Appointment of Auditor

Step-1
Check the Eligibility, Qualifications and Disqualifications of Auditors:

Section 141 of Companies Act, 2013 defines the eligibility, qualifications and disqualifications of auditors. Refer the below explanations sub-section wise:

(1) Sub-section defines the qualification of an auditor:

1. Individual-if he is a Chartered Accountant.
2. A firm-if majority of partners practising in India are qualified as auditor.

(2) if firm includes Limited Liability Partnership

only the partners who are chartered accountants shall be authorized to act and sign on behalf of the firm

(3) Sub-section- 3 provide the Disqualification Of Auditors

Disqualification Of Auditors

a.) A Body Corporate other than a Limited Liability Partnership registered under LLP Act,2008.

b.) An officer or employee of the Company.

c.) A person who is a partner, or who is in the employment, of an officer or employee of the company.

d.) A person who, or his relative or partner-

• • • is holding any security of or interest of face value exceeding rupees one lakh,(will be also applicable in the case of a company not having share capital or other securities.)

                Within 60 days  Auditor can take corrective action if above condition breach

• • • is indebted in excess of rupees five lakh.
    • has given a guarantee or provided any security in connection with the indebtedness of any third person in excess of rupees One lakh

in the company OR its subsidiary OR of its holding OR associate company OR a subsidiary of such holding company.

e.) a person or a firm who, whether directly or indirectly, has Business Relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company .

    Business Relationship- means commercial nature except;

(i) commercial transactions which are in the nature of professional services permitted to be rendered by an auditor or audit firm under the Act and the Chartered  Accountants Act, 1949 and the rules or the regulations made under those Acts;

(ii) commercial transactions which are in the ordinary course of business of the company at arm’s length price – like sale of products or services to the auditor, as customer, in the ordinary course of business, by companies engaged in the business of  telecommunications, airlines, hospitals, hotels and such other similar businesses.

f.) A person whose relative is a director or key managerial personnel

g.)  A person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies.

In case of private company – in clause (g) of sub-section 3 the words twenty companies will exclude

One Person Companies, Dormant Companies, Small Companies and Private Companies having Paid-Up Share Capital Less Than One Hundred Crore Rupee

h.) a person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction.

i.) a person who, directly or indirectly, renders any service referred to in section 144 to the company or its holding company or its subsidiary company.

Step-2

Recommendation for appointing an individual or firm as auditor is made in the next step:

After taking  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 with the size and requirements of the company.

Condition 1-Audit committee ( if applicable on the company)-

will recommend the auditor name to the  board .

Board may consider and recommend the name of auditor as suggested by Audit committee to the members in the annual general meeting for appointment.

if Board disagree with the recommendation, he may refer back 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 to  the annual general meeting for auditor appointment .

Condition 2- if no audit committee applicable, then Board may recommend the name of auditor to the members in the annual general meeting for appointment.

STEP-3

Documents preparation and intimation to registrar

1. Obtain written consent+ eligibility certificate from auditor. certificate should be construed with Rule 4 Of companies (Audit and Auditors) Rules, 2014 and satisfy the criteria as mentioned u/s 141 of companies Act, 2013 that is already explained above.
2. Pass required Board Resolution or Shareholders Resolution as may be applicable.
3. Issue appointment letter
4. Attach all the documents as mentioned in point (a),(b)and(c) in ADT-1 Form and
5. within 15 days of appointment
6. File such ADT-1 with the ROC(Resgistrar of companies )

Tenure of auditor:

1. 1st Auditor , appointed by Board and hold office till the 1st Annual General Meeting of the Company.
2. After that each auditor is appointed for the period of 5 year or we can say, till the conclusion of every sixth Annual General Meeting.

We will understand with more details under the bifurcation as

1. Appointment of First Auditor of the Company
2. Appointment of auditor in Annual General Meeting
3. Appointment of auditor in case of casual vacancy
4. Appointment of Auditor in case of Resignation