Auditor Appointment
Appointment of an auditor is mandatory for companies in India. It means choosing an experienced specialist or company to review the enterprise’s financial documents. This process is done under the Companies Act 2013, which provides certain procedures that have to be followed strictly.
In India, the appointment of auditors is governed by section 139 of the Companies Act, 2013. It provides that at the first annual general meeting of every company, the company has to select an auditor or a firm. This appointment is usually for a term expiring at the sixth annual general meeting of the companyâs shareholders.
However, there are extra regulations for big organizations and businesses. Section 139(2) of the Companies Act calls for a rotation of auditors in certain companies. This implies that they cannot reappoint the same auditor for more than two terms of five years each.
Filling a post or any other vacancies that may exist in an organisation is not a mere ritual. It is an important step in evaluating a company’s financial health and reporting. When choosing an auditor, one should consider their ability to find possible problematic situations, adherence to legal requirements, and the possibility of getting a detailed explanation of the organizationâs financial activities.
At Compregi, we know that this is a critical process that organizations must undertake and follow. Our team can help you in the auditor appointment process to legally select the right one for your business.
Documents Required for a Sector 8 Company Registration
ID Proof
PAN number of the auditor.
CA Membership Number
The unique membership number in the name of the auditor.
Eligibility Certificate
Stating the eligibility of the auditor for the post.
Board Resolution Copy
Passed during the AGM
Auditor Appointment Cost
We at Compregi believe in complete transparency in the complete registration process of your company. Below mentioned cost structure includes all the necessary government fees required at multiple stages of registration.
ADD/REMOVAL OF DIRECTOR
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1499/-
- Free Consultancy
- Free Search Check
- Preview before Filing
AUDITOR APPOINTMENT
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1499/-
- Free Consultancy
- Free Search Check
- Preview before Filing
- 100% Peace of Mind
REGISTER OFFICE CHANGE/UPDATE
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1499/-
- Free Consultancy
- Free Search Check
- Preview before Filing
Why is an Auditor Appointment Required, and for Whom?
The appointment of an auditor is mandatory by law for all the companies operating in India. But why is this so important? Let’s break it down.
First, it is necessary to note that the main function of auditors is in the provision of financial transparency. They review a companyâs financial documents and reports to check for correctness and compliance with the set accounting rules. This assists in developing trust with the shareholders, investors, and other stakeholders in the business.
Secondly, auditors check for any financial irregularities in the organization. They are useful in carrying out effective checks that may assist in identifying fraudulent activities or mistakes in the reporting of financial statements. They also help the company minimize any potential losses that may be incurred to shareholders or other stakeholders.
Thirdly, auditors give the companyâs management and investors useful information about the state of affaires of the company. It is something that their reports can be valuable because they can show where organisations need to improve so that they make better financial decisions.
However, who is the one who is required to appoint an auditor? The answer is simple: practically every firm in India. This includes:
- Private Limited Companies
- Public Limited Companies
- One-Person Companies
- Limited liability partnerships (LLPs)
- NPOs under Section 8 of the Companies Act
What are the Documents Required for an Auditor Appointment
While making the appointment, companies are required to produce and tender several papers. Here’s a list of the key documents required:
Form MGT-14
In addition to this form, the proof of the board resolution should also be submitted to the Registrar of Companies (ROC).
Form ADT-1
This form is about the notification of the ROC about the appointment of the auditor.
Written consent from the auditor
The appointed auditor must furnish the company with written consent for him or her to undertake this mandate.
Certificate from the auditor
It also states here that the appointment is legal and conforms to all the legal procedures.
Board resolution
They also require a certified copy of the board resolution approving the auditorâs appointment.
Notice of the general meeting
If the appointment is made at a general meeting, then notice in writing must be given, and a copy of the notice is necessary.
Details of the appointed auditor
This includes the auditor's name, address, and firm registration number.
PAN and email of the auditor
These are important for official purposes such as formal reports.
Step-by-Step Process of an Auditor Appointment
The process of appointing an auditor can be described as follows. Let me go through them one by one.
Auditor Appointments Across Different Types of Companies
Different companies follow varied procedures for auditor appointments, ensuring compliance with specific regulations:
Appointment of the First Auditor after Incorporation
The first auditor is appointed by the Board of Directors within thirty days of incorporation of the company. If they do not, shareholders make the appointment within 90 days of an EGM of the company.
Auditor Appointment at the First Annual General Meeting (AGM)
Shareholders appoint auditors at the first general meeting, meeting the companyâs annual financial requirements. The auditor serves for the balance of the financial year in which the AGM is held up to the sixth AGM thereafter.
Appointment of Subsequent Auditors
Subsequent auditors are appointed in the AGM, and as such, the first term of their appointment may include the initial appointment made by the board. This shorter period applies for instance where the company is listed or is a certain large unlisted company where the auditor rotation rules come into play.
Appointment in the Event of a Casual Vacancy
If an auditor resigns or is removed before the expiry of his term of office, creating a casual vacancy, the company’s directors can fill this vacancy within 30 days. However, if the vac ancy results from resignation, it should be filled within three months.
FAQs
Can a company appoint an internal employee as an auditor?
No, an auditor cannot be from within the companyâs employees, he or she must be an independent chartered accountant or firm.
How often should a company change its auditor?
There is auditorâs rotation where every 5-10 years, depending on the specific rules applicable to the listed companies and certain large unlisted companies, must change their auditors.
Can an auditor resign before their term ends?
Yes, an auditor can resign, but this has to be done in writing, and the reasons for the resignation must also be explained to the company and ROC.
Is auditor appointment mandatory for all companies?
Yes, it is true that every company registered under the Companies Act, 2013, has to compulsory appoint an auditor, whether it is a small company or of any type.