FAQs on appointment / rotation / removal of Auditor under Companies Act, 2013 (Other than Government Company)
November 9, 2016 by bsamrishindia.com
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Note: As per Companies Amendment Bill, 2016, the concept of ratification has been withdrawn.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.
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.