Audit Report and Quality of Audit Report under
Company Law
Appointment, Removal, Resignation of Auditor
Overview
Who is an Auditor?
Any individual trained to review and verify accounting data and recognised as a
Chartered Accountant (CA) under the Chartered Accountant Act 1949.
Types of Audit under The Companies Act 2013
STATUTORY INTERNAL SECRETARIAL
COST AUDIT
AUDIT AUDIT AUDIT
Sec 139 to147 Sec 138 Sec 204 Sec 148
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
Sections 139 to 148 of the Companies Act, 2013 give a complete and detailed
summary of the role of an auditor as well as the other requirements, such as their
appointments or removal
Sec 139 : Appointment of Auditors
Appointment of First Auditors in the case of a company, other than a
Government Company
APPOINTMENT OF FIRST AUDITOR
Section : 139(6)
Appointed by: Board within 30 days of Incorporation
(If fails)
Members in EGM Within 90 days
Tenure : Till conclusion of 1st annual general meeting.
APPOINTMENT OF AUDITOR AT 1st AGM
Section : 139(1)
Appointed by: By members in AGM
Tenure : Till the conclusion of 6th AGM subject to ratification by shareholders at
every AGM
APPOINTMENT OF SUBSEQUENT AUDITOR
Section : 139(1)
Appointed by: By members in AGM
Tenure : 5 consecutive years is subject to ratification by shareholders at every AGM
Appointment of First Auditors in the case of a Government Company
APPOINTMENT OF FIRST AUDITOR
Section : 139(7)
Appointed by: C&AG within 30 days of Incorporation
(If fails)
Board within 30 days
(If fails)
Members in EGM Within 60 days
Tenure : Till conclusion of 1st annual general meeting.
APPOINTMENT OF SUBSEQUENT AUDITOR
Section : 139(5)
Appointed by: By C&AG within 180 days from the commencement of the year.
Tenure : Till the conclusion of next AGM
Procedure for appointment of auditor
1. Intimate the proposed auditor(s) regarding the intention of appointing him/it as
auditor and ask whether he/ it is eligible and not disqualified to be appointed as auditor
of the company.
2. Obtain consent & certificate from auditor.
3. If audit committee required to be constituted under section 177, then obtain its
recommendation (Section 139(11)).
4. Call Board meeting.
5. Approve the appointment of auditor at the first Board Meeting.
6. Intimate the auditor and file with ROC form ADT-1 within 15 days.
Remuneration:
As per section 142(1) remuneration of the auditor of a company shall be fixed in its
general meeting.
ROTATION OF AUDITORS
Section : 139(2)
Applicability of the section:
o all unlisted public companies having paid up share capital of rupees ten crore or more;
o all private limited companies having paid up share capital of rupees fifty crore or more;
o all companies having paid up share capital of below threshold limit mentioned above, but
having public borrowings from financial institutions, banks or public deposits of rupees fifty
crores or more
No listed company or a company belonging to such class or classes of companies as
mentioned above, shall appoint or re-appoint-
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.
Other points to this section:
(1) As on the date of appointment, no audit firm having a common partner or
partners to the other audit firm, whose tenure has expired in a company
immediately preceding the financial year, shall be appointed as auditor of the
same company for a period of five years.
(2) Every company, existing on or before the commencement of this Act which is
required to comply with provisions of this sub-section, shall comply with the
requirements of this sub- section within a period which shall not be later than
the date of the first annual general meeting of the company held, within the
period specified under sub-section (1) of section 96, after three years from the
date of commencement of this Act.
(3) It has also been provided that right of the company to remove an auditor or the
right of the auditor to resign from such office of the company shall not be
prejudiced.
(4) Subject to the provisions of this Act, members of a company may resolve to
provide that -
a. in the audit firm appointed by it, the auditing partner and his team shall be
rotated at such intervals as may be resolved by members; or
b. the audit shall be conducted by more than one auditor.
(5) The Central Government may, by rules, prescribe the manner in which the
companies shall rotate their auditors.
FILLING OF CASUAL VACANCY
Section : 139(8)
Instances of Casual Vacancy:
o Death
o Resignation
o Disqualified under sec 141
o Failure of ratification at AGM
Fillied by:
In case of other than Government Company -Board within 30 days
In case of Government Company -C&AG within 30 days (if fails)
Board within next 30 days
*If such casual agency is as a result of resignation, appointment by BOD should be
approved by Company at AGM within 3months of the recommendation of board.
Tenure : Till the conclusion of forthcoming AGM
Procedure for appointment of auditor
1. Intimate the proposed auditor(s) regarding the intention of appointing him/it as
auditor and ask whether he/ it is eligible and not disqualified to be appointed as auditor
of the company.
2. Obtain consent & certificate from auditor.
3. If audit committee required to be constituted under section 177, then obtain its
recommendation (Section 139(11)).
4. Call Board meeting.
5. Approve the appointment of auditor in Casual Vacancy at the Board Meeting.
6. Intimate the auditor and file with ROC form ADT-1 within 15 days.
RE-APPOINTMENT OF AUDITOR
Section : 139(9)
After completion of tenure of 5 consective years the auditor may be reappointed,if
o He is not disqualified for reappointment
o He has not given the company a notice in writing of his unwillingness to be
reappointed
o Special resolution has not been passed at the meeting appointing someother
auditor or providing expressly that he shall not be re-appointed.
Sec 140 :Resignation, Removal of Auditors
REMOVAL OF AUDITOR BEFORE EXPIRY OF TERM
Section : 140(1)
The auditor appointed under section 139 may be removed from his office before
the expiry of his term only by a special resolution of the company, after
obtaining the previous approval of the Central Government
Procedures:
(1) The application to the Central Government for removal of auditor shall
be made in Form ADT-2 and shall be accompanied with fees as provided
for this purpose under the Companies (Registration Offices and Fees)
Rules,2014.
(2) The application shall be made to the Central Government within 30 days
of the resolution passed by theBoard.
(3) The company shall hold the general meeting within 60 days of receipt of
approval of the Central Government for passing the specialresolution.
It is important to note that before taking any action for removal before expiry of
terms, the auditor concerned shall be given a reasonable opportunity of being heard
REMOVAL OF AUDITOR AFTER EXPIRY OF TERM
The Company may not reappoint the Retiring Auditor at its AGM if such auditor has
served consecutively for a term of 5 years or 10 years, as provided by Section 139
and may appoint another entity to act as its auditor. In such cases, a Notice is
required to be sent for considering the Resolution for an appointment at the AGM
for-
o appointment of a person to act as an auditor other than the auditor who is
retiring
o expressly stating that the retiring auditor is not eligible for re-appointment
The company is also required to send the copy of a notice to the retiring auditor.
The Retiring auditors are eligible for making a Representation.
Where the representation is not sent as mentioned above, a copy of the same shall
be filled with the ROC.
RESIGNATION OF AUDITOR
Section : 140(2)
The auditor who resigns from the company shall file, within a period of thirty days
from his resignation a statement with the company and the Registrar indicating the
reason and other facts as may be relevant with regard to his resignation.
In case of Government Company, this statement shall also be filed with the
Comptroller and Auditor General of India.
APPOINTMENT OF AUDITOR OTHERTHAN RETIRING AUDITOR
Section : 140(4)
Procedures :
(1) Special notice shall be required for a resolution at an annual general
meeting appointing as auditor a person other than a retiring auditor, or
providing expressly that a retiring auditor shall not be re-appointed,
except where the retiring auditor has completed a consecutive tenure of
five years or as the case may be, ten years, as provided under sub-
section (2) of section139.
(2) On receipt of notice of such a resolution, the company shall forthwith
send a copy thereof to the retiring auditor.
(3) Where notice is given of such a resolution and the retiring auditor
makes with respect thereto representation in writing to the company
(not exceeding a reasonable length) and requests its notification to
members of the company, the company shall, unless the
representationisreceivedbyittoolateforittodoso,-
(a) in any notice of the resolution given to members of the company,
state the fact of the representation having been made;and
(b) send a copy of the representation to every mem member of the
company to whom notice of the meeting is sent, whether before or
after the receipt of the representation by the company. and if a
copy of the representation is not sent as aforesaid because it was
received too late or because of the company's default, the auditor
may (without prejudice to his right to be heard orally) require that
the representation shall be read out at themeeting.
Students may note that if a copy of representation is not sent as aforesaid, a
copy thereof shall be field with theRegistrar.
Contact No: 7708609608
