The Companies Act, 2013 lays down a precise framework for appointing auditors. Adhering to Section 139 and related rules is vital for smooth and compliant auditor appointments.
Key Aspects of Auditor Appointment Process:
- Initial Appointment:
- Every company must appoint an auditor during its 1st Annual General Meeting (AGM).
- The auditor serves from this AGM’s end to the conclusion of the 6th AGM.
- Subsequently, the auditor continues till the end of every 6th AGM.
- The auditor’s consent and certification are prerequisites before the appointment.
- Auditor’s Certificate Should Confirm:
- No disqualification under the Companies Act, 2013, or Chartered Accountants Act, 1949.
- Adherence to terms stipulated in the Act.
- Within limits specified by the Act.
- Disclose pending proceedings against the auditor/audit firm.
- Registrar Notification:
- Notify the registrar using Form ADT-1 within 15 days of the appointment.
- Restrictions on Reappointment:
– Certain companies can’t reappoint auditors:
- Listed/Unlisted Public Companies with PSC over Rs. 10 Crore/Rs. 50 Crore.
- Companies with public borrowings or deposits over Rs. 50 crore.
– Individual auditor: No more than 1 term of 5 years.
– Audit firm: No more than 2 terms of 5 years.
– After completing the term, a 5-year gap is necessary for reappointment.
- Avoiding Common Partners:
- An audit firm with common partners to a firm whose term ended the previous year can’t be appointed for 5 years.
- Multiple Auditors Required:
- Audits should involve more than 1 auditor.
- Government Companies & C&AG’s Role:
- For Government Companies, C&AG appoints the auditor within 180 days of the fiscal year start.
- If C&AG fails, BOD appoints within the next 30 days.
- The retiring auditor can be reappointed under certain conditions.
- Casual Vacancy Filling:
- BOD/Government fills casual vacancies within 30 days.
- In case of an auditor resignation, company approval is needed within 3 months.
- In case of failure, C&AG/BOD to fill the vacancy within the next 30 days.
- Selecting and Appointing Auditors:
- Companies with Audit Committee: Committee assesses qualifications and recommends the auditor to Board.
- Audit Committee not needed: Board recommends an auditor to members during AGM.
- Board agrees with Committee: Recommends auditor to members in AGM.
- Board disagrees with Committee: Sends back for reconsideration with reasons.
- Board and Committee disagreements: Board sends its own recommendation to members.
- Auditor Term and LLP Inclusion:
- The auditor chosen in AGM serves until the 6th AGM, with the appointment AGM counted as first.
- “Firm” includes limited liability partnerships under LLP Act, 2008.
Conclusion:
- The Companies Act, 2013 ensures transparent and accountable auditor appointments.
- Following Section 139 and its rules leads to well-qualified auditors.
- A solid grasp of the Act’s guidelines is essential for a seamless process.
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