Large business organizations are managed by directors who act on behalf of members. In absence of any check, the directors may mismanage the finances of the organization. Thus, members appoint auditor to look into the true and fair view of the financial affairs of the company. These auditors are independent from the company and hence can express an unbiased opinion.
I) Eligibility and qualifications of auditor [Section 141]
A person shall be eligible for appointment as an auditor only if he is a Chartered Accountant (individual) or
A firm where majority of partners practicing in India are Chartered Accountants
Who shall sign on behalf of the firm? Where a firm including a Limited Liability Partnership (LLP) is appointed as an auditor of a company, only the partners who are Chartered Accountants shall be authorized to act and sign on behalf of the firm.
II) Appointment of first auditor of a company (other than a government company) [Section 139(6)]
- The first auditor of a company (other than a government company) shall be appointed by the Board of Directors within 30 days from the date of registration of the company to hold office till the conclusion of the first Annual General Meeting.
- If the board of directors fail to appoint such auditor, it shall inform the members, who shall within 90 days at an extraordinary general meeting appoint an auditor and such auditor shall hold office till the conclusion of the first Annual General Meeting.
Question 1) Managing Director of PQR Ltd., himself wants to appoint Shri Ganpati, a practicing Chartered Accountant, as first auditor of the company. Comment on the proposed action of the Managing Director
As per Section 139(6) of the Companies Act, 2013, the first auditor of a company shall be appointed by the Board of Directors within 30 days from the date of registration of the company to hold office till the conclusion of the first Annual General Meeting
In the given case, appointment of Shri Ganpati, a practicing Chartered Accountant as first auditors by the Managing Director of PQR Ltd., is in violation of the Act as Section 139(6) authorizes only the board of directors to appoint the first auditor of the company
In view of the above, the Managing Director of PQR Ltd., should be advised not to appoint the first auditors of the company.
Appointment of First Auditor in case of Government Company [Section 139(7)]
(1) In the case of a Government company or any other company owned or controlled, directly or indirectly, by the Central Government, or by any State Government, or Governments, or partly by the Central Government and partly by one or more State Governments, the first auditor shall be appointed by the CAG within 60 days from the date of registration of the company.
(2) In case the CAG does not appoint first auditor within the said period, the Board of Directors of the company shall appoint such auditor within the next 30 days.
(3) Further, in case the Board fails to appoint such auditor, it shall inform the members of the company who shall appoint such auditor within 60 days at an EGM
Such auditor shall hold office till the conclusion of the first annual general meeting.
CA Preeti Aggarwal
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