Appointment of Auditors

The appointment of an auditor provides multi-fold benefits for the company. The auditor plays the role of vigilant caretaker and also keeps the compliance requirement fulfilled. 
Companies that are registered under the Companies Act are required to appoint an auditor for checking the books of account each year.

Powers of Auditor

• Right of access to Books of account & Vouchers [Sec. 143(1)]
• Right to obtain information & explanation [Sec. 143(1)]
• Right to visit branch offices & access to branch account
• Right to receive notice & attend general meeting
• Right to make representation
• Right to report to members
• Right to sign the audit report
• Right of seeking the opinion of an expert
• Right to receive remuneration

Duties of Auditor

• Report to members [Sec.143(2)]
• Examination of accounts
• Reporting on true & fair view
• Duty as to Enquiry [Sec.143(1)]
• Report as to additional matters
• Duty to sign report
• Duty as to give the statutory report
• Duty as to prospectus [Sec.56]
• Duty to assist the investigation

Auditors verify that business processes reflect the documented policies and procedures. Sometimes auditor helps in providing objective insight into an entity. With the recommendations and suggestions, the businessman can improve the efficiency of operations. Scrutiny and analysis of various business assets give chance to auditor to evaluate risks and protect assets.

Section 141 of the Companies Act, 2013 quotes about eligibility, qualification, and disqualification of the auditor. Following are the eligibility criteria for being an auditor:

1.  The person should be a Chartered Accountant and a firm is eligible for being appointed as an Audit firm if the majority of partners are practicing in India.
2. Where a firm including LLP is appointed as an auditor, only a partner who is CA, is authorized to sign the report on behalf of the firm.
3. A body corporate other than LLP can’t be appointed as auditor of the company.
4. An officer or employee of the company can’t be appointed as auditor.
5. Also a person who is a partner or who is in the employment of an officer or employee can’t be appointed as auditor of the company.
6.  A person whose relative or partner is holding security, having debt, or had given a guarantee cannot become an auditor of the company under section 141(3)(d) of Companies Act, 2013. However, the relative may hold security of the company upto face value of Rs.1 lakh.
7. A person or firm having a direct or indirect business relationship with the company can’t be the auditor of the company.
8. A person can’t be the auditor of the company if his relative is a director or is in the employment of the company as a director or KMP.
9. A person who is in full-time employment elsewhere can’t be appointed as auditor of the company.
10. A person holding a position as an auditor in more than 20 companies can’t be appointed as an auditor.

Appointment of Auditor for Different Types of Company

The appointment of the auditor as per the Companies Act, 2013 provision can be categorized as follows:

• The subsequent auditor in case of a company other than a government company is appointed by the members of  the company in the first annual general meeting in pursuance of section 139(1) of Companies Act, 2013. Such auditor shall hold office till the conclusion of 6th annual general meeting. 
• The subsequent auditor in case of a Government company for the respective financial year is  appointed by the C&AG within 180 days of the commencement of the financial year in pursuance of section 139(5). Such auditor shall hold office till the conclusion of next annual general meeting. 
• In accordance with Section 139(6), the first auditor of a company other than a government company is appointed by the Board of Directors within 30 days of registration of the company. If the auditor is not appointed by the board within 30 days of registration, the members of the company should appoint the first auditor within next 90 days in an extraordinary general meeting. Such auditor shall hold office till the conclusion of first annual general meeting.
• As per section 139(7), the first auditor in case of a Government company is appointed by the Comptroller & Auditor General of India (C&AG) within 60 days of registration of the company. If the auditor is not appointed by C&AG within 60 days of registration, the Board of Directors should appoint the first auditors within next 30 days. If the board has not appointed the first auditors, the members of the company should appoint the first auditors within next 60 days in an extraordinary general meeting. Such auditor shall hold office till the conclusion of first annual general meeting.

The company needs to file two important forms with ROC namely:

• MGT-14 along with the proof of resolution of board meeting passed for appointment of auditor (Private companies are exempted from filing MGT-14 with ROC on the exercise of powers of the board under the provision of section 179(3) of Companies Act, 2013).
• Form ADT-1 to be filed with ROC.

Also, ROC should be informed about the details of the auditor/audit firm to be appointed like the name, address, email, PAN, tenure for an appointment, and details of resigning auditor/audit firm.

Only a practicing CA can be an Auditor of a Company and the written consent of the auditor must first be obtained along with a certificate of appointment (if made).
It shall be by the conditions as prescribed by the Auditor and that the Auditor satisfies the criteria provided in Section 141 of the Companies Act, 2013 (Provision relating to audit and auditor).
Once the consent of an Auditor is obtained, then the Board of Directors of the Company can execute a resolution to appoint the Auditor. The appointment of the auditor must be conveyed to the Registrar of Companies in Form ADT-1 within fifteen days of appointment. 

Rotation of auditors

The below companies shall not appoint an individual as an auditor exceeding a term of five consecutive years or a firm as an auditor exceeding two terms of five consecutive years.

• Listed companies
• Unlisted companies having paid up share capital of Rs. 10 crores or more
• Private companies having paid up share capital of Rs. 50 crores or more
• Every company having borrowings from financial institutions, banks or having public deposits of Rs. 50 crores or more.

Casual vacancy of auditor
The casual vacancy in case of a government company is filled by the Comptroller and Auditor General of India within 30 days of such vacancy.
In case of a company other than a government company, the casual vacancy is filled by the board of directors within 30 days of such vacancy and it should be approved by the members of the company in the annual general meeting or extraordinary meeting within three months from the date of recommendation of the board.