By Admin 
When you form a company in India, whether it’s a private limited company, a one-person company, or any other registered entity, keeping accurate financial records is essential. But beyond just maintaining those records, it’s also necessary to have them audited. The Companies Act, 2013 mandates the appointment of an auditor for this purpose. Here’s a simple explanation of the steps involved in appointing an auditor, and why it’s important.
Why Do Companies Need an Auditor?
All registered companies in India are required to maintain accurate financial statements, which must be reviewed by an auditor. This isn’t just a box to tick—it’s a legal requirement that ensures accountability and transparency in a company’s financial dealings. The company’s Board of Directors (BOD) is responsible for appointing an auditor to ensure the accuracy of financial records.
When to Appoint the First Auditor
After a company is incorporated, the BOD has 30 days to appoint the first auditor. If they miss this deadline, the shareholders must take over and appoint an auditor within the next 90 days. This first auditor remains in place until the company’s first Annual General Meeting (AGM).
What Documents Are Needed?
To comply with the Companies Act, you’ll need to submit certain documents to the Registrar of Companies (RoC) when appointing an auditor:
- Form MGT-14: A copy of the board resolution approving the appointment.
- Form ADT-1: A form notifying the RoC about the appointment of the new auditor.
In addition to these forms, you’ll need to provide:
- The auditor’s name, address, and PAN number.
- The duration of the appointment.
- Information about the outgoing auditor, if applicable.
- A digitally signed ADT-1 form by a company director.
Who Can Be Appointed as an Auditor?
Under the Companies Act, only a practicing Chartered Accountant (CA) is eligible to be appointed as an auditor. Before the appointment is made, the company must receive written consent from the auditor and a certificate confirming that the appointment meets the eligibility criteria specified in Section 141 of the Act.
The Appointment Process
The steps involved in appointing an auditor include:
- Receiving written consent from the auditor.
- The Board of Directors passing a resolution to approve the appointment.
- Filing Form ADT-1 with the RoC (optional for first-time appointments but mandatory within 15 days for subsequent ones).
What If There’s an Audit Committee?
For companies that have an Audit Committee, the committee is responsible for recommending potential auditors to the BOD. If the BOD disagrees with the recommendation, they can ask the committee to reconsider. However, if the committee sticks to its choice, the BOD must note its reasons for disagreement and forward their recommendation to the shareholders.
Special Case for Government Companies
In government companies, the first auditor is appointed by the Comptroller and Auditor-General (CAG) of India within 60 days of the company’s registration. If the CAG doesn’t appoint an auditor in time, the company’s Board of Directors gets 30 more days to make the appointment.
Appointing Future Auditors
After the initial auditor completes their term, shareholders will appoint auditors at the AGM. These auditors hold office until the conclusion of the sixth AGM. However, listed companies have additional restrictions: an individual auditor can only serve for one five-year term, and an audit firm can serve two consecutive five-year terms.
In case an auditor resigns or there’s a vacancy, the Board can appoint a new auditor, but shareholders must confirm this within three months.
What Happens If an Auditor Isn’t Appointed?
If the BOD doesn’t appoint an auditor within 30 days of incorporation, shareholders are required to make the appointment within the next 90 days. The auditor will serve until the first AGM. If no auditor is appointed at the AGM, the existing auditor continues until a replacement is found.
What Are the Auditor’s Responsibilities?
The main job of the auditor is to review the company’s financial statements independently, ensuring they are accurate and meet accounting standards. It’s important to note that auditors don’t handle the company’s accounts—they are only responsible for reviewing and verifying them.
What Happens If an Auditor Resigns?
If an auditor decides to resign, they must notify the company and submit Form ADT-3 to the RoC within 30 days. This process ensures there’s a formal record of the resignation, allowing the company to appoint a replacement.
Conclusion
The process of appointing an auditor isn’t just a legal formality—it’s vital for maintaining financial transparency in your company. Following the steps outlined in the Companies Act, 2013 ensures that your company remains compliant and builds trust with its shareholders and the public. Make sure to file the required documents on time to avoid any legal issues.
By understanding the importance of appointing an auditor and following the correct procedures, you’ll help keep your company’s financial records in check while staying compliant with the law.