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FAQs on appointment / rotation / removal of Auditor under Companies Act, 2013 (Other than Government Company)

November 9, 2016     by bsamrishindia.com

FAQs

 

First Auditors:

I have just incorporated a Company. When do I appoint the first Auditor of the Company and how?

  • First auditor shall be appointed by the Board within a period of 30 days from the date of registration of Company. E-form ADT-1 is required to be filed within 15 days from the date of appointment.
  • Following documents are to be attached alongwith ADT-1:
    • Written consent from Auditor
    • Certificate from the Auditor that he is not disqualified to be appointed
    • Copy of the Board Resolution

 

What if the Board is not able to appoint the first Auditor within 30 days of incorporation?

  • If the Board fails to appoint, then it shall inform the members about the same. The members shall within a period of 90 days, at an extraordinary general meeting, appoint an auditor.

 

What would be tenure of first auditor?

  • First auditor, appointed as above, shall hold the office till the conclusion of first Annual General Meeting

 

 

Term of appointment of Auditor

The Auditors under the Companies Act, 1956 (Old Act) were appointed every year at the Annual General Meeting (AGM). They were appointed till the next conclusion of next AGM, and were reappointed, subject to their availability and certain conditions. What is the term of appointment of Auditor under Companies Act, 2013?

  • The Auditor shall hold the office from the conclusion of first Annual General Meeting till the conclusion of sixth Annual General Meeting subject to ratification of appointment by the members at every subsequent AGM.
  • Ratification of appointment of the Auditor is to be done by the members of the Company at every AGM.

 

What, if company fails to ratify?

  • If a company forgets to ratify the appointment of auditor in the subsequent AGM then there is no penal provision in the relevant section of the Act. The best part for this omission is that there is no requirement to file any e-form for ratification. But one should, nonetheless, take care of the same.

 

Whether e-form ADT-1 is required to be filed for ratification of the appointment of auditor?

  • There is no need to file ADT-1 at the time of ratification.

Note: As per Companies Amendment Bill, 2016, the concept of ratification has been withdrawn. If it is approved, there will be no need to ratify the appointment of auditor at every AGM by the members.

 

 

Casual Vacancy

The Statutory Auditors of our company have resigned. What is the procedure to appoint a new Auditor?

  • Casual vacancy to be filled by the Board within a period of 30 days.
  • If casual vacancy arises due to resignation of auditor then it shall be approved by the members within a period of 3 months from the date of appointment.
  • There is no need of members’ approval if casual vacancy arises due to reasons other than resignation. The reason may be death, etc but does not include removal.
  • The Auditor who has resigned, is required to file e-form ADT-3 within a period of 30 days from the date of resignation.
  • E-form ADT-1, towards appointment, is required to be filed within 15 days from the date of appointment, i.e. Board meeting held to fill casual vacancy. SRN of the e-form ADT-3 filed by the previous Auditor is to be mentioned in ADT-1 (appointment form of new Auditor). So, ADT-3 Shall be filed before ADT-1.

 

What would be tenure of auditor appointed in casual vacancy?

  • Auditor appointed in casual vacancy shall hold the office till the conclusion of next Annual General Meeting.

 

Whether the form filing is required at every type of appointment of auditor?

  • Yes, at every type of appointment i.e first auditor, casual vacancy or appointment at AGM,the Company shall file ADT-1 for such appointment.

 

 

Rotation of Auditor

Is the concept of rotation of auditor applicable to every company?

No, the provisions pertaining to Rotation of Auditors are applicable to the following companies only:-

  • Every listed Company;
  • All unlisted public Companies having paid up share capital of rupees 10 crore or more;
  • Every private company having paid up share capital of rupees 20 crore of more;
  • All companies having public borrowings from bank, financial institutions or public deposit of rupees 50 crore or more.

 

What is the term for which an Auditor can be appointed in the company?

As per Section 139(2) of the Companies Act, 2013, the aforesaid categories of Companies have to mandatorily rotate their Auditors as follows:

  • An individual can be appointed as auditor for a term of five consecutive years;
  • An audit firm can be appointed as auditor for two terms of five consecutive years

After completion of aforesaid term auditor cannot be re-appointed as auditor of the same company for a period of five years.

 

 

Removal of Auditor

We have appointed the Auditor of the company for a term of 5 years. However, some differences have crept in and we want to remove the existing auditor?He is not resigning, nor giving audit report, what to do?

  • The only mechanism for removal of a Statutory Auditor appointed under the Act before expiry of the term, requires the prior approval of the Central Government (at present, the powers have been delegated to the jurisdictional Regional Director).
  • Special resolution of the company passed by the members is also required.
  • Auditor should be given suitable opportunity to make representation
  • MGT-14 to be filed w.r.t Special Resolution
  • File application in form ADT-2 alongwith the grounds of removal and other details, for Central Government approval.
  • INC-28 is to be filed within 30 days alongwith the copy of Central Govt. approval.

 

 

 

58 thoughts on “FAQs on appointment / rotation / removal of Auditor under Companies Act, 2013 (Other than Government Company)

  1. Good morning ,

    I am a CA signing few company audit reports. Current year clients have not approached me for signing . I have not filed ADT 3. How am I to know if company has changed auditor. in MCA site , getting copies of financials is there but we can get it only after it is uploaded next month.Other e filing documents shows nil in MCA site.

  2. co. has failed to comply the procedure for appointment of new auditor and resignation of the existing one pls suggest the penal provision for non compliance of the same

    1. Kindly refer to Sec 147(1) of the Companies Act 2013, for the punishment of contravention made by the Company.
      As per the concerned Section: “If any of the provisions of sections 139 to 146 (both inclusive) is contravened, the company shall be punishable with fine which shall not be less than Rs. 25,000 but which may extend to Rs. 5,00,000 and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than Rs. 10,000 but which may extend to Rs. 1,00,000, or with both.”

  3. Can we appoint auditor in private Company only for One year and do their re-appointment every year under Companies Act, 2013? as many private Companies still don’t want to appoint auditor for five years and re-appoint every year.. is this method of appointment correct? If, doing this practice of every year re-appointment can re-appoint same auditor for the terms of five years? and mid year provision of section 139(2) is applicable to the company than what term should we count for the appointment of auditors?

  4. as per the provision of rotation of auditor if individual auditor becomes partner in firm and is the new firm eligible for appointment as an auditor in company in which individual was earlier auditor wjose tenure of 5 year was completed?

    1. As per Section 139 (2) of the Companies Act, 2013, an individual auditor can hold office up to 5 years and a firm two terms of five consecutive years. You may like to see the appointment of firm to be considered as new appointment. But the question arises, will it tantamount to circumventing the legal restriction. Will one ask the very same question after 10 years when he gets appointed in another firm seeking appointment of that firm as the Auditor?

  5. our auditor has surrendered his COP. but due to some technical reasons his ADT-3 was not filed. now his membership number has been removed from ROC. how can ADT-3 be filed now. or what is other option.

  6. Hi Sir,
    This is eusuf a practicing CA , one of my clients is private company which had a loan of > 50 Cr as on 01.04.2014 . We have been auditors to it for the past 15 Yrs . So as on 01.04.2014 we are liable to retire by rotation . we had a cooling period of 3 years and we are liable to retire from 01.04.2017 . But as on 31.03.2017 my clients borrowings were < 50 Cr . So are we still need to retire by rotation ???

    1. The applicability of Rotation in case of Private companies is when it having a borrowing of 50 crore or more.
      So, it can be understood that when at the time of appointment the borrowing is below 50 crore, the provisions of Rotation shall not apply.

  7. our CA has resigned after our confirmation, he also has filled form ADT 3 in a time limit. We also appointed another CA. But yet not filled form ADT 1 . Now we again want to appoint our original CA. Is it possible. If yes. What is the procedure ? Can you guide ?

    1. Presuming the fact that the CA is not disqualified to act as a CA of your Company, you are required to accept the resignation of the current CA and appoint your previous CA. The process will flow similarly as in any other case.

  8. Company appointed Statutory Auditor (proprietor firm) for five years in its AGM. In first year, firm merged in a partnership firm. Board filled the casual vacancy by appointing newly partnership firm upto the AGM. In AGM newly partnership firm appointed for five years. Whether the said firm is eligible to appoint next second term ? If proprietor firm dissolve and merged with partnership firm after 3 years then newly partnership firm can appointed for two terms or not ?

    1. As per Section 139 (2) of the Companies Act, 2013, an individual auditor can hold office upto 5 years and a firm two terms of five consecutive years.

      It further provides that as on the date of appointment no audit firm having a common partner or partners to the other audit firm, whose tenure has expired in a company immediately preceding the financial year, shall be appointed as auditor of the same company for a period of five years.

      In your case, an individual auditor was appointed for 5 years, who merged with an auditors firm. His appointment shall be valid till 5 year from the date of his original appointment. And can’t be reappointed for another 5 years even though it has been reconstituted as a firm. The term of 5 years as applicable to individual auditor shall apply.

  9. shall i assume that sections 139(9) and 139(10) apply to companies which do not fulfill the criteria mentioned in section 139(2) ??

    1. Section 139(9) is an independent section and has to be complied with whenever an auditor is being re-appointed. Whereas, sec 139(10) is applicable only in cases where sec 139(2) is not applicable.

  10. There is abc firm, ca firm. This firm gets demerged into ABC and RPT. NOW FEW COMPANIES IN WHICH ABC WAS AUDITOR, THAT COMPANY WANTS RPT TO BE ITS AUDITOR BECAUSE OF ITS PARTNER AUDITOR.
    SO CAN THE COMPANY APPOINT RPT AS NEW AUDITOR BY GETTING ABC RESIGNED ???
    ALSO WILL ANY DISQUALIFICATION DUE TO COMMON PARTNER OR OLD PARTNER WOULD NOT CONTRACT.

    IMP: THERE ARE NO COMMON PARTNER NOW IN THE NEW DEMERGED FIRM.

    1. Yes, the company can appoint RPT as new auditor if ABC is ready to resign provided sec 139(2) is not applicable on such companies.In case it is applicable, none of the demerged firms can be appointed as auditor.

  11. 1.What happens when no AGM is held, whether auditor will continue?, But as per act appointment is not ratified.
    2. Act say if no auditor at agm is appointment or reappointed the existing auditor will continue, this provisions means what?

    1. 1. As per the recent NCLT decision in the case of SPC & Associates, Chartered Accountants vs. DVAK & Co. and the provisions of Companies (Amendment) Act, 2017 (yet to be notified), ratification of auditor is not relevant. In the light of recent amendments, the existing auditor will continue irrespective of ratification by the shareholders in the AGM.

      2. As per sec 139(10), the existing auditor will continue subject to non-applicability of rotation of auditors on the said company.

  12. I was the auditor in company,merged my ca firm in another.
    Now,I had resigned as partner from said CA firm resulting in withdrawal from said companies.
    Now, the existing CA firm which was appointed as stat auditors are not resigning from the post however,my client want to do same. How can Adt-3 be filed in such circumstances.
    How can I reappoint myself as my firm now.

    1. I can not resign as I am not the partner in such firm.
      I can not resign from back date either as I am not the partner in said firm and also to avoid additional fees from such date and penal provisions.
      ##REGARDING PENAL PROVISONS CAN U PLEASE ELABORATE WETHER TO FILE ADT-3 IS RESPONSIBILITY OF AUDITOR WHO SIGNED THE FINANCIALS OR APPOINTED FIRM## AS Mentioned earlier that the said firm is not ready to resign due to disputes.

      1. The auditor who has been appointed can only sign the financial statements of the Company. As per provisions of section 140 (2), it is his duty to file ADT-3 on his resignation and in case of any failure to file such form on part of auditor, he shall be made liable under section 140 sub section (3) of the Act.

    2. As per the provision of section 140 read with sub section 2, It shall be the duty of the resigning auditor to file ADT-3 within 30 days from the date of his resignation.
      Lastly, the company can also opt for removal of the Auditor before his tenure in accordance with the provisions of Section 140 of the Act, by obtaining approval from the tribunal and thereafter from shareholder.

  13. As per sec 139 (9) an auditor can be reappointed after expiry of his term but we know as per sec 139 (2) an auditor Can’t be reappointed after expiry of 5 years so my question is aren’t the 2 sub sections contradictory?

    1. Please note that pursuant to Section 139(1) of the Act, the Statutory Auditor of the Company can be appointed for the term of 5 years and can be reappointed for next term of 5 years except by the companies which are required to rotate auditors in compliance of Section 139(2). Section 139(9) lays down the additional conditions which are also required to be fulfilled by retiring auditor for his reappointment in addition 139 (2) of the Act. Therefore, both sub-sections are complementing each other rather than contradicting.

  14. My firm was the sole proprietorship firm. It was appointed as the auditor of the pvt ltd. Now my firm was merged with the another CA Firm. Please guide me if any compliance has to be done(but i am only the auditor) and firm PAN number is changed(as it is now partnership firm).

    1. As per the Companies Act, 2013, there is no compliance required to be done. But as a precautionary measure, you may attach a clarification letter while filing AOC-4 mentioning the details of merger with another firm and the changes that are applicable due to the said merger.

  15. In case of casual vacancy if auditor is appointed in egm till the conclusion of agm and adt 1 is filed.then their is need to file adt 1 in agm if same auditor is appointed?

  16. If we appoint auditor for 5 years in agm but in form adt 1 tenure of appointment is wrote only for 1 year.
    Then form adt 1 valid for 1 year or for 5 year.
    Is need to file adt 1 next year for 4 years.
    Pls reply its urgent

    1. As per companies act, 2013, an auditor is to be appointed for a period of 5 years. In the given case the appointment shall be valid for the period mentioned in the form, so in order to rectify it you can file ADT-1 again and attach a declaration stating the rectification that is to be made and other necessary attachments.

  17. can an auditor be appointed for a term of less than 5 years under CA 2013. ?? and if back date compliances are made, can an auditor be appointed for a period of 5 years under CA 1956??

    1. No there is no provision related to the appointment of an auditor for less than 5 years under Companies Act of 2013, it is only permissible if the specified section is in transitional phase.
      As per section 224 of Companies Act,1956 auditors were appointed at every annual general meeting till the conclusion of next annual general meeting, hence the back dated compliances cannot be done .

    1. The provisions governing the term of Auditor under section 139 (2) clearly states that term shall means “five consecutive years”, However in case of any casual vacancy Board of Directors can appoint another auditor who shall hold the office till the conclusion of the next annual general meeting. As per our understanding, appointment of Auditor in case of casual vacancy shall not be considered as one term for the provisions of Section 139 sub section 2 of the Act.

  18. Sir i have query regarding term of auditor. My company has appointed auditor on agm dtd 30 Sep 2014 mentioning appointment for FY 2014-15 i.e. for one year. Do the company needs resignation letter of the auditor for FY 2015-16 or his term will automatically be terminated.?? Please guide.

    1. In this case, casual vacancy is due to reason other than resignation of Auditor. In this case, BoD has the power to appoint auditor to fill the vacancy within a period of 30 days. Appointment can be made by passing B/R in the board meeting or through circular resolution. Form ADT-1 needs to be filed within 15 days of appointment.
      It is recommended that the adjustment be approed by board resolution

  19. casual vacancy arises due to resignation of auditor on 03/09/2017,
    my question is casual vacancy can be filled in annual genral meeting held on 30 september 2017

    1. As per Section 139(8), any casual vacancy in the office of an auditor due to resignation shall be filled by the Board of Directors within 30 days and such appointment shall also be approved by the company at a general meeting convened within 3 months of such appointment. Therefore in this case, it is suggested that the new auditor be appointed by the Board.

  20. Can we appoint auditor in private Company only for One year and do their re-appointment every year under Companies Act, 2013? as many private Companies still don’t want to appoint auditor for five years and re-appoint every year.. is this method of appointment correct?

    1. As per Section 139 (1) of the Companies Act, 2013, an auditor shall hold office from the conclusion of the meeting in which he is appointed till the conclusion of sixth annual general meeting and thereafter shall be appointed till the conclusion of every sixth meeting. Therefore, the auditor’s term shall be of 5 years.

  21. The tenure of 5 years of statutory auditor has been expired on 29.09.2017 , and company has not appointed auditor at next AGM held on 29.09.2017. So can we appoint Auditor in the next EGM to be held on 22.12.2017?

  22. My co. doesn’t fall in Sec-139(2) of CA, 2013. I want to re-appoint my auditor for a period of only 2 years. so Can A Statutory Auditor be appointed for a period of less than 5 years as stated in Sec-139(1)?because the section read as, “who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting and thereafter till the conclusion of every sixth meeting”

    1. As per Section 139 (1) Subject to the provisions of this Chapter, every company shall, at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of its sixth annual general meeting and thereafter till the conclusion of every sixth meeting and the manner and procedure of selection of auditors by the members of the company at such meeting shall be such as may be prescribed:

      After careful reading it can be deduced that a Company shall appoint auditors for term of 5 years. Such an appointment can’t be made for a period lesser than five years.

      A Company not covered section 139(2) is not required to comply with provisions relating rotation of auditor. However, it mustn’t be construed so as to mean that these companies can appoint Auditors for term of lesser than five/ten years as the case may be.

  23. Sub : – Appointment of Statutory Auditor

    Company A ( not fall under the preview of Section 139(2) not under prescribed class of company) appoint / re-appoint same Audit firm as stat auditor in AGM of 2014-15,2015-16 & 2016-17 for term of 1 year & file ADT-1 in this respect, what should we do in this case

    1. In case your company does not fall under the prescribed class of company in Companies (Audit and Auditor) Second amendment rules, 2017, then you have the relaxation from the provision of rotation of the Statutory Auditor. However, ADT- 1 is required to be filed for the term of every 5 Year.

      1. If listed company has appointed a stat auditor and before the completion of his term of 5 yes, auditor resigned before 4th AGM so it becomes a case of casual vacancy. Now my question is whether company can appoint the same auditor in 4th or subsequent AGM

        1. In this case, casual vacancy is due to resignation of Auditor. As per Sec 139 (8) of companies act, 2013, appointment shall be approved by the company at a general meeting convened within three months of the recommendation of the Board. The compny can appoint the same person as auditor if he fulfilles the prescribed criteria. The auditor so appointed shall hold the office till the conclusion of the next annual general meeting

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