Ajay Mishra (Company Secretary) (74337 Points)
Replied 26 August 2013

Appointment of Auditor at Annual General Meeting

Section 224(1) of the Companies Act, 1956 state that every company shall, at each annual general meeting, appoint an auditor or auditors to hold office from the conclusion of that meeting until the conclusion of the next annual general meeting.

Whereas, clause 139(1) of the Companies Bill, 2013 says that 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 and thereafter till the conclusion of every sixth meeting and the manner and procedure of selection of auditors by the members of the company at such meeting shall be such as may be prescribed.

The new Companies Bill, 2013 has made mandatory to all existing company or company which is going to be registered after the commencement of this new Companies Act to appoint an auditor at its first Annual General Meeting an auditor for the period of five years. Its means your auditor appointed at first AGM will act as auditor for the long period of 5 years. The next auditor appointment option will be available to the company in 6^th Annual General Meeting of every such company. This is new clause which was not in Companies Act, 1956.

Ajay Mishra (Company Secretary) (74337 Points)
Replied 26 August 2013

Appointment of Auditor for listed or such class of Companies

Clause 139(2) of the Companies Bill, 2013 says that no listed company or a company belonging to such class or classes of companies as may be prescribed, shall appoint or re-appoint—

(a) an individual as auditor for more than one term of five consecutive years;

and

(b) an audit firm as auditor for more than two terms of five consecutive years:

Provided that—

(i) an individual auditor who has completed his term under clause (a) shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term;

(ii) an audit firm which has completed its term under clause (b), shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term:

Provided further that as on the date of appointment no audit firm having a common partner or partners to the other audit firm, whose tenure has expired in a company immediately preceding the financial year, shall be appointed as auditor of the same company for a period of five years.

If we read clause 139(2) it classify term of appointment for individual auditor and audit firm differently. In case of individual, the term of his/her appointment will be maximum for five years and there after he/she will be disqualified for next five years (it can be called as locking period), whereas if a firm is appointed as auditor in listed or such class of company, then it will be appoint for first five years and after the expiry of first five year it will appoint for next five years. It means for audit firm there is no locking period. It can continue as audit of the company for 10 years. So an audit firm locking period will start after the completing of 10 years.

If we read first proviso of clause 139(2) of Companies Bill 2013, it says that no new audit firm which are going to be appointed on AGM after the expiry of term of old audit firm, have any partner or partners, who was the partner of old firm.

For Example:

M/s AMKS & Associates, was audit firm having four partners, i.e. Mr. A, Mr. M, Mr. K and Ms. S of XYZ Limited and the company going to appoint a new audit firm M/s LRK & Associates, in which Mr. K is common partner in both firms. In that case M/s LRK & Associates will not be eligible to appoint as audit firm in XYZ Limited in coming AGM on the basis of common partner. Such firm will be disqualified if any single partner is going to be appointed in next AGM after expiry of its tenure.

Second point in that proviso is that, the locking period of any partner is only one year. The proviso use the word “immediately preceding financial year”, it means any one or more partner may appoint in same company with new firm name after the expiry of one years. The proviso has given lock in period for partner or partners only for one years and for audit firm for five years. The said proviso can be explain by following example:

M/s AMKS & Associates, was audit firm having four partners, i.e. Mr. A, Mr. M, Mr. K and Ms. S was audit firm of XYZ Limited Company appointed at AGM hold in 2012 for the FY 2012-13 and the company going to appoint a new audit firm M/s LRT & Associates, in which no common partner of the earlier audit firms at AGM hold in 2013 for the FY 2013-14. Now at AGM hold in 2014 for the FY 2014-15, M/s KSB & Associates, an audit firm of Chartered Accountants having common partners (Mr. K and Ms. S) of M/s AMKS & Associates can be appointed in AGM.

Ajay Mishra (Company Secretary) (74337 Points)
Replied 26 August 2013

Enforcement of Clause 139 (2)

The proviso of Clause 139 (2) says that:

“Provided also that every company, existing on or before the commencement of this Act which is required to comply with provisions of this sub-section, shall comply with the requirements of this sub-section within three years from the date of commencement of this Act.”

As per this proviso, every company, existing on or before the commencement of this Act, required to company the provision of sub clause (2) of clause 139 within 3 years from the applicability of new Companies Act. Accordingly, if M/s AMKS & Associates is an audit firm of XYZ Limited for last 10 years then they can take the benefit of 3 years to act as an auditor of that XYZ Limited. The grace period is three year to compliance of this sub clause. So a company can take benefit to extend the tenure of existing auditor to retire it at the third year of the commencement of this new Act.

For Example, if M/s AMKS & Associates is continue as auditor on the commencement of new Companies Act (says in 2014) of XYZ Limited, then such auditor can continue as auditor in 2014 AGM and 2015 AGM and then in third year in 2016 AGM, the company can use the proviso of clause 139(2) and appoint new audit firm.

Intimation to Registrar of Companies

As per Companies Act, 1956, a company is required to give intimation of appointment to every auditor(s) so appointed within seven days of the appointment. The intimation may be given in form of a letter on the letter head of the company by a responsible officer of the company. Every auditor appointed under section 224(1) by a company in annual general meeting shall inform the Registrar in writing that he has accepted, or refused to accept the appointment. The information shall be given in e-Form 23B within a period of thirty days from the date of receipt of appointment letter.

Whereas, proviso of Clause 139(1) says that the company shall inform the auditor concerned of his or its appointment, and also file a notice of such appointment with the Registrar within fifteen days of the meeting in which the auditor is appointed.

As per Companies Act, 1956 the intimation of appointment to auditor within seven days of appointment is sufficient and not required to intimate ROC for such appointment. It is the responsibility of auditor to intimate the ROC about his appointment only. In new Bill, 2013 the burden to intimate the ROC about appointment in laid on company with in fifteen days of appointment in comparison to 30 days. So now the Company will intimate to both, the newly appointed auditor as well as concern ROC with in time frame.

/articles/appointment-of-auditor-under-new-companies-bill-2013-companies-act--18238.asp ******Thank You******

2 Like

CMA. CS. Sanjay Gupta ("PROUD TO BE AN INDIAN") (114225 Points)
Replied 26 August 2013

Informative Sharing Ajay Bhai...

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RAMESH KUMAR VERMA ( CS PURSUING ) (43853 Points)
Replied 26 August 2013

Thanks for updation Sir

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Ganeshbabu K (Audit and Tax Advisory) (48564 Points)
Replied 26 August 2013

Nice Sharing!!!

Hope you Share in Files section!!

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Ajay Mishra (Company Secretary) (74337 Points)
Replied 26 August 2013

Sure dear Ganesh....................

CS,CA F,Numrologi TusharSampat (CS CA F Numerologist Astrologer Graphologist Face reader Vastu Expert) (85930 Points)
Replied 26 August 2013

Thank Mishra ji....its very useful for auditors to know their role under new Co. Bill and you have shared this in time...hope i could have Bookmarked it !!!!

1 Like