Appointment of auditors [Section 139(1)]
- Every company whether public or private shall have an auditor to audit its accounts
- Appointment of auditor is mandatory in the Annual General Meeting
- Every company shall, at its first AGM, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that 1st meeting till the conclusion of its 6th AGM and thereafter till the conclusion of every 6th meeting
As per Rule 3– Manner and procedure of selection and appointment of Auditors
(A) In case the Company is required to constitute an Audit Committee-
- The Audit Committee shall recommend the name of an individual or a firm as auditor to the Board for consideration.
- If the Board agrees with the recommendation of the Audit Committee, it shall further recommend the appointment of an individual or a firm as auditor to the members in the AGM.
- If the Board disagrees with the recommendation of the Audit Committee, it shall refer back the recommendation to the committee for reconsideration citing reasons for such disagreement.
- If the Audit Committee, after considering the reasons given by the Board, decides not to reconsider its original recommendation, the Board shall record reasons for its disagreement with the committee and send its own recommendation for consideration of the members in the AGM; and if the Board agrees with the recommendations of the Audit Committee, it shall place the matter for consideration by members in the AGM.
(B) In case the company is not required to constitute an Audit Committee
- The Board shall consider and recommend an individual or a firm as auditor to the members in the AGM for appointment
[Note: Companies that require to constitute an audit committee
For the purpose of constitution of Audit Committee, Section 177 of the Act provides that
The Board of directors of every listed company and the following classes of companies shall constitute an Audit Committee-
(i) all public companies with a paid-up capital of ₹10 crores or more; or
(ii) all public companies having turnover of ₹ 100 crores or more; or
(iii) all public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding ₹50 crores or more.
Explanation: The paid-up share capital or turnover or outstanding loans, or borrowings or debentures or deposits, as the case may be, as existing on the date of last audited financial statements shall be taken into account for the purposes of this rule]
Responsibility of the competent authority (either Audit Committee / Board)
(i) The competent authority shall take into consideration the qualifications and experience of the individual or the firm proposed to be considered for appointment as auditor and whether such qualifications and experience are commensurate (i.e. appropriate, adequate, matching) with the size and requirements of the company.
(ii) It shall have regard to any order or pending proceeding relating to professional matters of conduct against the proposed auditor before the Institute of Chartered Accountants of India (ICAI) or any competent authority or any Court.
(iii) It may call for such other information from the proposed auditor as it may deem fit.
- Before the appointment is made, the written consent of the auditor to such appointment and a certificate from him or it that the appointment, if made, shall be in accordance with the conditions as may be prescribed, shall be obtained from the auditor.
Contents of certificate provided by the Auditor before his appointment [Rule 4 of Companies (Audit and Auditors) Rules, 2014]
The Companies (Audit and Auditors) Rules, 2014 provides the content of the Certificate. According to this, the auditor appointed shall submit a certificate that
(A) 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 thereunder;
(B) the proposed appointment is as per the terms provided under the Act;
(C) the proposed appointment is within the limits laid down by or under the authority of the Act;
(D) 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.
The certificate shall also indicate whether the auditor satisfies the criteria provided in section 141 [Section 141 provides provisions on eligibility, qualification and disqualification of Auditor which will be discussed later] of the Companies Act, 2013.
- After appointing the auditor, the company shall inform the auditor concerned of his or its appointment, and also file a notice (ADT-1) of such appointment with the Registrar within 15 days of the meeting in which the auditor is appointed.
- Here, “appointment” includes reappointment.
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