Appointment of Auditor

The primary objectives of appointing auditors include:

• Financial Oversight: Auditors verify the accuracy and completeness of a company's financial records, ensuring compliance with accounting standards.

• Independent Verification: They provide an unbiased assessment of a company's financial health, protecting the interests of shareholders and stakeholders.

• Fraud Prevention: Auditors can identify potential irregularities or fraudulent activities in a company's financial transactions.

• Regulatory Compliance: Auditors help companies adhere to statutory requirements and avoid penalties.

Only a practicing Chartered Accountant (CA) can be appointed as an auditor of a company. The CA must meet the following criteria:

• Membership: Should be a member of the Institute of Chartered Accountants of India (ICAI).

• Practice Certificate: Must possess a valid practice certificate issued by the ICAI.

• Independence: Should be independent of the company and its directors to ensure objectivity.

Non-Government Companies

• Board Appointment: The Board of Directors must appoint the first auditor within 30 days of company registration.

• Member Appointment: If the Board fails to appoint within 30 days, the members can appoint the auditor at an Extraordinary General Meeting (EGM) within 90 days.

Listed/Specified Companies

• Board Appointment: Similar to non-government companies, the Board appoints the first auditor within 30 days.

• Member Appointment: Members can appoint the auditor at an EGM within 90 days if not appointed by the Board.

Government Companies

• CAG Appointment: The Comptroller and Auditor General of India (CAG) appoints the first auditor within 60 days of company registration.

• Board/Member Appointment: Alternatively, the Board of Directors or the members at an EGM can appoint the auditor within 30 and 60 days of incorporation, respectively.

Note: These timelines apply specifically to the appointment of the first auditor. Subsequent auditor appointments have different procedures and timelines, as outlined in the applicable provisions.

The procedure for appointment of auditor in a Company involves following steps as required under the Companies Act 2013:

Eligibility of the Auditor

Only a practicing Chartered Accountant (CA) satisfying eligibility criteria outlined under Section 141 of the Companies Act 2013 can be appointed as the auditor of a company. 

Obtain Consent and Certificate from the Auditor 

The company must obtain the auditor’s written consent prior to his appointment. The auditor shall provide a certificate stating that the appointment, if made, will be in accordance with the prescribed conditions and that the auditor meets all the necessary criteria specified in Section 141.

Filing of Form ADT-1

Filing Form ADT-1 with the Registrar of Companies (ROC) is optional for appointment of the first auditor. Subsequent appointment of auditor requires to file Form ADT-1 mandatorily.

Pass Board Resolution 

After receiving necessary consent and certificate from the auditor, the Board of Directors can pass a resolution to appointment of company auditor.

Intimate Registrar of Companies (ROC)

The appointment of company auditor must be conveyed to the Registrar of Companies within 15 days of the appointment. This is to ensure that the ROC is informed of the auditor’s appointment promptly.

Tenure of the First Auditor

The first auditor appointed can hold office from the conclusion of the meeting in which they are appointed until the conclusion of the company’s sixth Annual General Meeting (AGM).

Ratification at AGM

While annual ratification of the auditor's appointment was previously mandatory, recent amendments to the Companies Act have eliminated this requirement. 

Individual Auditors:

• Term Limit: An individual auditor cannot be appointed for more than five consecutive years.

• Cooling-Off Period: After serving five years, an individual auditor must wait five years before being eligible for reappointment.

Audit Firms:

• Term Limit: An audit firm cannot be appointed for more than two consecutive five-year terms.

• Cooling-Off Period: After completing two consecutive terms, an audit firm must wait five years before being eligible for reappointment.

Key Considerations for Board of Directors:

• Prior Service: When determining the eligibility for rotation, the period of service before the commencement of the Companies Act should be considered.

• Network Associations: Incoming auditors or audit firms cannot be associated with the outgoing auditors or audit firms under the same network.

• Break in Service: A break in service of five consecutive years is considered sufficient to fulfill the rotation requirement.

• Partner Transitions: If a partner in charge of an audit firm retires and joins another firm, the new firm is ineligible for appointment for five years.

By adhering to these regulations, companies can ensure the independence and objectivity of their auditors.