FAQs on auditor

Who Will Appoint First Auditor?

Sol. As per Section 139(6): First Auditor will be Appoint by Board of Directors of Company within 30 days of Incorporation of Company.

If Company Incorporated on 1st March. First BM held on 15.03 and second on 25.03. In such situation whether company have to appoint auditor in the meeting dated 15.03 or can hold in 25.03?

Sol. Company can appoint the auditor in the BM held on 15.03 or 25.03 as per convenience of the Company. Act doesn’t restrict to appoint auditor in first Board Meeting.

If First Auditor is not appointed by Board of Directors of Company or Board of Directors fails to appoint first auditor, then who will appoint first auditor?

Sol: As per Section 139(6):

If the Board fails to appoint the First Auditor, an Extra Ordinary General meeting will be called by the Board to appoint the first auditor within 90 days from the receipt of the information from the Board of Directors.

Period upto which first auditor of company will hold the office as auditor.

Sol: As per Section 139(6): The First Auditor of Company will hold office upto conclusion of First Annual General Meeting of Company.

Appointment of First Auditor in case of Government Company and any other company owned or controlled, directly or indirectly, by the Central Government, or by any State Government, or  Central Government and partly by one or more State Governments.

Sol. As per Section 139(7): The First Auditor shall be appoint by the Controller and Auditor-General of India with in 60(Sixty) from the date of Incorporation of Company.

If Controller and Auditor General of India fails to appoint First Auditor of Company then who will appoint First Auditor of Company?

Sol. As per Section 139(7): The Board of Director of the company shall appoint such Auditor within 30 days from the expiry of 60 days of registration of company.

If Board of Director of the company fails to appoint First Auditor of Company then who will appoint First Auditor of Company?

Sol. As per Section 139(7): The Board of Directors will inform the Members of the company and Members will hold EGM within 60 days from receiving of intimation of appointment and will appoint auditor, who shall hold office till the conclusion of the first annual general meeting.

Is there any form require to file with ROC on appointment of First Auditor?

Sol. No, there is no need to file any form for appointment of First auditor.

If first auditor Resigned before AGM then who will appoint Auditor on place of retiring auditor?

Sol. Resignation of Auditor create Casual Vacancy, As per Section 139(8): Casual Vacancy arise due to resignation of Auditor shall be recommend by Board of Directors in the Board Meeting within 30 days of Resignation and required approval of Members with in 3 month from the date of Board Meeting.

Is there any form require to be file on Resignation of First Auditor and Appointment of Auditor on place of Retiring Auditor.

Sol. No, There is no mandatory requirement to file e-from with ROC in above mentioned both Situations. But it’s advisable to file ADT-1.

First Auditor can be removed by Director or Not?

Sol. No, Auditor Can’t be removed by Board of Directors of Company.

Types of Casual Vacancies.

Sol. As per Section 139(8):  There are two type of Casual Vacancies:

• 1. Due to Resignation of Auditor
• 2. Due to any other Reasons.

Grounds of Casual Vacancy.

Sol.

• Death of Auditor.
• Disqualification of Auditor under section-141.
• Resignation by Auditor.
• Non-ratification of auditor.
• Any other reason.

How to fill the Casual Vacancy in case of Casual Vacancy arise due to resignation of Auditor?

Sol. As per Section 139(8):  If Casual Vacancy Arise due to Resignation of Auditor then:

By Board of Directors in the Board Meeting within 30 days of Resignation and required approval of Members (Through General Meeting) with in 3 month from the date of intimation to shareholders by the Board of Directors. Auditor appointed due to casual vacancy will hold office till conclusion of next Annual General Meeting.

Compliance by Auditor After Resignation: As per Section- 140(2):

The auditor who has RESIGNED From the company shall file within a period of 30 days from the date of resignation, a Statement in the Form No. ADT-3 (Attached in GNL-2) with the ROC, indicating the reasons and other facts as may be relevant.

Compliance by Company for appointment of auditor After Resignation:

The company will File Notice of such appointment with ROC in Form- ADT-1.

Information require to be mention in Form ADT-3.

Sol. 1. Category of Auditor Individual/ Firm:

• Income Tax PAN of auditor or auditor’s firm
• Name of the auditor or auditor’s firm
• Membership Number of auditor or auditor’s firm’s registration number
• Address of the auditor or auditor’s firm
• City
• State
• Pin code
• Email id of the auditor or auditor’s firm

2. Reasons for resignation

3. Any other facts relevant to the resignation

If Casual Vacancy due to reasons other than condition and procedure for appointment of Auditor.

Sol. As per Section 139(8):  If Casual Vacancy Arise due to reason other than resignation of Auditor then, Auditor shall be appointed as follow:

By Board of Directors in the Board Meeting within 30 days of Resignation no need of approval of Members. Auditor who will appoint due to casual vacancy will hold office till conclusion of next Annual General Meeting.

Compliance by Company for appointment of auditor After Resignation:  The company will File Notice of such appointment with ROC in Form- ADT-1.

Condition of Appointment of Auditor in First AGM of Company.

Sol. As per Section-139(1) read with Rule 3 of sub-rule-7:

Every company shall at First Annual General meeting (AGM) appoint an individual or firm as an Auditor to hold office from the conclusion of that meeting till the conclusion of the sixth (6th) Annual General Meeting (AGM).

If an auditor is appointed for 5 years then, what are requirements of every AGM regarding Auditor?

Sol. As per Section- 139(1) First Proviso read with Rule 3 of Sub-Rule-7  first Proviso: Although the duration of office is Five (5) years and Ten (10) years, the company will place the matter for ratification at every AGM by passing of Ordinary Resolution. Members will ratify appointment of such Auditor in Every AGM by passing of Ordinary Resolution.

Procedure for appointment of Auditor at AGM.

Documents Require from Auditor before Appointment in AGM

Sol. As per Section- 139(1) Second Proviso:

a. WRITTEN CONSENT of auditor for such appointment.

b. CERTIFICATE from auditor for such appointment.

c. Under Rule 4 of Chapter-X, Auditor shall state in said certificate that he satisfy the  condition given below: (Third Proviso of Section- 139(1);

i. The individual or the firm, as the case may be, is eligible for appointment and is not disqualified for appointment under the Act, the Chartered Accountants Act, 1949 and the rules or regulations made there under;

ii. The proposed appointment is as per the term provided under the Act;

iii. The proposed appointment is within the limits laid down by or under the authority of the Act;

iv. 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.

Works require to be done by Company Regarding appointment of Auditor in AGM.

Sol. As per Section- 139(1) Fourth Proviso:

The Company shall with in Fifteen (15) Days of Annual General Meeting (AGM) :

• Inform the Auditor of his Appointment.
• File Notice of such appointment with ROC in Form- ADT-1.

If at any AGM appointment of auditor is Not Ratified by Members, then how to appoint auditor?

Sol. As per Rule-7 Explanation: 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.  It will be considered as casual vacancy.

Maximum Period For which an individual can serve a company as an Auditor?

Sol. As per Section: 139(2) Clauses (a):  For a Term of 5 year Maximum.

(Except Company which doesn’t fall under Section- 139(2) read with Rule-5 of The Companies (Audit and Auditors) Rules, 2014.

Maximum Period For which a Firm can serve a company as Auditor?

Sol. As per Section: 39(2) Clause (b):

For a Term of 5 year and Maximum 2 (Two) terms. (for Two terms of Five Consecutive years total 10 years)

(Except Company which doesn’t fall under Section- 139(2) read with Rule-5 of The Companies (Audit and Auditors) Rules, 2014.

Applicability of provisions of Section-139(2) regarding Rotation of Director.

Sol. As per Rule 139(2) read with Rule-5:

This Section will be applicable on Following Companies:

1. All Unlisted Public Companies having paid up share capital of Rs. 10 Crore or More.
2. All private Limited Companies having Paid up share Capital of Rs. 20 Crore or More;
3. All companies having public borrowing from Financial Institutions, Banks or Public deposits of Rupees Fifty Crores or More.
4. Listed Companies.

Companies which are exempted from applicability of Section- 139(2) (a) (b).

Sol. As per Rule 139(2) read with Rule-5:

• One Person Company.
• Small Company.
• Companies which are not covered under Question- 24.

Procedure for Appointment of Auditor at AGM for the company incorporated under Companies Act, 1956.

Sol. If a company Incorporated under Companies Act, 1956 and fall under section 139(2) (a,b) shall appoint Auditor for term:

• Single term of 5 year in case of individual.
• For 2 consecutive term of 5 year in case of firm.

But as per Section- 139 (2) Third Proviso:

Every Company fall under Section 139(2) of Companies Act, 2013, Existing on or before the commencement of this Act and which is required to comply with the provisions of these sections shall comply with this section within 3 (Three) year from the date of commencement of this Act.

Therefore the Companies which fall under Section- 139(2) read with Rule-5 of The Companies (Audit and Auditors) Rules, 2014 can appoint Auditor for period of 5 Year or lesser period.

But the Companies which not covered under Section- 139(2) read with Rule-5 of The Companies (Audit and Auditors) Rules, 2014 have to appoint Auditor for 5 year in case of Individual and for 10 year in case of Firm.

Can a company appoint auditor for a period less than 5 year under Companies Act, 2013?

Sol. According to Section 139(2): No Company can appoint any Auditor for a period less than 5 year. After completion of 3 year Transitional period as given in third proviso of Section 139(2).

Time period for which a person Can’t be appoint as Auditor after completing 5 year (cooling period).

Sol. As per Section 139(2) First Proviso:

(i) An Individual Auditor who has completed his term of Five (5) year shall not be eligible for re-appointment as auditor in the company for 5 (FIVE) year from the completion term of 5 year.

(ii) An Auditor firm who has completed their two terms of Five (5) year shall not be eligible for re-appointment as auditor in the company for next 5 (FIVE) year from the completion of 10 year.

Situations When we require to Appoint Auditor in EGM.

Sol. 1. When Board of Directors fails to appoint first auditor of company.

2. In case of Casual Vacancy arise because of Resignation of auditor. (Then auditor will be appointing in BM subject to approval of Shareholder in General Meeting).

If a director appointed in EGM ADT-1 require to file or Not

Sol. As per Section- 139(1) Fourth Proviso:  ADT-1 is requires to file for appointment of Auditor in every situation except appointment of first auditor.

Proviso 10 said that, if no auditor is appointed or re-appointed, at any AGM then the existing auditor shall continue to be the auditor of company. So the auditor whose 5 year expired on AGM can be re-appointing by this condition.

Sol. 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.

For the purpose of rotation of auditors, whether the period for which the individual or the firm has already hold office as auditor prior to the commencement of the Act shall be taken into consideration for calculating the period of five consecutive years, in case of individual; or ten consecutive years for firm

Sol. Yes, as per rule 6(3) of Companies (Audit and Auditors) Rules, 2014, the period for which the individual or the firm has held office as auditor prior to the commencement of the Act shall be taken into consideration for the purpose of rotation of auditors.

For example, in case of listed and prescribed companies [under Section- 139(2) Read with Rule-5], if an individual has completed four years as an auditor on April 01, 2014, he can continue for one more year in the same company and not more than that.  But exemption is given under Section-139(2) Third proviso so that auditor can continue till 3 years.

Examples of Rotation of in case of audit firm:.

Sol.

Examples of Rotation of in case of individual auditor:.

If Auditor don’t want to attend General Meeting.

Sol. As per Section- 146: Auditor should give Leave of Absence to company, and leave should be accepted by the company. Because Act Says unless otherwise exempted by the company auditor required to attend general meeting.

Whether Non-ratification of auditor will be consider as casual vacancy?

Yes, If appointment of auditor is not ratified in the Annual General Meeting, then it will be considered as casual vacancy.

Important Terms Under This Chapter:

A break in the term for a continuous period of five-years shall be considered as fulfilling the requirement of rotation. (As per Explanation II of Section: 139)

For the purpose of this chapter “Appointment” include “Re-appointment”. (According to this all the Condition of appointment of auditor will also applicable on Re-appointment of Auditor. (As per Section-139(1) Explanation).

As per Section 139(1) Third Proviso: CERTIFICATE of Auditor should indicate that whether the Auditor satisfies the Criteria provided in section-141 (Eligibility, Qualification and Disqualifications of Auditors)

A person is not eligible to be appointed as an auditor of company If, at the date of appointment or re-appointment holding appointment as auditor of more than 20 companies. (As per Section 141(3)(g))