Compliances

Auditor Removal Procedure as per Companies Act 2013

An audit means an examination of the financial reports which include a balance sheet, statement of changes in equity, income statements, cash flow statements, and notes providing a summary regarding significant accounting policies and such other explanatory notes which are required to be presented in the annual report of the Company, by an independent individual or an organization. Here we will discuss the Auditor Removal Procedure as per Companies Act 2013^[1].

Objective of Audit

The main objective of the audit is to provide a true and fair view of the Financial Information presented in Annual report thereby reflecting the financial position of the Organization of the Financial Year.

Who is an Auditor?

An auditor is an independent person who is qualified to conduct an audit. From an accounting point of view, an auditor is an independent person who evaluates the authenticity and reliability of the company’s financial statements. The auditors are required to follow the auditing standards which are set by a governing body.

Eligibility & Qualifications for Appointment as Auditor

Only a person who is a qualified chartered accountant can be appointed as an auditor of a company. In case, a firm is appointed as an auditor, only the partners who are qualified chartered accountants are authorized to act and sign on behalf of the firm.

Disqualifications to Act as an Auditor

A person is disqualified to act as an Auditor under the following circumstances:

• Any person who is an officer or an employee of the company;
• Any person whose relative is a director of the company or who is in a position of key managerial personnel in the company;
• Any person convicted by the court of any offense involving fraud and tenure of ten years has not elapsed from the date of his conviction.

Roles & Responsibilities of Auditor

The following are the roles and responsibilities of an auditor:

• Ensure that all the auditing standards have properly complied.
• To access all records of subsidiaries, if required.
• Ensure that desired information is obtained and have a backup for the same in certified copies.
• Should report qualifications, reservations, or adverse remark after auditing the records, if any.
• Should Report fraud or disqualifications in the company’s records, if any, within 30 days along with the substantial evidence. Failure to report and if it is discovered later by the authorities, the auditor is liable to pay a fine up to Rs. 25 lakh.
• No services like internal audits, bookkeeping, investment or banking services should be provided by a person to the company where he has been appointed as an ‘Auditor of annual financial records’.
• The Act prescribes several such essential responsibilities for auditors and thereby giving enough liability and the role of the auditors to perform as per the rules set by the Act.

Appointment of Auditor

A Company’s first auditor is required to be appointed within 30 days of incorporation in a general meeting or within 90 days at an Emergency General Body Meeting. The first auditor appointed shall hold the office from the conclusion of such meeting in which the auditor appointment has been being confirmed until the conclusion of a fifth annual general meeting.

Written consent from the auditor along with the necessary proof of qualifications under Section 141 of the Companies Act, 2013 are required to be submitted prior to such appointment.

A notice of such appointment is required to be sent to the auditor by the company and Form ADT- 1 is required to be filed with the ROC within 15 days of the meeting in which such appointment is confirmed.

The Auditor for Government companies shall be appointed by CAG.

Auditor Removal Procedure

Section 140 of the Companies Act, 2013 provides for Removal of Auditors. The procedure for removal of Auditor in a Private Limited Company and a Public Limited Company are one and the same.

An Auditor may be removed under the following scenarios:

Removal before the expiry of a term

A special resolution & prior approval of Central Government is required to be obtained for removing an auditor from the office before the expiry of his term.

The application for Central Government approval for removal of auditors is to be made in Form ADT-2, within 30 days of the passing of the Board Resolution.

A general meeting (EGM) is required to be held by the company within 60 days of receipt of Central Government’s approval for the passing of Special Resolution.

The section also provides that, the auditor must be given a reasonable opportunity of being heard at the meeting.

Removal after the expiry of a term

The Company may not reappoint the Retiring Auditor at its AGM if such auditor has served consecutively for a term of 5 years or 10 years, as provided by Section 139 and may appoint another entity to act as its auditor.

In such cases, a Notice is required to be sent for considering the Resolution for an appointment at the AGM for-

• appointment of a person to act as an auditor other than the auditor who is retiring;
• expressly stating that the retiring auditor is not eligible for re-appointment.

The company is also required to send the copy of a notice to the retiring auditor.

The Retiring auditors are eligible for making a Representation.

Where the retiring auditor makes a representation in writing and requested the company to notify the same to its members of the company, the company shall state the fact in the notice given to members that representation has been made by the retiring auditor.

A copy of the representation made will be sent to all those who are entitled to receive the notice of the meeting. In Case, the Company is unable to send the same, then the auditor’s representation may be read out at the meeting.

Where the representation is not sent as mentioned above, a copy of the same shall be filed with the ROC.

Forms involved in the Auditor Removal Procedure

The following forms shall be required to be filled and submitted for auditor removal:

• MGT-14;
• ADT-2;
• RD-1.

Conclusion

An auditor when appointed by a company is appointed for a period o 5 years however sometimes the Board management may remove the auditor. The provisions regarding the auditor removal is provided under Companies Act of 2013.