The Companies Act 2013 get assent President on 29th august 2013.
As per section 139 of the Companies Act 2013 every company shall appoint or reappoint auditor in first AGM and thereafter who shall hold office till the conclusion of six AGM. What do you interpret by this section whether first period is six years or five years so my dear friends it is neither five or six year it is the duration between 5 consecutive AGMs.For example Mr X is appointed as auditor of XYZ ltd in its first AGM now he will retire on 6th AGM. In companies act 1956 it was only one agm. In case of government company CAG shall appoint auditor with in 180 days form the close of the end of the relevant financial year. However members may ratify such appointment in every AGM.
Now companies are also require to obtain the written consent of auditor and certificate stating that conditions like ceiling, qualification etc. regarding appointment are complied with. Company is also required to inform to auditor and also the registrar with in 15 days, whereas in old companies act company was only required to inform the auditor of his appointment.
Listed companies are required to rotate (please note here word is rotation not retire) the auditor in every five years not in five AGM and if auditor is audit firm the same is 2 terms of five years. Further proviso of this subsection state that no firm having common partners to other audit firm ,whose tenure has expired in company, shall be appointed auditor of the company.In my opinion the firm like big fours can beat this section easily because they have made firm with different name they can retire any common partner in the firm before the date of appointment hence they will get outside the scope of these provisions. To cope up with this ICAI has issued guidelines that companies cannot appoint a new firm as auditor if it is part of the same network as retiring firm. This provision will remove familiarity threat.this may stop the fraud like Sattayam Also as new auditor will not aware of the business of the company this will increase the cost of audit. Basically this section was introduced to give chance to new entrants but due you think companies like TCS RILetc will hire new CAs as its stat auditor.
Anyway moving to the next company which is required to comply with this sub section shall comply with in 3 year from the date of commencement of his act.This gives two views
- An auditor who has completed the seven years of serves will be removed.
- Second view is as I have earlier said in companies act 1956 appointment was for a period between two agms and companies act 2013 speak about the two term so the requirement will apply prospectively.
For banking companies RBI requires the rotation of auditor in every four years whereas irda require rotation in every five years in my opinion these provisions should prevail.
Moving to the next member of company may pass a resolution that auditor will be rotated at such interval as may be resolved.
First auditor of the company will be appointed by the board of director of the company with in 30 days in case of failure member of the company will appoint the auditor with in 90 days in EGM. however in case of government company CAG will appoint first auditor with in 30 days in case of failure board of director will appoint first auditor in further 30 days.
Moving to the casual vacancy it shall be filled by the board of director with in 30 days .in case casual vacancy is caused by resignation it shall also be approved by the member with in 3 months. Earlier if casual vacancy is caused by the resignation it shall be also be approved by the central government. In case of government company casual vacancy shall be filled by CAG with in 30 days in case of failure on the part of CAG vacancy shall be filled by board of director of the company. Again Act does not define casual vacancy.
At every AGM retiring auditor may be reappointed provided
• He is not disqualified.
• He has not given the company his unwillingness to reappoint.
• A special resolution is not passed at the agm appointing some other person.\
Where at any AGM no auditor is appointed or reappointed the existing auditor may continue earlier company has to inform to central government who was then appoint the auditor.
Moving to a step to corporate governance the companies act 2013 provide that all appointment or reappointment of the auditor will be after consultation with the AUDIT COMMITTEE.
Now friends section 140 deals with the removal of auditor which says an auditor may be removed before expiry of his term only if special resolution is passed and approval of central government. Further before removal auditor concerned should be given reasonable opportunity of being heard. Earlier no approval of central government is required.
If auditor resigns from the office he shall file statement with registrar and in case of Government Company also with the CAG.if auditor does not do so he shall be punishable with a fine fifty thousand to five lacs.
Auditor has right to make representation and he may request to circulate the same with the notice of AGM if copy of representation is not send the same should be read at the meeting and the particular should also be filed with registrar.
Now if tribunal suo moto or on application of any person or central govt,forms an opinion that auditor is acting fraudulently and abetted in any fraud it may direct the company to remove the auditor it shall pass such an order with in 5 days and after that central govt. may appoint the auditor. The auditor so removed shall not be eligible for appointment as auditor for five year from the date of passing of such an order.
Section 141 deals with the qualification of auditor as only a CA can only be appointed as an auditor except the following
• A body corporate other than LLP.
• A person who is partner or employee of the officer of the company.
• A person who or his relative or partner
- Is holding any security or interest
- Is indebted to
- Has given any guarantee or provided any security in connection with indebtedness of any third person to
1. company
2. its Subsidiary
3. Its Holding and
4. associate or subsy of holding of such amount as may be prescribed.
However the relative may hold securities of face value not exceeding rupees 1000.
• A person who directly or indirectly have business connection with
o company
o its Subsidiary
o Its Holding and
o associate or subsy of holding of such nature as may be prescribed.
• Any person whose relative is director or managerial person.
• Any person holding employment as auditor in 20 other companies whether public or private. This clause overruled the limit prescribed by the ICAI.
• Any person who is convicted by the court for an offence involving fraud.
If auditor afterward incurs any off the above disqualification he shall vacate the office.
Thank you
Suggestion and comments are at
Mohit Goyal
mohitgoyal.9259@gmail.com
CAclubindia
