The company is regulated by two bodies the shareholders and the directors. The shareholders provide funds to the director of the company and in return the directors of the company perform business from the funds that are received from the shareholders. Therefore the Board of directors is under an obligation to present the books of accounts to the shareholders in the General meeting; so that the shareholders can have to a close look on where there funds are being invested by the company, for the purpose the same the board of directors appoint an Independent person who is practicing Chartered accountant to conduct Statutory Audit.
Purpose for Appointment of Auditor
The purpose of the auditors in the company is to protect the interests of the shareholders. The auditor is obligated by law to examine the accounts maintained by the directors and inform them of the true financial position of the company. Auditor gives his independent opinion to the owners or shareholders of the company to protect and keep the company in a safe financial condition.
Appointment of the first Auditor in the Company
According to Section 139(6) of the Companies Act, the first auditor of a company that is non-governmental should be appointed by the board of directors within 30 days from the date of incorporation or registration of the company.
And if the board of directors does not appoint an auditor, it informs the members of the company, who then appoint the auditor at an extraordinary general meeting within 90 days of this notification. Such an auditor, who has been appointed, holds the position of auditor until the end of the first general meeting.
Appointment of an Auditor for Different Kinds of Companies
| Particulars | Non-Government Company | Listed/Specified Company | Government Company |
| Application for 1st Auditor post Incorporation | Appointed by the Board Of Directors. This has to be done within 30 days from the date of Registration. Appointment can also be done by Members at Extraordinary General Meeting within 90 days of information. | Appointed by Board Of Directors. This has to be done within 30 days from the date of Registration. Appointment can also be done by Members at Extraordinary General Meeting within 90 days of the information. | Appointed by the Comptroller and Auditor General of India. This has to be done within 60 days from the date of Registration. Appointment can also be done by Board Of Directors within 30 days of incorporation. Members can also appoint at an Extraordinary General Meeting within 60 days of Information. |
| Auditor at First AGM with the written consent and a certificate of Auditor. | The appointment is done by the members He will hold office till the end of the 6th Annual General Meeting (AGM). The appointment shall be in accordance with the conditions laid down by the auditor. | The appointment is done by the members for a maximum term of 5/10 consecutive years. Cooling off period of 5 years before next appointment will be there. | The appointment is done by the Comptroller and Auditor General of India. He should be appointed within 180 days from the 1st of April. |
| Appointment of Subsequent Auditor | The appointment is done by the members and he will hold office till the conclusion of the 6th meeting. | The appointment is done by the members for a Maximum term of 5/10 consecutive years. | The appointment is done by the Comptroller and Auditor General of India within 180 days from the 1st of April. |
| Casual Vacancy due to resignation and other reasons | The appointment is by the members within 3 months of the recommendations of Board and he will hold office till the next AGM. | The appointment is by the members within 3 months of the recommendations of Board and he will hold office till the next AGM. | The appointment is done by the Comptroller and Auditor General within 30 days. |
Procedure for appointment of Auditors
First Auditor: The auditor so appointed will hold office until the end of the first annual general meeting. The company is required to file the ADT-1 form with the Commercial Register along with the prescribed fees.
In the case of government companies, the first auditor shall be appointed by the Comptroller and Auditor General of India within sixty days from the date of registration of the company and in case the Comptroller General of India does not appoint a such an auditor within the said period, then the board of directors of the company shall appoint such auditor within thirty days and in case, that the board of directors does not appoint a such an auditor within thirty days, a member’s approval is required within sixty days in an extraordinary Ordinary General Meeting. The first auditor serves until the end of the first annual general meeting.
Subsequent appointment of auditor: The appointment is made by the members and he will hold office until the conclusion of the sixth annual general meeting.
A resigning auditor may be reappointed at the annual general meeting if:
- Is not disqualified for reappointment;
- Did not show reluctance to the company for re-appointment; and
- No special resolution has been passed to appoint another auditor at the meeting or expressly provides that he will not be re-appointed.
The following class of companies appoints or re-appoints:
- A natural person as an auditor for more than one five consecutive years
- Audit firm as auditor for more than two terms of office of five consecutive years
FAQs
Who can be appointed as an auditor of a company?
An auditor must be a qualified Chartered Accountant (CA) or a firm of Chartered Accountants that is registered with the Institute of Chartered Accountants of India (ICAI). In case of a company, the auditor must be an individual or a firm holding a valid certificate of practice issued by ICAI.
When should an auditor be appointed for a company?
An auditor should be appointed at the first Annual General Meeting (AGM) of the company. For subsequent years, the auditor is typically appointed at the AGM for a term of one year. In case no auditor is appointed, the company may face penalties or non-compliance issues.