Appointment of Auditor under Companies Act, 2013

Every entity doing corporate business requires Independent Examination of financial Information to maintain financial stability and verification of its accounts and records, compliances and other appropriate laws applicable to the company. Therefore, it performs audit in periodical basis depending upon the nature of the audit by an Independent Professional.

This article broadly covers the regulatory requirement for appointment of Auditor as per Companies Act, 2013.

What is Audit?

An Audit is a  intelligent scrutiny of books and accounts of the company including any document, voucher or other relevant records which ensures that all the entries made in the register or any other record provides clean and clear picture of the company. Hence, a need to appoint a Auditor arises.

Types of Auditor required to be Appointed in the Company:

• Appointment of First Auditor
• Appointment of subsequent Auditor
• Casual Vacancy
• Internal Auditor
• Cost Auditor
• Secretarial Auditor

Procedure for Appointment of Auditor

The following is the process of appointment of auditor:

• Appointment of First Auditor
  • According to Section 139 of the Companies Act, 2013 First Auditor of the Company is required to be appointed within 30 days from the date of Incorporation/Registration by the board of directors of the Company.
  • If Board fails to do so then intimation shall be given to the Member who shall appoint such Auditor within 90 days at Extra-Ordinary General Meeting (EGM).
  •  An Auditor shall hold office up to the conclusion of 1^st Annual General Meeting (AGM).
  • Apart from this, Company is required to file ADT-1 with the Registrar of Companies (ROC) along with prescribed fees.
  • In case of Government Company First Auditor shall be appointed by the Comptroller General of India (C&AG) within 60 days.

If C&AG Fails to appoint such auditor within said period, then Board of Director shall appoint such Auditor within next 30 days. Subsequently, if Board of Director also fails to do so then Members Approval is required to be taken within 60 days in EGM in a prescribed manner.

• Appointment of Subsequent Auditor
  • The Appointment is done through Member and auditor is required to hold the office till the conclusion of Sixth Annual General Meeting (AGM).
  • In case of Government Company Subsequent Auditor is appointed by Comptroller General of India within 180 days from the commencement of financial year.

Terms of Auditor to Appoint or Re-appoint

• An Individual Auditor cannot be appointed for more than one term of five consecutive years.
• An Audit Firm as an Auditor cannot be appointed for more than two terms of five consecutive Years.

Steps to be taken if Casual Vacancy of Auditor arises

If at any time casual vacancy arising due to the resignation of an Auditor, then it should be immediately filled within 30 days by the Board of Directors of the company and also the recommendation so made by the board shall be Approved in a Extra-Ordinary General Meeting (EGM) or Annual General Meeting (AGM) convened within 3 months of the recommendation of Board and it shall hold office till the conclusion of General Meeting.

Accordingly, In case of Government Companies the Casual Vacancy shall be filled by the Comptroller General of India within 30 days, and if Comptroller General of India fails to do within the said period then, Board of Director of the company requires to fill the vacancy within next thirty days.

• Appointment of Internal Auditor:
  Internal Auditor is an Independent professional and evaluate objective of companies including financial and operational business activities. This person is employed to ensure that companies follow proper procedures and functions effectively and efficiently. Internal Audit is governed by Section 138 of Companies Act, 2013

Process for the Appointment of Internal Auditor:-

• Obtain the Approval of director by Convening Board Meeting and pass the board resolution for the same.
• Form MGT – 14 is to be filled with Registrar of Companies (ROC) within 30 days from the passing of Board Resolution.

Following Classes of the Company is required to appoint an Internal Auditor:

• Every Listed Company
• Every Unlisted Company having:-
• Paid-up share of Rs. 50 crore or more during the preceding financial year; or
• Turnover of Rs. 200 crore or more during the preceding financial year; or
• Outstanding loans or borrowings from banks or financial institutions exceeding Rs. 100 crore or more at any point of time during the preceding financial year.
• Every Private Company having:-
• Turnover of Rs. 200 crore or more during the preceding financial year; or
• Outstanding loan or borrowings from banks and financial institutions exceeding Rs. 100 crore or more at any point of time during the preceding financial year.

• Appointment of Cost Auditor
  Cost Audit represents the verification of cost accounts and checking to cost accounting Plan. He is responsible for Identifying each product material cost, labour cost and service cost and cost allocation process. It is governed by the section 148 of the Companies Act, 2013

Process for the Appointment of Cost Auditor:-

• Obtain the Approval of director through Convening Board Meeting and pass the board resolution for the same.
• After passing the resolution it is mandatory to file the prescribed form with Registrar of Companies (ROC) within 30 days of passing of the resolution or within 180 days of the commencement of financial year, whichever is earlier.

Penalty for Non-Compliance in appointment of Cost Auditor:-

1. Company shall be punishable with fine which shall not be less than Rs. Twenty Five Thousand but it may extend to Rs. Five Lakh and,
2. Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than Rs. Ten Thousand But it may extend to Rs. One lakh or both
3. If the Cost Auditor has contravened the provisions he shall be punishable with imprisonment for a term which may extend to Rs. Twenty five lakh or Eight times the Remuneration of the Cost Auditor, whichever is less.

• Appointment of Secretarial Auditor:
  It is a process to check compliances with the provision of various laws and rules, regulations and procedures and also maintenance of books or records by an Independent Professional generally by company secretary in practice.

Following Classes of Companies are required to Appoint Secretarial Auditor:-

1. Every Listed Company; or
2. Every Public Company having a paid-up share capital of Rs.50 crore or more; or
3. Every Public Company having Turnover of Rs. 250 crore or more.

Process for the Appointment of Secretarial Auditor:-

• Obtain the Approval of director through Convening Board Meeting and pass the board resolution for the same.
• Form MGT – 14 is to be filled with Registrar of Companies (ROC) within 30 days from the passing of Resolution.

Non Compliance of Section 204 of Companies Act, 2013

If a company or any officer of the company or the company secretary in practice contravenes the provisions of this section, the company, officer or CS in practice, who is in default, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

Conclusion

It is cleared from the above information that Appointment of Auditor is compulsory if it falls under prescribed class of companies as mentioned in the Companies Act, 2013. The Audit is essential ingredient in the company to track all the compliances, laws and the regulation applicable to companies to have good Corporate Governance in the Corporate Society.

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