How do you appoint and remove an Auditor?

Appointment of auditor

According to section 139 of the companies Act,2013 certain provisions dealing with the appointment of auditors.

  • Appointment of First Auditor
  • Appointment of Subsequent Auditor

Appointment of   First Auditor in case of Company other than Government Company

According to Section 139(6), the first Auditor in case 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.

Member of the company should be informed if the board fails to appoint the auditor

The Auditor shall then be appointed by the members of the company within 90 days at the extraordinary General Meeting. Appointed Auditor shall hold office till the conclusion of the first General Meeting.

Appointment of   First Auditor in case of Company Government Company

A company in which not less than 51% of the paid-up share capital is held by the Central Government or by the State Government or Governments or partly by the Central Government and partly by one or more State Government is called a Government company and includes a company which is a subsidiary company of such Government Company.

According to Section 139(7) provided that in case of the first Auditor shall be appointed by the Comptroller Auditor General of India within 60 days from the date of registration of a company .

In case the order of CAG does not appoint such within the above said period, the board of directors of a company shall appoint such an Auditor within the next 30 days.

Further, where the board fails to appoint such an auditor within the next 30 days, it shall inform the member of a company who shall appoint such an Auditor within 60 days at the extraordinary General Meeting. The office shall be held by the Auditor until the conclusion of the first annual general meeting.

Appointment of   Subsequent Auditor/Reappointment of Auditor

Appointment of subsequent Auditor in case of a Non-government company:  Section 139(1) requires that every company shall appoint an individual or a firm as an auditor at the first Annual General Meeting who shall hold office from the conclusion of the meeting till the conclusion of  6th  Annual General Meeting and thereafter till the conclusion of every 6th meeting.

Following points are worthy in this regard-
  • At every General Meeting, the matter relating to an appointment for ratification by the member shall be placed.
  • Before appointing him, the written consent of the Auditor and a certificate  that the appointment, if made, shall be in accordance with the condition as may be prescribed, shall obtain from the auditor
  • The certificate shall state whether he satisfies the criteria provided in section 141.
  • The company shall inform the auditor about his appointment and also file a notice of appointment with the registrar within 15 days of the meeting in which the auditor is appointed.

Appointment of a subsequent auditor or reappointment of Auditor in case of a government company:  According to Section 139(5) in the case of a government company or any other company-owned control directly or indirectly by the central government or by State government or governments or partly by the central government and partly by the one or more state government, Appointment of Auditor, who is duly qualified to be appointed as an Auditor of the Companies under this act, shall be made by the Comptroller and Auditor General of India in respect of a financial year within 180 days from the commencement of the financial year. The Auditor so appointed shall hold office till the conclusion of the Annual General Meeting.

Provision relating to Audit Committee

Where a company is required to constitute an Audit Committee under section 177 then the recommendation of such committee shall be taken into consideration for all appointments including filling of a casual filing of an auditor.

In addition to the listed company following classes of a company shall constitute an audit committee:

  • All public company with paid-up share paid-up capital of 10 crores or more;
  • All public company having turnover of 1 crore or more;
  • All public companies having in an aggregate outstanding loan or borrowing or debenture or deposit exceeding 50 rupees or more.

Removal of auditor

Removal of auditor before expiry of the term-  Section 140(1) provides that the auditor appointed under Section 139 may be removed from his office before the expiry of his term only by a special resolution of the company, after obtaining the previous approval of Central Government in that behalf as per rule 7 of CAAR, 2014-

  • The application, in form ADT-2, to the central government for the removal of the auditor shall be made and shall be accompanied with fees such as may be provided for this purpose.
  •  The application shall be made to the central government within 30 days of a resolution passed by the board.
  •  The company shall hold the General Meeting within 60 days of receipt of approval of the central government for passing a special resolution.

 It is important that before taking any action for removal before the expiry of the term the auditor concerned shall be given a reasonable opportunity to be heard.

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