Appointment, Removal & Role of an Auditor of a Private Limited Company

06 Sep, 2022

The role of an auditor can be defined as “a person who is trained to review and to verify that the accounting data provided by the company to the auditor accurately corresponds to the activity that has been undertaken by the company.”

The ultimate motive of the auditor is to give a report at the conclusion of the audit; the report should determine the level of accuracy and should give clarity that the organization has accounted for.

Appointment of Auditor:

In case of appointment of First Auditor of the company other than a Government Company, the role auditor shall be appointed by the Board of Directors within 30 days of the Date of Incorporation of a Company. The appointed auditor shall hold the office until the conclusion of the first Annual General Meeting.
If the Board fails to appoint the first auditor, they shall inform the same to the members of the company who shall appoint the auditors within 90 days at an Extra-Ordinary General Meeting.

Note: If the Board of Directors appoints the first auditor of the company then there is no requirement to give any notice or intimation to the Registrar of Companies regarding the appointment of the auditor.

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The concept regarding the appointment of auditor:

1.	The section which details the appointment of First Auditor.	Section 139(1)
2.	A person who is liable to appoint the first auditor. Who will Appoint First Auditor	Board of Directors by passing a Board Resolution and in case of failure to appoint by Board Members of the Company?
3.	Time Limit for Appointment of First Auditor	Within 30 days of Incorporation of Company
4.	Who will Appoint the First Auditor if Board of Director Fails to Appoint First Auditor	Members of Company by Passing of Ordinary Resolution in Extra-Ordinary General Meeting
5.	Tenure of holding office by the First Auditor of the Company?	First Auditor shall hold the office until the conclusion of the First Annual General Meeting.
6.	In case of an appointment of an auditor by the Board of Directors can they be removed before holding the first annual general meeting?	Yes, but they shall be removed by the Board of Directors of the company.
7.	Whether First Auditor can be removed before First Annual General Meeting, If that auditor is appointed in General Meeting.	Yes, members of the company may remove him by passing a special resolution and after obtaining the approval from Central Government.
8.	Whether the First Auditor of the company can be appointed through AOA & MOA.	The first auditor appointed in accordance with the MOA & AOA of the company will not be considered as valid.

What is the process of the removal of an auditor?

Section 140 of the Companies Act, 2013^[1] defines the procedure regarding removing the auditor of the company. As per the act, the auditor can be removed before the completion of his tenure.

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If the company which has appointed the auditor is not satisfied with the service of the auditor then the appointing company can initiate the procedure for his removal as stated in section 140.

Any auditor who has been appointed as per section 139 can be removed before his tenure only after passing a special resolution and that special resolution shall be passed only after obtaining the previous approval from the Central Government.

An application for the removal of the auditor shall be filed in form ADT-2 along with the prescribed fees. This application shall be made 30 days of the passing of the resolution by the Board of Directors.

As per point No.3 of ADT-2 following information required to mention while filling the form:

Service request number of Form MGT-14
Date of filing the form

iii. Date of passing the special resolution

ADT-2 is required to be filed for obtaining the approval of the Central Government, and these forms can be filed after mentioning the date of the EGM, SRN of the MGT and the copy of the minutes of the General Meeting.

What is the role of an Auditor?

Internal Control.
Financial Review.
Regulatory Monitoring.
Objective role in ensuring that the shareholders’ interests are well protected.
To prepare and present the financial statements in accordance with applicable financial reporting framework including its design, implementation, and maintenance of the internal control which are relevant to the preparation and presentation of financial statements that are free from material misstatements, whether from the error or fraud.

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