Appointment and Removal of Auditors
The main aspects to be considered during Appointment and Removal of Auditors are as follows:
Appointment of Auditors as under Section 139 of Companies Act, 2013:
1. The first Auditor of a company shall be appointed by Board within 30 days from registration of the company or otherwise by members within 90 days at an EGM, who shall hold office till the conclusion of first AGM. At first Annual General Meeting, an auditor shall be appointed to hold office till the conclusion of 6th AGM.
2. Thereafter auditor shall be appointed at every 6th AGM. This is subject to ratification by shareholders at every AGM by passing Ordinary Resolution. A retiring auditor may be re-appointed if he is not disqualified and no other auditor is appointed. However, if ratification is not given then Board shall appoint another auditor following procedure for appointment.
3. Practical steps:
a. Audit Committee / Board shall consider the qualification and experience of proposed auditor and may call for such info. as it may deem fit.
b. Where Audit Committee exists, it shall recommend to the Board the name of proposed auditor. If Board agrees it shall further recommend the proposed auditor to the members in AGM. In case of disagreement, Board shall cite the reason for disagreement.
c. Where Audit Committee does not exist the Board shall recommend to the members at AGM
d. The auditor appointed by passing an Ordinary resolution.
e. The auditor shall hold office till the conclusion of 6th AGM, the AGM in which he is appointed shall be counted as first AGM.
f. Before the appointment a certificate for consent must be obtained from auditor.
g. Company shall file notice to RoC within 15 days of such meeting in e-Form ADT-1.
Note: An Audit Committee is required to be formed under section 177 of Companies Act, 2013 and Rule 6 of Companies (Meeting of Board and its Powers) Rules, 2014 as under:
· Every Listed Company and All Public Companies with paid up capital > 10 crore or Turnover > 100 crore or Outstanding Loans or Debentures >50 crore are required to form an Audit Committee
· They are also required to constitute a Nomination and Remuneration Committee as per provisions of section 178
· Audit Committee shall consists of at least three Directors, majority of which shall be independent Director
· It shall have duties and rights as prescribed under Section 177(4), (5) and (6)
Qualification under Section 141(1) and (2):
1. A Chartered Accountant to be appointed as auditor of a company.
2. A firm, whose majority of partners is Chartered Accountants, is eligible to be appointed in the name of firm. However, only partners who are CAs shall be authorized to act and sign on behalf of firm
Disqualifications under Section 141(3):
1. A body corporate other than LLP
2. Officer or employee of company
3. Partner or employee of such aforesaid officer or employee
4. A person or his relative:
a. Holding securities or interest in the company/ its subsidiary/ its holding/ associate company. However the relative can hold securities or interest in such company not exceeding Rs. 1,00,000
b. Indebted to the company/ its subsidiary/ its holding/ associate company in excess of Rs. 5,00,000
c. Has given Guarantee for any third person to the company/ its subsidiary/ its holding/ associate company in excess of Rs. 1,00,000
5. A person/Firm having business relationship with such company
6. A person whose relative is Director or Employee of Director in such Company
7. A person/partner in full time practice elsewhere or holding appointment as auditor in more than 20 companies
8. A person convicted by court and 10 years has not elapsed from date of such conviction
9. A person/ his relative/ whose any entity is engaged in providing following services to the company as per section 144:
a. Accounting and book keeping
b. Internal audit
c. Design and implementation of any fin. Info. System
d. Actuarial services
e. Investment advisory
f. Investment banking services
g. Rendering of outsourced fin. Services
h. Management services
Terms and Rotation of Auditors under Section 139(2) and Rule 5 of Companies (Audit & Auditors) Rules, 2014:
There shall be restriction on appointment of auditors in:
1. Listed Companies
2. All Public Companies having paid up share capital > Rs. 10 Crores
3. Private Ltd Co. having paid up share capital > Rs. 20 Crores
4. Companies having public borrowing/deposits > Rs. 50 Crores
The abovementioned Companies shall not appoint:
1. An individual auditor for more than 1 Term (1 Term= 5years).
2. An audit firm for more than 2 Terms.
The auditors who have completed their term(s) shall not be reappointed for 5 years from completion of term(s) mentioned above. Also an audit firm, who has common partner(s) with another audit firm whose term has expired in a company, shall not be appointed in that company for 5 years.
The abovementioned companies shall comply with the aforesaid provisions within 3 years from the date of commencement of these provisions.
Members of a company may resolve that:
1. In the audit firm appointed by it, the auditing partner and his team shall be rotated at such intervals as may be resolved
2. Or the audit shall be conducted by more than one auditor
Removal of Auditor under Section 140(1):
The company can remove an auditor, after giving him reasonable opportunity to be heard, by passing Special Resolution.First the Board shall pass resolution for the same and within 30 days shall apply to Central Government (or in case of Mumbai, Kolkata, Chennai, Noida, Ahmedabad, Hydrabad and shilling, to Regional Director) in Form ADT-2.
The company shall pass Special resolution within 60 days from the date of receipt of approval by Central Government.
Resignation of Auditor under Section 140(2) :
An auditor can resign by giving a notice and shall file Form ADT-3 within 30 days from date of resignation with the Company and the RoC.
Special Notice under Section 140(4):
Special notice is required for resolution to be passed at an AGM for appointing a person other than retiring auditor or providing expressly that a retiring auditor shall not be reappointed except where retiring auditor has completed his term(s).
Casual Vacancy under Section 139(8):
Any casual vacancy in the office of an auditor due to:
· Reasons, other than resignation, like death/ disqualification u/s141(3) etc. shall be filled by Board of Directors within 30 days.
· Resignation, shall be first filled by Board within 30 days and then approved by shareholders in general meeting within 3 months from passing Board resolution.
· Such person shall hold office till the conclusion of next AGM.