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The new regime of Companies Act 2013 has changed the requirement for appointment of the auditor in Companies. There has been a paradigm shift in the provisions relating to the appointment of Statutory Auditor. This article broadly covers the provisional requirement for appointment of the auditor under Companies Act, 2013.
In simple words, an individual who is trained to review and verify accounting data and is recognized as CA under the Chartered Accountant Act of 1949 is deemed to be an auditor.
The responsibility of evaluating the validity and reliability of financial statements is up to the auditors.
It involves intelligent scrutiny of the books of account of a Company with reference to documents, vouchers and other relevant records to ensure that the entries made therein give a clean and clear picture of the business. Hence, the need to appoint Statutory Auditor arises.
Every company shall at the first annual general meeting appoint an auditor either an individual or a firm; this is a mandatory requirement as prescribed under the Act.
It is a mandatory condition that before such an appointment is made, the written consent of the auditor to such appointment, and a certificate from him stating that the appointment, if made, shall be in accordance with the conditions as may be prescribed, shall be obtained from the auditor.
Appointment of the First Auditor of the Company
Every Company shall appoint the first auditor within 30 days from the date of registration in a board meeting.
The first auditor (audit firm) such appointed shall hold office from the conclusion of the meeting in which he is appointed up to the conclusion of the sixth annual general meeting (for a period of five years).
Before the appointment of the auditor is made, the written consent of the auditor to such appointment, and a certificate from him that if the appointment, if made, it shall be obtained from the respective auditor and it shall also include that the auditor has satisfied the criteria provided in the Companies Act 2013.
Auditor’s appointment shall be communicated in writing.
Remuneration paid to the auditor shall be fixed by the shareholders in general meeting or it can be delegated to the Board. All out of pocket expenses incurred on behalf of the Company shall be paid in addition the remuneration paid to him.
No need to file any resolution for the appointment of First Auditor.
For Government Company-Appointment by CAG
In the case of Government Company, the first auditor shall be appointed by the Comptroller and Auditor General and it will be made within 60 days from the date of incorporation. Further, such appointment shall be noted in the Board meeting held immediately after such appointment. Such an appointment made by CAG is required to be intimated to the auditor by the Company.
The Board shall fix the remuneration in case of the first auditor.
Such first auditor’s appointment shall be made by passing board resolution in Board Meeting or by Circular resolution.
No requirement to do any filing with the Register of Companies in the case of the First auditor.
In the case of Failure of Appointment by CAG
In Government Company, if any Auditor is not appointed by Comptroller and Auditor General of India within 60 days then Board of Directors of the Company shall appoint auditor within next 30 days.
In the case of Failure of Appointment by CAG and Board Both
If Board fails to make such appointment within next 30 days, the Board will inform the members of the Company and they shall make an appointment with 60 days at the extraordinary meeting, such auditor appointed shall hold office till the conclusion of the first annual general meeting.
As stated earlier, the responsibility to inform members about a failure to appoint the first auditor starts immediately on expiry of the 90 days whereas duty of the members of the Company to appoint the first auditor starts immediately on receipt of the information of non-appointment by the Board. Once such information is received by the members they shall within 60 days from the receipt appoint the auditor and such auditor appointed shall hold office till the conclusion of the first annual general meeting.
First Auditor appointed at the extraordinary general meeting shall hold office till the conclusion of the first annual general meeting.
‘Casual Vacancy’ has not been defined in the Companies Act. In simple terms, it means vacation caused in the office of an auditor by his-
Auditor appointed in the casual vacancy shall hold office till the conclusion of the forthcoming annual general meeting.
The new Companies Act has expressly given powers to the shareholders to fix remuneration except in the case of 1st auditor. Since the law being silent and going with the purposeful interpretation of law the remuneration can be decided by the Board as the appointing authority is the Board itself moreover section 224(8) of Companies Act, 1956 also enumerated the same principle. However, this shall not be the case where a casual vacancy has arisen due to resignation.
Filing of Casual Vacancy by Board of Director
The Board of directors shall fill a casual vacancy in the office of an auditor if such a casual vacancy is due to the reason other than resignation. Such vacancy shall be filled within 30 days.
Before such an appointment is made, written consent shall be given and a certificate shall be obtained from the auditor. If the Company is required to constitute an audit committee then the committee shall give auditor’s recommendation to the Board.
Such auditor appointed shall hold office until the conclusion of the next annual general meeting.
Remuneration of the auditor shall be fixed by the Board.
Such an appointment is required to be filed with 15 days from the date of such appointment.
Casual Vacancy to be Filed by Members
Where casual vacancy is caused by the resignation of an auditor, such vacancy is required to be filled within 3 months by the recommendation of the Board.
Such vacancy shall be filled only by the recommendation of the Board within 30 days of casual vacancy and shareholders shall appoint within 3 months from the date of such recommendation by the Board of Directors.
An auditor is intended to protect the interests of the shareholders. It helps in keeping the company in a safe financial condition. Therefore the appointment of the auditor under the Companies Act is an essential process. In case you have any query related to the same or Company Registration in general, contact Enterslice.
Read our article:
Non-receipt of Subscription Money under Companies Act, 2013
Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.
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