Appointment of Auditor: By BOD, Shareholders, Govt

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Who is an auditor ?

Any individual is chosen by the firm and given the authority to examine the books, and the accounting records, compare the charges to the vouchers, examine the balance sheet and income items, and report the findings to the company and the shareholders.

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Purpose for the appointment of auditor –

•  The protection of the shareholders’ interests is the primary goal of appointing an auditor.
•  The auditor provides an unbiased analysis to the company’s owners or shareholders to safeguard and defend the business from fraud.
• To review the directors’ accounts and notify them of the real financial situation of the business.

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Appointment Of The Auditor By Board Of Directors (BOD)

1. In case of FIRST AUDITOR – 

• The BOD should select a person or business to serve as the company’s initial auditor. After 30 days have passed from the Company’s registration date.
• The Board of Directors are required to notify the Company’s members if it fails to name the company’s initial auditors. The company’s initial auditors must be chosen by the members at an extraordinary general meeting within 90 days.
• Under section 142(1)’s provisions, the Board may determine the first auditor’s compensation or salary.
• The First auditors are permitted to continue their duties till the First Annual General Meeting is over.

 2. In Case Of Casual Vacancy Other Than Resignation –

The Board of Directors of the Company has the authority to appoint an auditor if a casual vacancy occurs due to a reason other than resignation, such as death.

PROCEDURE :

• Time Period : Within 30 days of a Casual Vacancy occurring, the Board of Directors of the company must select a Statutory Auditor to replace the old Auditor.
• Term of Appointment : Such auditor will serve as the Company’s auditor up until the consent form and eligibility certifications are issued.
• Annual General Meeting : Hold the board meeting and approve the board resolution for the auditor’s appointment.
•  Form Filing : BOD will submit ADT-1 within 15 days after the Board Resolution’s passage.
• Circular Resolution : In the event of a vacancy, the circular resolution approved by the BOD is sufficient for the appointment of the auditor.

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Appointment Of The Auditor By Shareholders

1. In Case Of Vacancy Arises Due To Resignation –

A new auditor will be appointed by the BOD (Board of Directors) if casual vacancy results from the resignation of an auditor, and this appointment must be approved by the shareholders at their extraordinary general meeting.3

2. In Case Of AGM Or Subsequent Auditor –

1. Under Section 139(1), each company’s shareholders must choose an individual or firm to serve as the company’s auditor at its first annual general meeting ( In Case Of AGM Or Subsequent Auditor )

2. A regular resolution can be adopted to appoint an auditor.

3. The auditor will remain on duty from the end of that meeting until the end of its sixth annual general meeting, and thereafter until the end of every sixth meeting.

4. Under Section 142(1), a company’s general meeting shall fix the auditor’s compensation.

5. Any corporation created under a special Indian statute nationalized bank, or foreign firm may only appoint an auditor by passing a special resolution.

PROCEDURE :

• Time Period : Within 30 days of a Casual Vacancy occurring, the Board of Directors must appoint a new Auditor to replace the old Auditor.
•  Extra Ordinary General Meeting : Within 90 days of the auditor’s appointment, the shareholders must ratify the appointment at an Extra-Ordinary General Meeting.
• Term of Appointment : This auditor will serve as the company’s auditor up until the annual general meeting. He might be appointed again at the AGM or he could retire.
• Ordinary Resolution : The approval of such an appointment requires the acceptance of an “Ordinary Resolution” at a general meeting.
• Circular Resolution : In the event of a casual vacancy, the circular resolution adopted by the BOD is sufficient for the appointment of the auditor.
• Filing of MGT-14: If an auditor is appointed, form MGT-14 is not required.

PROCEDURE BY COMPANY –

1. Within 15 days of the general meeting’s adoption of the ordinary resolution, the company will file the e-form ADT-1. Article 140(2)
2. Within 30 days of his resignation, the resigning auditor will submit the company a letter outlining the reasons for his departure.
3. Within 30 days after his resignation, the auditor will submit an elaborate resignation letter and an electronic version of form ADT-3 with ROC.

APPOINTMENT OF AN AUDITOR BY COMPTROLLER AND AUDITOR GENERAL

• Within 60 days of the company’s registration date, the Comptroller and Auditor-General of India must name the first auditor in the case of a Government Company.
• The Board of Directors must name the first auditors within the following 30 days if the Comptroller and Auditor-General of India fail to do so within the allotted 60 days.
• The Board of Directors (Board) should notify the Company’s members if it also takes longer than 30 days to appoint the initial auditors.
• The initial auditors of the company must be chosen by the members of the company or shareholders at an extraordinary general meeting within sixty days. The auditor will serve in that capacity until the first AGM’s conclusion.The initial auditors of the company must be chosen by the members of the company or shareholders at an extraordinary general meeting within sixty days. The auditor will serve in that capacity until the first AGM’s conclusion.
• Within 180 days of the start of the financial year, the Comptroller and Auditor-General of India must select an auditor for that financial year. This auditor will serve until the annual general meeting’s decision.
• Any temporary vacancy in the position of Government Company’s auditor must be filled by the CAG (Comptroller and Auditor-General) of India within 30 days.
• The Board of Directors must fill the vacancy within the following 30 days if the CAG (Comptroller and Auditor-General) of India fails to do so within that time frame.

Procedure for Appointment –

1. Ask the suggested auditor if he is qualified to be appointed as the company’s auditor and inform him of your plan to do so.
2. Obtain the auditor’s formal approval and certification.
3. If the company act’s section 177 requires the formation of an audit committee, then you must seek the committee’s recommendation.
4. The following step is to call a board meeting.
5. At the first Board meeting, approve the appointment of the auditor.
6. Within 15 days, notify the auditor of acceptance and submit form ADT-1 (which must be attached to form GNL-2 under MCA circular 09/2014 dated April 25, 2014) to the ROC.

Appointment Of An Auditor By Central Government

In the following situations, the central government may appoint an auditor.

1. The central government may appoint an auditor if none is appointed or reappointed at the annual general meeting.

2. When a specific resolution is necessary for the appointment of auditors but is not passed by the company at the time the auditors are appointed.

3. If the auditor chosen at the AGM has not formally accepted the position.

4. In the case of a company, a special audit breaches the laws and standards. Typically, a government undertakes a special audit when it has concerns about a company’s financial condition and statements.

NOTE : 

• The company should submit a form to the central government along with a list of the auditors it recommends be appointed as auditors. The auditor is chosen by the central government following an evaluation.
• The corporation and the officers in default are subject to a punishment of up to Rs. 500/- if they fail to notify the central government of the aforementioned condition.