Appointment of Auditor: By BOD, Shareholders, Govt

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CONTENT

Who is Auditor
Purpose For Appointing Auditor
Appointment Of Auditor In Different Cases (Chart)
1. BY BOARD OF DIRECTORS
  - In Case Of First Auditor
  - In Case Of Casual Vacancy With Procedure
2. BY SHAREHOLDERS
  - Casual Vacancy
  - Appointment At AGM With Provision And Procedure
3. BY CENTRAL GOVERNMENT
  - First Case
  - Special Audit Case
4. BY COMPTROLLER AND AUDITOR GENERAL
  - Procedures ( Govt Company )
Removal of auditor
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1. Who is an auditor?

Any person appointed and authorized by the company to verify accounts, accounting records, compare the charges with the vouchers, verify balance sheet and income items, and state the result to the company/shareholders.

2. Purpose for the appointment of auditor

1. The main purpose of the appointment of an auditor is to protect the interests of the shareholders.
2. To examine the accounts maintained by the directors and inform them of the true financial position of the company.
3. Auditor gives an independent opinion to the owners or shareholders of the company to protect and keep safe the company from fraud.

1. Appointment Of The Auditor By Board Of Directors (BOD)

(a) IN CASE OF FIRST AUDITOR

1. BOD should appoint an individual or a firm as the first auditor of the company Within 30 days from the date of the registration of the Company.

2. As per provision to section 142(1) remuneration i.e Salary of the first auditor can be decided by the Board.

3. If, the Board of Directors fails to appoint the first auditors of the company they shall inform the members of the Company. Thus, the members shall appoint the first auditors of the company within 90 days at an extraordinary general meeting.

4. The First auditors may work until the conclusion of the First Annual General Meeting.

Appointment Of the Auditor By BOD

(b) In Case Of Casual Vacancy Other Than Resignation

If a Casual Vacancy arises due to a casual vacancy other than resignation i.e death etc then the Board of Directors of the Company has the power to appoint Auditor.

PROCEDURE :
- 1. Time Period: BOD of Company should appoint a Statutory Auditor on place of old Auditor within 30 days of arisen of Casual Vacancy.
- 2. Term of Appointment: Such Auditor will become auditor of the Company upto ensuing the consent form and eligibility certificates.
- 3. Annual General Meeting – Hold the Board Meeting and pass Board Resolution for appointment of auditor.
- 4. Form Filing: BOD will file ADT-1 within 15 days of passing of Board Resolution.
- 5. Circular Resolution: Circular Resolution passed by BOD is enough for appointment of auditor in case of casual vacancy.

2. Appointment Of the Auditor By Shareholders

(a) In Case Of AGM Or Subsequent Auditor

1. As Per Section 139(1) Every Company’s Shareholders Shall Appoint at Its 1^st Annual General Meeting An Individual Or A Firm As An Auditor Of The Company ( In Case Of AGM Or Subsequent Auditor )

2. Appointment of an auditor can be done by passing the ordinary resolution

3. Auditor Shall Hold From The Conclusion Of That Meeting Till The Conclusion Of Its Sixth Annual General Meeting And Thereafter Till The Conclusion Of Every Sixth Meeting.

4. As Per Section 142(1) Remuneration Of The Auditor Of A Company Shall Be Fixed In Its General Meeting.

5. In the case of a foreign company, nationalized bank and any corporation formed under any special Indian law appoints an auditor only by passing a special resolution.

(b) In Case Of Vacancy Arises Due To Resignation

If a Casual Vacancy arises due to the resignation of an auditor then-new auditor will be appointed by BOD ( Board of Director ) and such appointment shall be approved by the Shareholder in their Extra-Ordinary General Meeting.

Provisions

Time Period: Board of directors should appoint a Auditor in place of old Auditor within 30 days of Casual Vacancy arises.
Extra Ordinary General Meeting: Such appointment must be approved by the shareholders in their Extra- Ordinary General Meeting within 90 days of appointment of that auditor.
Term of Appointment: Such Auditor will become auditor of the Company up-to Annual General Meeting. He is liable to retire or may be re-appoint on AGM.
Ordinary Resolution: Such appointment shall be approve by passing of “ORDINARY RESOLUTION” in General Meeting.
Circular Resolution: Circular Resolution passed by BOD is enough for appointment of auditor in case of casual vacancy.
Filing of MGT-14: No need to file form MGT-14 in case of appointment of Auditor.

PROCEDURE BY COMPANY

Company will File e-form ADT-1 within 15 days of passing of Ordinary Resolution in General Meeting. {Section 140(2)}
The Resigning Auditor will send letter of his resignation including the reason of leaving to Company within 30 days of Resignation.
That auditor will file e-form ADT-3 along with detailed resignation letter with ROC within 30 days of his resignation.

3. Appointment Of An Auditor By Central Government

The central government can appoint an auditor in the following cases.
1. When no auditor is appointed or reappointed in an annual general body meeting then the central government can appoint an auditor.

2. Where a special resolution is required for the appointment of auditors, and the company fails to pass such resolution at the time of appointment.

3 When the auditor, appointed at the AGM has not accepted the appointment.

4. Special audit, in the case of a company, violates the rules and regulations. Generally, when a government doubts their financial status and statement so government conducts a special audit.

NOTES –
1. The company should apply form to the Central Government, with the list of names of the auditors, whom the company suggests for appointment of an auditor. The Central government, after evaluation, appoints the auditor.

2. In case of a company fails to inform the central government about the situation mentioned above, the company and officers in default are punishable with a fine to the extent of Rs 500/-.

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4. APPOINTMENT OF AN AUDITOR BY COMPTROLLER AND AUDITOR GENERAL

In the case of a Government Company , the Comptroller and Auditor-General of India shall appoint the first auditor within 60 days from the date of registration of the company.
If the Comptroller and Auditor-General of India fails to appoint any auditor within the period of 60 days, the Board of Directors shall appoint the first auditors within the next 30 days.
However, if the BOD ( Board of Directors ) also fails to appoint the first auditors within thirty days then BOD should inform to the members of the Company.

The members of company or shareholders shall appoint the first auditors of the company within sixty days at an extraordinary general meeting. The auditor so appointed shall hold the office until the result of the first AGM.
In respect of a financial year, the Comptroller and Auditor-General of India shall appoint an auditor within a period of 180 days from the commencement of the financial year. Such auditor shall hold office until the result of the annual general meeting.
The CAG ( Comptroller and Auditor-General ) of India shall fill any casual vacancy in the office of the auditor of the Government Company within 30 days.
If the CAG ( Comptroller and Auditor-General ) of India fail to fill such vacancy within the period of 30 days, the Board of Directors shall fill such vacancy within next 30 days.

Procedure for appointment of the auditor

Inform the proposed auditor regarding the intention of appointing him and ask whether he is eligible or not to be appointed as auditor of the company.
Obtain formal consent & certificate from the auditor.
If audit committee required to be constituted under section 177, then obtain its recommendation under Section 139(11) of the company act.
Next procedure is to Call Board meeting.
Approve the appointment of auditor at the first Board Meeting.
Inform the auditor about acceptance and file with ROC , form ADT-1(to be attached in form GNL-2 as per MCA circular 09/2014 dated 25th April, 2014) within 15 days.

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4. Removal of Auditor

According to the Companies Act, 2013 the provision for the removal or change of auditor before the completion of his tenure are when the organization is not satisfied with the services of the auditor. The procedure of the removal of the auditor has been written in Section 140 ( 1) of the Act.
Before being removed or fired by the firm, the auditor can get fair and reasonable chance to know the reason for removing.
If the auditor is being removed before the completion of his term, an acceptance from the central government is compulsory before passing a special resolution by the company.
The application to the Central Government has to be done in the form ADT-2 as prescribed in Rule 7 of the Companies (Audit & Auditors) Rules. A prescribed fee provided under Section 12 of the Companies (Registration Offices and Fee) Rules, 2014 needs to be submitted along with this form.
The application to the central govt has to be made within 30 days of the resolution passed by the board.
The company can hold a general meeting within 60 days of application of the acceptance by the Central Government for passing the auditor appointment resolution.

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