COMPILATION OF PROVISIONS RELATING
TO APPOINTMENT OF AUDITOR
BACKGROUND
Need of Auditor: All the companies registered under
the Companies Act, 2013 or any previous Company law, whether public or private
and whether having a share capital or not, are required to maintain proper
books of accounts under the provisions of section 128 of the Companies Act,
2013. Companies have also to get their Books of accounts audited as required
under section 139 of the Act. Audit is an examination of accounting records
undertaken with a view to establish the correctness or otherwise of the
transactions reflected therein. 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 give a true picture of
business Therefore, there is need to appoint Statutory Auditor.
SITUATIONS FOR APPOINTMENT OF
AUDITOR:
A. Appointment of First Auditor of
the Company (By [1]BM or by [2]EGM)
i. In
all the Companies except Government Companies
ii. In
Government Companies
B. Appointment of Auditor in
First Annual General Meeting
i. In Government Companies
ii. In Companies Other than
Government Companies
C. Appointment of Auditor due
to Casual Vacancy
i.Casual Vacancy due to resignation
of Auditor
ii.Casual Vacancy due to any other
Reason
D. Appointment of Auditor due to non
ratification of Auditor
E. Appointment of Retiring
Auditor
F. In case of No auditor
is appoint in AGM, then how to appoint auditor
WAYS OF CHANGE IN AUDITOR: These points will discuss in next
article.
A. Resignation of Auditor
B. Non ratification of Auditor
C. Removal of Auditor
[1] BM stands for Board Meeting.
[2] EGM stands for Extra ordinary
General Meeting
APPOINTMENT OF AUDITOR:
Section 139 of CA-2013 governs the
aspects of appointment of auditors. Section 139 of the Companies Act, 2013
deals with all the cases, circumstances with respect to appointment of auditors
and therefore, it is a complete code in itself with respect to appointment of
Auditors. Corresponding section of 139 was 224, 224A, 619 of CA-1956. Audit is
useful only if it is conducted by some independent and qualified authority. The
auditor must possess requisite qualifications and must act in an independent capacity.
I will discuss the qualification/disqualification of auditor in separate
article. Forms for appointment of auditor are ADT-1.
Role of Audit Committee: As per sub-section (11) of Section 139 of the Act, where a
Company is required to constitute an Audit Committee under section 177, all
appointments, including the filling of a casual vacancy of an auditor under
this section shall be made after taking into account the recommendations of
such committee.
Process along with flow charts for
appointment of auditor in all the conditions will share in a separate article.
A. APPOINTMENT OF FIRST
AUDITOR OF THE COMPANY
All the Companies except Government
Companies
i. In case of appointment by
Board of Directors:
Section 139(6) read with rule 4 sub
rule 2 of the Companies (Audit and Auditors) Rules, 2014:
As per section 139(6), the first auditor of all types of
companies, except a Government Company, shall be appointed by the Board of
Directors within 30 days from the date of registration of the Company.
Before the appointment of auditor is
made, the written consent of the auditor to such appointment, and a certificate
from him that if the appointment, if made, it shall be in accordance with the
conditions as may be prescribed, shall be obtained from the auditor.
Certificate shall also indicate whether the auditor satisfies the criteria
provided in [3]section
141.
Company shall inform the auditor
concerned of his or its appointment and there is no need to file ADT-1 for
appointment of the First auditor.
Tenure: First Auditor appointed by Board
shall hold office till the conclusion of the first annual general meeting of
the Company.
Remuneration: Section 142 of the Act prescribed
that Board may fix remuneration of the first auditor appointed by it. The
remuneration will be in addition to the out of pocket expensed incurred by the
auditor in connection with the audit of the Company and any remuneration paid
to him for any other service rendered by him at the request of the Company.
Resolution involved: Appointment of First auditor by
Board Resolution whether in the Meeting of Board of Directors or by Circular
Resolution.
Form Involved: There is no need to file ADT-1 for
appointment of the First auditor.
ii. In case of Board fails to
appoint First Auditor:
Section 139(6) also provides that in
the case of failure of the Board to appoint the first auditors within 30 days
of incorporation of the Company, it shall inform the members of the Company,
who shall within 90 days at an extraordinary general meeting appoint the first
auditor and such auditor shall hold office till the conclusion of the first
annual general meeting.
As states above, the duty of the
Board to inform members about their failure to appoint first auditor, triggers
immediately on expiry of the 30 days period whereas the duty of the members of
the Company to appoint first auditor, triggers immediately on receipt of
information of non –appointment by the Board. The members, shall within 90 days
from the date of information being sent to them, appoint auditor and such
auditor shall hold office till the conclusion of the first annual general
meeting.
The Board of Director will recommend
the name of auditor or auditor firm to Shareholder. Shareholder in after
discussion EGM will appoint the auditor by passing of Ordinary Resolution.
Remuneration: Section 142 of the Act prescribed
that the remuneration of the auditor of a Company shall be fixed in its general
meeting or in such manner as may be determined therein.. The remuneration will
be in addition to the out of pocket expensed incurred by the auditor in
connection with the audit of the Company and any remuneration paid to him for
any other service rendered by him at the request of the Company.
Resolution involved: Appointment of First auditor by EGM
by passing of Ordinary Resolution.
Form Involved: There is no need to file ADT-1 for
appointment of the First auditor.
Government Companies
iii. In case Government Company by
C&AG:
As per section 139(7), The
appointment of auditor in Government Company or 4 Audit and Auditors 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 within 60 days from the date of
incorporation. The Board of Director take note of the same in the Board Meeting
held after such appointment.
Further, all appointments made by
the C&AG are required to be intimated by the Company to auditor.
Remuneration: Section 142 of the Act prescribed
that Board may fix remuneration of the first auditor appointed by it.
Resolution involved: Appointment of First auditor by
passing of Board Resolution whether in the Meeting of Board of Directors or by
Circular Resolution on the recommendation of the Comptroller and Auditor
General.
Form Involved: There is no need to file ADT-1 for
appointment of the First auditor.
iv. In case of failure of
appointment by C&AG:
As per section 139(7), In case the
Comptroller and Auditor-General of India does not appoint such auditor within
the said period of 60 days, the Board of Directors of the Company shall appoint
such auditor within the next 30 days (60+30=90).
Remuneration: Section 142 of the Act prescribed
that Board may fix remuneration of the first auditor appointed by it.
Resolution involved: Appointment of First auditor by
passing of Board Resolution whether in the Meeting of Board of Directors or by
Circular Resolution.
Form Involved: There is no need to file ADT-1 for
appointment of the First auditor.
v. In case of failure of appointment
by C&AG and Board Both:
In the case of failure of the Board
to appoint such auditor within the next 30 days, it shall inform the members of
the Company who shall appoint such auditor within the 60 days at an
extraordinary general meeting, who shall hold office till the conclusion of the
first annual general meeting.
As states above, the duty of the
Board to inform members about their failure to appoint first auditor, triggers
immediately on expiry of the 90 days period whereas the duty of the members of
the Company to appoint first auditor, triggers immediately on receipt of
information of non –appointment by the Board. The members, shall within 60 days
from the date of information being sent to them, appoint auditor and such
auditor shall hold office till the conclusion of the first annual general
meeting.
Tenure: First Auditor appointed by EGM
shall hold office till the conclusion of the first annual general meeting of
the Company.
B. APPOINTMENT OF
AUDITOR IN FIRST ANNUAL GENERAL MEETING (AGM):
i. In case of appointment in the
Companies except Government Companies:
In term of section 139(1) of the
Companies Act, 2013 read with rule 3 of Companies (Audit and Auditors) Rules,
2014 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 (AGM).
Before the appointment of auditor is
made, the written consent of the auditor to such appointment, and a certificate
from him that if the appointment, if made, it shall be in accordance with the
conditions as may be prescribed, shall be obtained from the auditor.
Certificate shall also indicate whether the auditor satisfies the criteria
provided in [4]section
141.
Company shall inform the auditor
concerned of his or its appointment and also file a notice of such appointment
with the Registrar in Form ADT-1 within 15 days of the meeting in which the
auditor is appointed.
Manner and Procedure of Selection of
Auditors: the
Manner and Procedure of Selection of Auditors by the members of the Company at
such meeting shall be such as prescribed under:
In case Company not required to
constitute Audit Committee:
Recommendation by audit Committee:
Section 139(11) of the Companies Act, 2013 read with Rule 3(1) provides in case
of a Company that is required to constitute an Audit Committee u/s 177, the
committee, shall take into consideration the qualifications and experience of
the individual or the firm proposed to be considered for appointment as auditor
and whether such qualifications and experience are commensurate with the size
and requirements of the Company.
The committee shall recommend the
name of an individual or a firm as auditor to the Board for consideration and
in other cases, the Board shall consider and recommend an individual or a firm
as auditor to the members in the AGM for appointment.
If the Board agrees with the
recommendation of the Audit Committee, it shall further recommend the
appointment of auditor to the members in the AGM otherwise, it shall refer back
the recommendation to the committee for reconsideration citing reasons for such
disagreement.
If Board is Disagreement with
Committee:
If the Audit Committee decides not
to reconsider its original recommendation, then Board shall record reasons for
its disagreement with the Audit committee and send its own recommendation for
consideration of the members in the AGM and if the Board agrees with the
recommendations of the Audit Committee, it shall place the matter for
consideration by members in the AGM.
In case Company not required to
constitute Audit Committee:
Recommendation by Board of
Directors: In cases where such a committee is not required to be constituted,
the Board, shall take into consideration the qualifications and experience of
the individual or the firm proposed to be considered for appointment as auditor
and whether such qualifications and experience are commensurate with the size
and requirements of the Company.
The Members shall appoint the
auditor in the AGM by passing of Ordinary resolution. As per section 139(1) 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. The intimation may be given in form
ADT-1.
[5]Tenure: The auditor appointed in the AGM
meeting shall hold office from the conclusion of that meeting till the
conclusion of the sixth annual general meeting, with the meeting wherein such
appointment has been made being counted as the first meeting
Remuneration: Section 142 of the Act prescribed
that the remuneration of the auditor of a Company shall be fixed in its general
meeting or in such manner as may be determined therein.
Resolution involved: Appointment of auditor in Annual
General Meeting and the fixing of the remuneration of the auditors shall be an
ordinary business to be transacted at an annual general meeting of a Company.
Company will pass ordinary resolution for the same.
Form Involved: Company shall inform the ROC in
Form ADT-1 within 15 days of the General meeting in which Company pass Ordinary
Resolution for appointment of the Auditor. There is no need to file form ADT-1
every year.
In case of appointment of subsequent
auditor in Government Companies:
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 his position till the
conclusion of the Annual General Meeting
Audit Committee: The Act also provides that in case
the Company has an Audit Committee, then all appointments of Auditor including
filling of casual vacancy, shall be made after taking into account the
recommendations of the Committee.
Company shall at the first annual
general meeting, appoint an individual or a firm as an auditor on the
recommendation of C&AG who shall hold office from the conclusion of next
Annual General Meeting (AGM).
Company shall inform the auditor
concerned of his or its appointment and also file a notice of such appointment
with the Registrar in Form ADT-1 within 15 days of the meeting in which the
auditor is appointed.
[6]Tenure: The auditor appointed in the AGM
meeting shall hold office from the conclusion of that meeting till the
conclusion of next general meeting.
Remuneration: Section 142 of the Act prescribed
that the remuneration of the auditor of a Company shall be fixed in its general
meeting or in such manner as may be determined therein.
Resolution involved: Appointment of auditor in Annual
General Meeting and the fixing of the remuneration of the auditors shall be an
ordinary business to be transacted at an annual general meeting of a Company.
Company will pass ordinary resolution for the same.
Form Involved: Company shall inform the ROC in
Form ADT-1 within 15 days of the General meeting in which Company pass Ordinary
Resolution for appointment of the Auditor. There is no need to file form ADT-1
every year.
C. APPOINTMENT OF
AUDITOR IN CASE OF CASUAL VACANCY:
The expression ‘casual vacancy’ has
not been defined in the Companies Act. Simply stated, a casual vacancy in the
office of an auditor means a vacancy caused in the office of an auditor by his
death, disqualification, resignation, etc. It has been held in the case of the
Institute of Chartered Accountants of India v Jnanendranath Saikia (1955) 25
Comp Cas 53, 56 (Assam) that casual vacancy is not a vacancy created by any
deliberate omission on the part of the company to appoint an auditor at its
annual general Meeting.
i. In case of appointment in the
Companies except Government Companies:
Filing of Casual Vacancy by Board of
Director:
Section 139(8) of the Companies Act,
2013
prescribed that the Board of Director fill casual vacancy in the office of an
auditor due to reason other than resignation within 30 days of such
resignation.
Before the appointment of auditor is
made, the written consent of the auditor to such appointment, and a certificate
from him that if the appointment, if made, it shall be in accordance with the
conditions as may be prescribed, shall be obtained from the auditor.
Certificate shall also indicate whether the auditor satisfies the criteria
provided in [7]section
141.
In case of a Company that is
required to constitute an Audit Committee u/s 177, the committee shall
recommend the auditor to Board of Directors.
Tenure: Any auditor appointed in a casual
vacancy shall hold office until the conclusion of the next Annual General
Meeting.
Remuneration: Section 142 of the Act prescribed
that the remuneration of the auditor of a Company shall be fixed by board of
director.
Resolution involved: Appointment of auditor due to
casual vacancy by Board Resolution whether in the Meeting of Board of Directors
or by Circular Resolution.
Form Involved: There company is need to file ADT-1
for appointment of such auditor within 15 days of appointment.
Filing of Casual Vacancy by Members
in EGM:
If any casual vacancy in the office
of an auditor is caused by the Resignation of an Auditor, such vacancy shall
only be filled by the company in general meeting convened within three months
of the recommendation of the Board.
It is pertinent to note that, in
case of casual vacancy arising out of resignation of existing auditor, Board
can only recommend appointment of an Individual or Audit Firm and the final
authority to appoint such individual or audit firm as Auditor remains with the
members of the Company.
In case of casual vacancy arising
out of resignation of the existing auditor, the board shall recommend
appointment of an Individual or audit firm as auditor within 30 days of the
date of casual vacancy and the shareholders shall appoint within 3 months from
the date of such recommendation of the Board and the said Individual or Audit
firm shall hold the office till conclusion of the next annual general meeting.
Remuneration: Section 142 of the Act prescribed
that the remuneration of the auditor of a Company shall be fixed by members in
General Meeting.
Resolution involved: Appointment of auditor due to
casual vacancy by Shareholders in the extra ordinary general meeting by passing
of ordinary resolution.
Form Involved: There company is need to file ADT-1
for appointment of such auditor within 15 days of appointment.
ii. In case of appointment in the
Government Companies:
Filing of Casual Vacancy by C&AG
In the case of a company whose
accounts are subject to audit by an auditor appointed by the Comptroller and
Auditor-General of India, be filled by the Comptroller and Auditor-General of
India within 30 days of such casual vacancy.
Filing of Casual Vacancy by Board in
case of failure of C&AG
If vacancy is not filled by the
Comptroller and Auditor-General of India within 30 days, the Board of Directors
shall fill the vacancy within next 30 days (30+30=60).
Common for both Situations
Remuneration: Section 142 of the Act prescribed
that the remuneration of the auditor of a Company shall be fixed by Board of
Directors in their meeting.
Resolution involved: Appointment of auditor due to
casual vacancy by board of director on the recommendation of the C&AG or by
passing of Board Resolution in the Board Meeting in case of failure of
C&AG.
Form Involved: There company is need to file ADT-1
for appointment of such auditor within 15 days of such appointment.
D. APPOINTMENT OF
AUDITOR DUE TO NON RATIFICATION OF AUDITOR:-
In the Companies Amendment Bill, The
concept of ratification of auditor Has been deleted.
First proviso to Sub-rule (7) of
Rule 3 provides that the auditor appointed at annual general meeting shall be
subject to ratification in every annual general meeting till the sixth such
meeting by way of passing of an ordinary resolution.
The act has introduced a new concept
of ratification of auditors at every annual general meeting. Here ratification
means formal assent of shareholders for continuance as auditors.
Explanation of Rule 3- For the
purposes of this rule, it is hereby clarified that, if the appointment is not
ratified by the members 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.
Situation: If in any AGM auditor is not
ratified by the Shareholders then exiting auditor shall be liable to leave its
post and such vacant place of auditor in the Company will be consider as Casual
Vacancy. As per explanation of rule 3 Board of Director shall appoint new
auditor after following the process of casual vacancy.
*There is no provision of
ratification of auditor in case of government Companies because tenure of the
auditor in Government Companies upto next Annual General Meeting of the Company
only.
E. APPOINTMENT OF
RETIRING AUDITOR:
As per Section 139(9), subject to
provisions of sub-section (1) and rules made there under, a retiring auditor
may be reappointed at an annual general meeting, if following three conditions
are satisfied:
- he is not disqualified for re-appointment;
- he has not given the company a notice in writing of his unwillingness to be re-appointed; and
- a special resolution has not been passed at that meeting appointing some other auditor or providing expressly that he shall not be re-appointed.
As provided by section 139(9) of the
Act at any annual general meeting, a retiring auditor shall be reappointed
except, in three types of cases referred to therein. The expression shall be
re-appointed, postulates some action on the part of the company resulting in
the auditor getting re-appointed or automatically re-appointed at the annual
general meeting.
It has been clarified that passing
of the resolution for that purpose at the annual general meeting is essential
for the re-appointment/ratifying for the appointment of the retiring auditor
who is still qualified and willing to act. Till this is done, a retiring
auditor cannot be said to have been re-appointed as contemplated by the
section.
In this view, it is not correct to
say that in the absence of the resolution to the effect that the retiring
auditors shall not be re-appointed; the retiring auditors shall stand
re-appointed as auditors of the company.
It is not mandatory to reappoint the
retiring auditor even if 3 things stipulated in sub-section (9) are not
attracted. The board of director may recommend any person other than retiring
auditor for appointment as statutory auditor of the Company at the time of
completion of term of existing auditor of the Company.
Tenure: The auditor appointed in the AGM
meeting shall hold office from the conclusion of that meeting till the
conclusion of the sixth annual general meeting, with the meeting wherein such
appointment has been made being counted as the first meeting.
Remuneration: As per section 142 remuneration of
auditor shall be decide by the members in its subsequent general meeting.
Filing of e-form: The Company will file e-form ADT-1
with ROC within 15 days of passing of ordinary resolution in general meeting.
F. IN CASE OF NO
AUDITOR IS APPOINT IN AGM, THEN HOW TO APPOINT AUDITOR:
Sub-Section (10) of section 139
stipulates that where at any annual general meeting, no auditor is appointed or
re-appointed, the existing auditor shall continue to be the auditor of the
company.
Hence, it is clear that the retiring
(existing) auditor even if not re-appointed, may still be automatically
appointed if the Company fails to appoint an Auditor in place of the existing
auditor.
Tenure: If not auditor is appointed in AGM
then retiring auditor will continue as auditor of the company from the
conclusion of this AGM to conclusion of 6th Annual General Meeting
of the Company subject to ratification by shareholder in every AGM.
Remuneration: As per section 142 remuneration of
auditor shall be decide by the members in its subsequent general meeting.
Filing of e-form: There is no need to file any form
with ROC for continuation of existing auditor as auditor of the Company.
[1] BM stands for Board Meeting.
[2] EGM stands for Extra ordinary
General Meeting
[3] Eligibility, Qualification or
Disqualification of Auditor.
[4] Eligibility, Qualification or
Disqualification of Auditor.
[5] Provided that such appointment
shall be subject to the ratification in every annual general meeting till the
6th such meeting by way of passing of an ordinary resolution. [Proviso to Rule
3(7)]
[6] Provided that such appointment
shall be subject to the ratification in every annual general meeting till the
6th such meeting by way of passing of an ordinary resolution. [Proviso to Rule
3(7)]
[7] Eligibility, Qualification or
Disqualification of Auditor.
- See more at:
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