In every class of Companies, it is very important to appoint an internal auditor. All the government and non-government organizations have to keep a record of their accounts and audit reports of each financial year. The Companies Act, 2013, laid the importance and provisions related to Appointment of Auditor, which would be further explained in this article.
Who is the Auditor?
The auditor has to be either Chartered Accountants or a Cost Accountant or such other professional as may be decided by the Board of Directors of the company. He has to conduct an internal audit of the functions and activities of the company.
Auditor shall keep a track on the Company’s investment, expenses, profit, loss and to analyse annual accounts of the company. The evaluation done by the auditor shall be just and fair and shall not include any malafide practice.
The responsibility of assessing the validity and reliability of financial statements lies in the hands of the auditor. It involves an intelligent and dedicated inspection of the books of account of the organization in regard to the documents and other relevant information to ensure that entries made therein gives a clean and clear impression of the organization. Hence, the need to appoint an auditor rises.
Eligibility, Qualifications and Disqualifications of Auditors
The pre-requisites for appointment of auditor is defined under Section 141 of The Companies Act, 2013 which state that;
- A person is eligible for an appointment of an auditor only if he is a Chartered Accountant.
- Provided, a firm whose majority of partners practicing in India are qualified to be appointed.
- An officer or employee of the company is not eligible for the appointment of an auditor.
- Any person who has been involved in the offence of fraud and convicted by the court and a period of 10 years is not elapsed are not eligible under this Act.
- Any person appointed as an auditor of a company under the above-mentioned conditions shall be asked to vacate the office on the ground of disqualification.
Appointment of Auditors
In Section 139 of The Companies Act, 2013 talks about the appointment of auditor. Let’s discuss it one by one:
- According to this section, in a private company, the first auditor shall be appointed by the board within 30 days from the date of incorporation in the annual general meeting.
- This auditor can hold the office from the conclusion of the first annual general meeting till the end of the sixth annual general meeting and afterward till the end of every sixth annual general meeting.
- The manner and procedure of selection of auditors by the member of the company has to be according to what may be prescribed.
- The company has to place the matter relating to the appointment for authorization by members on every annual general meeting.
- Most importantly, the written consent of the auditor is to be taken before he is appointed as such.
- Also, a certificate has to be taken from him that his appointment is in accordance with the prescribed rules and satisfies the criteria as provided in the above-mentioned section 141 of The Companies Act, 2013.
- This is the duty of the company to inform the auditor about his appointment.
- The notice of such appointment shall be sent to the Registrar within 15 days of the annual general meeting in a prescribed manner.
Appointment of Auditor of Government Company
In the case of a Government Company, the following points explains the appointment of auditor:
- Under section 139(5) of the Companies Act 2013, the first auditor shall be appointed by the Comptroller and Auditor General of India within the 60 days from the registration of the company.
- A duly qualified auditor has to be appointed within 180 days from the commencement of the financial year. He has to hold office till the conclusion of the annual general meeting.
- In any circumstances, if the Comptroller of General fails to appoint, the board can appoint the auditor within 30 days and if the Board also fails to do so, it has to inform the members of the company who have to make the appointment within 60 days at an extraordinary general meeting.
Term of appointment
A company in pursuance of section 139(2) of the Companies Act 2013, cannot appoint:
- An individual as an auditor for more than one term of five consecutive years and a firm of auditors for more than two terms of five consecutive years.
- An individual auditor who has completed one term of five years is not eligible for reappointment in the same company for five years from the completion of his term.
- An audit firm that has a common partner to another audit firm whose tenure as expired also comes under the above condition.
Re-appointment of Auditor
As per the section 139(9) of the Companies Act 2013, an auditor may reappointed at annual general meeting if;
- He has not been disqualified on any grounds during his tenure.
- He has not shown an unwillingness to continue and
- Any special resolution is not passed for appointing another auditor or expressly providing that he is not to be appointed.
- No auditor is appointed or reappointed, the existing auditor shall continue to be the auditor of the company.
Remuneration of auditors
- The remuneration of auditors has to be fixed by the company in general meeting in any other meeting which fulfills the requirements of the same.
- The Board can fix the remuneration of the first auditor who is appointed by it.
- The remuneration shall include the expenses if any incurred by the auditor in connection with the audit of the company.
Appointment of an Auditor is one such crucial task for the company to undergo after the interval of time, being an Auditor, it inculcates huge responsibilities that work towards the welfare of the company along with reviewing and analyzing the consistency of financial records and monitoring all financial activities of the organization. An Auditor is appointed after thoroughly examining and experimentation of the right person at the right place.