Discuss the Provisions of the Companies Act relating to appointment and rotation of Auditors.
Appointment of auditors: The first auditor or auditors of a company shall be appointed by the Board of Directors within one month of registration of the company and the auditor or auditors so appointed shall hold office until the conclusion of the first Annual General Meeting. In case the first auditor of the company is not appointed by the directors as provided, the members shall, within 90 days at an Extraordinary General Meeting, make an appointment [Section. 139 (6)].
Subsequent Appointment of Auditors [Sec. 139 (1)] : It is necessary for every company, before making an appointment at any AGM of an auditor, to obtain from the auditor to be appointed, his written consent and a certificate to the following effect:
- The individual/firm 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.
Section 139 (1) of the Companies Act, 2013 read with Rule 3 of Companies (Audit and Auditors) Rules, 2014 provides that every company, other than a Government 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 (AGM) and thereafter till the conclusion of every sixth meeting.
Such appointment shall be subject to ratification in every AGM till the sixth AGM by way of passing of an ordinary resolution. If the appointment is not ratified by the member of the company, the Board of Directors shall appoint another individual or firm as its auditor or auditors after following the procedure laid down in this behalf under the Act,
The Company shall inform the auditor concerned of his or its appointment and also file a notice of such appointment with the Registrar within 15 days of the meeting in which the auditor is’ appointed.
Term of Auditor: Following companies shall not appoint or reappoint an individual as auditor for more than one term of 5 consecutive years; and an audit firm as auditor for more than two terms of 5 Consecutive years.
- A Listed Company.
- An unlisted Public Company having a paid -up share capital of Rs 10 cores or more.
- A Private Limited Company having a paid -up share capital of Z 20 crores or more.
- All Companies having public borrowings from Banks, Financial Institutions or public deposits of Z 50 Crores or more.
Further, no audit firm shall be appointed as auditor of the company for a period of five years, if same firm presently having a common partner (s) to the previous audit firm, whose tenure has expired in a company immediately preceding the financial year.
Appointment of Auditors in a Government Company [Sec. 139 (5)] : The appointment of auditor in a Government company or government controlled (directly/indirectly) company shall be held in accordance with the following provisions:
The First auditor shall be appointed by the Comptroller and Auditor General (CAC) within 60 days from the date of incorporation. If he fails to do so, the Board shall appoint auditor within next 30 days and on failure to do so by the Board, it shall inform the members, who shall appoint the auditor within 60 days at an Extraordinary General Meeting. Such auditor shall hold office till conclusion of first Annual General Meeting.
In case of subsequent auditor for existing government companies, the Comptroller & Auditor General shall appoint the auditor within a period of 180 days from the commencement of the financial year and the auditor so appointed shall hold office till the conclusion of the Annual General Meeting.
The CAG shall have a right to conduct a supplementary audit of financial statement of the company and comment upon or supplement such audit report within 60 days from the date of receipt of the audit report.
Reappointment of Auditors [Section 139 (9)]: A retiring auditor shall be reappointed unless.
- He is not qualified for reappointment.
- He has given to the company notice in writing of his unwillingness to be reappointed.
- A special resolution has been passed at that meeting appointing somebody instead of him of expressly providing that he shall not be appointed.
Section 139 (10) lays that where at any annual general meeting, no auditor is appointed or reappointed, the existing auditor shall continue to be the auditor of the company.
Appointment of Auditor by filling casual vacancy [Section 139 (8)]: The casual vacancy in the office of auditor may be filled by the Board. But where the vacancy is caused by resignation of auditor, such vacancy shall only be filled by the company in general meeting within 3 months of the recommendation of the Board. The auditor so appointed shall hold the office until the conclusion of the next AGM.
The casual vacancy in office of an auditor of a Government Company or government controlled (directly/indirectly) company shall be filled by the Comptroller and Auditor General within 30 days from the date of vacancy and if he fails to do so, the Board shall fill up the same within next 30 days.
In case the company had appointed more. than one auditor, the remaining auditor or auditors can continue to act notwithstanding the vacancy caused by the resignation of other auditor.
Appointment of Auditor other than Retiring Auditor : The procedure for appointing an auditor, who is not the retiring auditor, is as follows-
- A special notice of minimum 14 clear days’ is required for appointing as auditor a person other than the retiring auditor or providing expressly that a retiring auditor shall not be reappointed. No special notice is required if the retiring auditor has completed the term of 5 or 10 years, as the case may be.
- On receipt of notice of such a resolution, the company should immediately send a copy of the same to the retiring auditor.
- Where the notice is received well in advance, the company can conveniently send the notice of the resolution to the members including the same in the AGM. Where it is received just 14 days before the meeting and it is not feasible for the company to send notice of the same to members, the company has to notify the same in English and Vernacular Language newspapers at least 7 days before the meeting.
- The retiring auditor can make a representation and requests for the notification to members. The company should do so unless the representation is received too late. If it is received too late, then representations shall be read out at the meeting. It may be noted that if a copy of the representation is not sent as aforesaid, a copy there of shall be filed with the Registrar of Companies.
- If on the application of the company or any other person who claims to be aggrieved, the National Company Law Tribunal, on being satisfied that the rights are being abused to secure needless publicity for defamatory matter, the company need not send a copy of or read out the representations.
- At AGM, the appointment will be considered and the -necessary resolution be passed.
- After the appointment, the Company shall inform the auditor concerned of his or its appointment and also file a notice of such appointment with the Registrar within 15 days of the meeting in which the auditor is appointed.
Rotation of Auditors: Members of a company can provide for following by passing a resolution:
- In the audit firm appointed by it, the auditing partner and his term shall be rotated at such intervals as may be resolved by members; or
- The audit shall be conducted by more than one auditor.
A transition period of 3 years from the commencement of the Act has been prescribed for the company existing on or before the commencement of the Act, to comply with the provision of the rotation of auditor.