 2013 has to be given proposing that such a resolution would be moved at the next annual general meeting.
In case where the retiring auditor has completed a consecutive tenure of five years or, as the case may be – ten years then such special notice can be avoided.
For the purpose of special notice the relevant points are as under:
If the auditor makes a representation in writing to the company and requests for a notification to the members, the company shall
- State the fact of representation in any notice regarding the resolution
- The copy of representation should be sent to those members by the company to whom notice of meeting is sent, whether before or after the receipt of representation.
- If the copy of representation is not so sent, copy thereof should be filed with the Registrar.
(ii) On receipt of the special notice for removing the auditor, the company should send a copy of the same to the retiring auditor.
(iii) Such representation should be of a reasonable length and not too long.
(iv) The special notice should not be received by the company too late for the purpose of circulation to members.
Auditor may require the company to read out the representation in the meeting if it is not so notified to members because it was too late or because of company’s default.
If the Tribunal is satisfied that the rights are being abused by the auditor based on an application either of the company or of any other aggrieved person, then:
- The copy of the representation may not be sent, and
- The representation need not be read out at the meeting.