Internal Audit

Auditor Appointment for Newly Incorporated Private Limited Company

Auditing is essential to any business and crucial for newly incorporated companies. Private Limited companies are incorporated under the Companies Act 2013, which mandates every company to appoint an auditor within 30 days of incorporation. The object of an audit is to ensure that the company’s financial statements are accurate, reliable, and free from material misstatements. In this article, we will discuss the appointment of an auditor for a newly incorporated Private Limited Company.

Appointment of an auditor

Under section 139 (1) of the Companies Act 2013^[1], only a Chartered Accountant or a firm of Chartered Accountants can be appointed as an auditor of a company. The auditor should be independent and unbiased and not have any conflict of interest with the company. The members should approve the appointment of an auditor in a general meeting.

Procedure for Appointment of an Auditor

The procedure for the appointment of an auditor for a newly incorporated Private Limited Company is as follows:

• Hold the first board meeting:
  The first board meeting of a newly incorporated private limited company must be held within 30 days of incorporation. During this meeting, the Board must discuss and decide on the appointment of the first auditor. The Board must also fix the remuneration to be paid to the auditor.
• Intimation to the auditor:
  After the Board has decided on the auditor’s appointment, the company must send a written intimation to the auditor within seven days of the board meeting. The intimation must contain the auditor’s name, address, and the terms and conditions of his appointment.
• Obtaining the auditor’s consent:
  After receiving the intimation, the auditor must give his written consent to the company within 30 days. If the auditor fails to consent, the company must appoint another auditor.
• File Form ADT-1:
  The company must file Form ADT-1 with the Registrar of Companies (ROC) within 15 days of the auditor’s appointment. Form ADT-1 must contain the following details:
  • The name and address of the company;
  • he auditor’s name and address
  • The period for which the auditor is appointed
  • The auditor’s consent letter
  • The auditor’s certificate of eligibility
  • The board resolution appointing the auditor
  • The remuneration to be paid to the auditor
• Hold the first AGM:
  The first AGM of a newly incorporated private limited company must be held within nine months of the end of the financial year. During the AGM, the shareholders must ratify the auditor’s appointment.

Rights and duties of an auditor

After the appointment of an auditor to provide independent opinions on their financial statements, ensuring they are accurate and free from material misstatements. In private limited companies, the auditor’s role is significant as they are critical in maintaining transparency and accountability.

Rights of the Auditor:

• Right to access information:
  Auditors can access all the information and documents required to conduct their audit, including financial statements, accounting books, and other relevant documents.
• Right to access premises:
  Auditors have the right to access the company’s premises at any time during the audit process to inspect and verify the accuracy of the financial statements.
• Right to obtain explanations:
  Auditors can obtain explanations from the company’s management or directors concerning any matter they deem relevant to the audit.
• Right to report:
  Auditors have the right to report their findings and conclusions on the financial statements to the company’s management or Board of directors.

Duties of the Auditor:

• Conduct an audit:
  The auditor’s primary duty is to conduct a thorough and independent audit of the company’s financial statements to ensure they are accurate and free from material misstatements.
• Maintain professional scepticism:
  Auditors must maintain high professional scepticism during the audit process and not rely solely on the information provided by the company’s management or directors.
• Follow auditing standards:
  Auditors must follow the auditing standards set by the Institute of Chartered Accountants of India (ICAI) while conducting the audit.
• Report to the shareholders:
  Auditors must report their findings and conclusions on the financial statements to the shareholders in the company’s annual general meeting (AGM).
• Provide a management letter:
  Auditors must provide a management letter to the company’s management or Board of directors highlighting any issues or weaknesses identified during the audit and recommending appropriate remedial action.
• Maintain confidentiality:
  Auditors must maintain the confidentiality of the company’s financial information and not disclose it to anyone unless authorised by law.

Conclusion

In conclusion, auditors play a crucial role in private limited companies by ensuring that the financial statements are accurate and free from material misstatements. They have certain rights, such as access to information and premises, obtaining explanations and reporting their findings. They also have specific duties, including conducting an audit, maintaining professional scepticism, following auditing standards, reporting to shareholders, providing a management letter, and maintaining confidentiality. By fulfilling these rights and duties, auditors can help maintain transparency and accountability in private limited companies. The appointment of an auditor is a vital process for a newly incorporated private limited company. The company must appoint a chartered accountant in practice as its first auditor within 30 days of its incorporation. The procedure for auditor appointment includes holding the first board meeting, intimating the auditor, obtaining the auditor’s consent, filing Form ADT-1, and holding the first AGM. Following these procedures, a newly incorporated private limited company can appoint an auditor and ensure compliance with the Companies Act 2013.

Also Read: Private Limited Company Incorporation in India