Procedure for Auditor Appointment and Removal: Compliance Guide (2024)

“Unlock the compliance guide to auditor appointment and removal under the Companies Act, 2013. Dive into the nuances of appointing the first auditor, subsequent auditors, and managing casual vacancies. Explore the procedural intricacies, from obtaining consent to filing relevant forms. Learn the steps for removal and resignation of auditors, including special notices and government approvals. Enhance your understanding to ensure transparent and accountable financial reporting, fostering trust in financial markets. Disclaimer: This article provides informational content and not solicitation. For professional advice, consult a qualified expert.”

An auditor is a professional who is responsible for examining and evaluating the financial records, transactions, and statements of an organization to ensure accuracy, transparency, and compliance with applicable laws and regulations. Auditors play a critical role in detecting and preventing financial fraud or embezzlement within organizations. The presence of auditors enhances trust and confidence in financial markets and institutions, which is essential for economic stability and growth.

Appointment of First Auditor, Subsequent Auditor & Casual Vacancy due to Resignation and Other Reasons

Section 139 of the Companies Act, 2013 read with Rule 4 of Companies (Audit and Auditors) Rules, 2014 deals with the appointment of an auditor.

Process for appointment of Auditor:

• Only aPracticing Chartered Accountant can be appointed as an auditor of a company.
• Before the appointment of an auditor of a company, the written consent of the auditor must first be obtained along with a certificate from the Auditor that the appointment, if made, shall be in accordance with the conditions prescribed and that the Auditor satisfies the criteria provided in Section 141 of the Companies Act, 2013 (Provision relating to audit and auditor).
• The process for appointment of an auditor is as follows:

i. Convene a Board meeting to decide upon the proposed auditor & after obtaining his consent, decide upon the date & time of AGM.

ii. Send notice of AGM to the members of the company.

iii. Pass the required ordinary resolution at the AGM for appointment of the auditor:

“RESOLVED THAT pursuant to the provisions of (mention relevant laws and regulations) and the recommendation of the Board of Directors of the Company (name of auditor/ auditor’s firm), Chartered Accountants (Registration no.), be and is hereby appointed as the statutory auditor of the Company to hold office for a period of five/ten consecutive years from this Annual General Meeting at such remuneration as shall be fixed by the Board of Directors of the company.”

iv. File Form ADT-1 with the Registrar within 15 days of the meeting in which the auditor is appointed.

Removal and Resignation of Auditor andspecial notice – Section 140

Removal of Auditor

1. This section provides for the removal of auditor before the expiry of his term. The auditor may be removed only by way of special resolution and after obtaining prior approval of the Central government (power delegated to Regional Director).
2. The application to Central Government shall be made in Form ADT-2 within 30 days of the resolution passed by the Board. The company shall hold a general meeting within 60 days from the date of receipt of approval from the Central government for passing the Special Resolution.
3. Before passing such resolution, the auditor concerned shall be given a reasonable opportunity of being heard.
4. In case of resignation by an auditor, the auditor shall file Form ADT-3 with the Registrar within 30 days from the date of his resignation.

Appointment of an Auditor Other Than Retiring Auditor by way of Special Notice

Where a person other than the retiring auditor is proposed to be appointed as an auditor, or where it is proposed that the retiring auditor shall not be re-appointed, a special notice under Section 115 of the Companies Act, 2013 has to be given proposing that such a resolution would be moved at the next annual general meeting.

In case where the retiring auditor has completed a consecutive tenure of five years or ten years, as the case may be, then such special notice can be avoided. For the purpose of special notice, the relevant points shall be considered:

• On receipt of the special notice for removing the auditor, the company should send a copy of the same to the retiring auditor.
• The special notice should not be received by the company too late for the purpose of circulation to members.
• If the auditor makes a representation in writing to the company and requests for a notification to the members, the company shall-
  • state the fact of representation in any notice regarding the resolution
  • send a copy of the representation to whom notice of the meeting is sent
  • if a copy of the representation is not so sent, a copy of the representation shall be read out at the meeting.

• If the Tribunal is satisfied that the rights conferred are being abused by the auditor based on an application either of the company or of any other aggrieved person, then the copy of the representation may not be sent and the representation need not be read out at the meeting.

Conclusion:Understanding the procedure for appointing and removing auditors is essential for companies to maintain compliance with the Companies Act, 2013. Adhering to these guidelines ensures transparency and accountability in financial reporting, fostering trust in financial markets and institutions.

*****

Disclaimer: This article provides informational content and should not be construed as solicitation for any purpose. For professional advice, consult a qualified expert.

For specific inquiries or further assistance, contact the author at [emailprotected] or 99538 08432.The author is the founder of SINGHANIA & ASSOCIATES (Practicing Company Secretaries Firm) based in Delhi.