First Auditor Appointment Under Companies Act, 2013

Applicable provisions of the Companies Act, 2013 and rules made thereunder

  • Section 139, Section 141, Section 142 of the Companies Act, 2013
  • Companies (Audit and Auditors) Rules, 2014

Who Appoints the first Auditor of the Company other than a Government company?

Section 139(6):  The first auditor of a company, other than a Government company, shall be appointed by the Board of Directors within 30 days from the date of registration of the company.

In case the board fails to appoint the first Auditor within 30 days: If the Board fails to appoint the first auditor within 30 days, then the board shall inform the same to members of the company, and the members shall appoint the first auditor within 90 days at an EGM (Extraordinary general meeting).

The first auditor shall hold office till the conclusion of the first AGM (Annual general meeting).

(1.) Procedure to appoint the first auditor by the board of Directors

(i) As per section 139(6) The first auditor of a company, other than a Government company, shall be appointed by the Board of Directors within 30 days from the date of registration of the company.

(ii.) The company may appoint an individual chartered accountant or firm of chartered accountants as auditor of the company.

(iii) Before appointment the company shall obtain written consent and a certificate of eligibility from the proposed auditor. (Section 139 and 141 of the Companies Act, 2013.)

In the certificate, the proposed auditor shall certify the following things: –

(a) the individual or the firm, as the case may be, is eligible for appointment and is not disqualified for appointment under the Companies Act 2013, the Chartered Accountants Act, 1949, and the rules or regulations made thereunder

(b) the proposed appointment is as per the term provided under the Companies Act, 2013

(c) the proposed appointment is within the limits laid down by or under the authority of the Act

(d) the list of proceedings against the auditor or audit firm or any partner of the audit firm pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct.

(e.) the individual or the firm satisfies the criteria provided under section 141 of the Companies Act 2013

(iv) Manner and procedure of selection and appointment of auditor (Section 139(11) and Rule 3(1) of the Companies (Audit and Auditors) Rules, 2014) 

Categories of the Company Competent Authority Competent Authority responsibility
A Company that is required to constitute an Audit Committee under section 177 * of the Companies Act, 2013


A Company that is NOT required to constitute an Audit Committee under section 177  of the Companies Act, 2013

Audit Committee

 


 

Board of Directors

  • The competent authority shall take into consideration the qualifications and experience of the individual or the firm proposed to be considered for appointment as an auditor and whether such qualifications and experience are commensurate with the size and requirements of the company.
  • The competent authority shall also have regard to any order or pending proceeding relating to professional matters of conduct against the proposed auditor before the Institute of Chartered Accountants of India or any competent authority or any Court.

* Section 177 – Companies that require to constitute an audit committee

The Board of directors of every listed public companies and the following classes of companies shall constitute an Audit Committee-

  • all public companies with a paid-up capital of 10 crore rupees or more;
  • all public companies having turnover of 100 crore rupees or more;
  • all public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding fifty crore rupees or more.

Explanation: The paid-up share capital or turnover or outstanding loans, or borrowings or debentures or deposits, as the case may be, as existing on the date of last audited financial statements shall be taken into account for the purposes of this rule.

(v.) The company shall call a Board meeting within 30 days of incorporation of the company to consider the appointment of the first auditor. To call such meeting the company shall issue a notice to all the directors at least 7 days before the meeting.

(vi). The auditor so appointed shall hold the office till the conclusion of the first AGM (Annual General Meeting).

(vii.) The Board may fix the remuneration of the first auditor appointed by it. In addition to the fee payable to an auditor, the remuneration shall include the expenses, if any, incurred by the auditor in connection with the audit of the company and any facility extended to him but does not include any remuneration paid to him for any other service rendered by him at the request of the company.

(viii.) The company shall inform the auditor about their appointment as the auditor of the company.

(ix.) The company shall file a notice to Registrar about the appointment of auditor in Form ADT-1 within 15 days of the board meeting in which the auditor is appointed.

The following documents are required to be attached with the Form ADT-1

  • Copy of Board resolution for the appointment of the First auditor.
  • Auditor consent and certificate of eligibility given by the auditor.
  • Auditor appointment letter given by the company to the auditor.

(x.) The company shall prepare the minutes of the Board meeting.

(2.) Appointment of First Auditor by the members in EGM (Extraordinary meeting)

(i.) As per section 139(6) If the Board fails to appoint the first auditor within 30 days, then the board shall inform the same to members of the company, and the members shall appoint the first auditor within 90 days at an EGM (Extraordinary general meeting).

(ii.) The company may appoint an individual chartered accountant or firm of chartered accountant as auditor of the company.

(iii.) Before appointment the company shall obtain written consent and a certificate of eligibility from the proposed auditor. (Section 139 and 141 of the Companies Act, 2013.)

In the certificate, the proposed auditor shall certify the following things: –

(a) the individual or the firm, as the case may be, is eligible for appointment and is not disqualified for appointment under the Companies Act 2013, the Chartered Accountants Act, 1949, and the rules or regulations made thereunder

(b) the proposed appointment is as per the term provided under the Companies Act, 2013

(c) the proposed appointment is within the limits laid down by or under the authority of the Act

(d) the list of proceedings against the auditor or audit firm or any partner of the audit firm pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct.

(e.) the individual or the firm satisfies the criteria provided under section 141 of the Companies Act 2013

(iv.) Manner and procedure of selection and appointment of auditor (Section 139(11) and Rule 3(1) of the Companies (Audit and Auditors) Rules, 2014) 

Categories of the Company Competent Authority Competent Authority responsibility
A Company that is required to constitute an Audit Committee under section 177 of the Companies Act, 2013


A Company that is NOT required to constitute an Audit Committee under section 177 of the Companies Act, 2013

Audit Committee


Board of Directors

  • The competent authority shall take into consideration the qualifications and experience of the individual or the firm proposed to be considered for appointment as an auditor and whether such qualifications and experience are commensurate with the size and requirements of the company.
  • The competent authority shall also have regard to any order or pending proceeding relating to professional matters of conduct against the proposed auditor before the Institute of Chartered Accountants of India or any competent authority or any Court

 

(v.) The company shall call a Board meeting within 30 days of incorporation of the company to consider the appointment of the first auditor to be recommended to the members of the company. To call such meeting the company shall issue a notice in writing to all the directors at least 7 days before the meeting.

In the board meeting following things need to be considered

  • Name of the First auditor to be recommended to the members for appointment and remuneration to be paid to the auditors
  • Fix the date, time, and venue of the EGM for the passing of the ordinary resolution
  • To approve the draft notice of the general meeting

(v.) Sending of notice of EGM to all the shareholders, directors, and other persons entitled to receive the notice. The notice shall of clear 21 days, however, a notice of a shorter period also can be given after taking the consent of at least 95% of shareholders.

(vi.) Holding of EGM and passing the ordinary resolution for the appointment of the first auditor.

(vii.) The first auditor shall hold the office until the conclusion of the first AGM.

(viii.) The company shall inform the auditor about their appointment as the first auditor of the company.

(ix.) The company shall file a notice to Registrar about the appointment of auditor in Form ADT-1 within 15 days of the general meeting in which the auditor is appointed.

The following documents are required to be attached with the Form ADT-1

  • Copy of Board resolution for the appointment of the First auditor
  • Auditor consent and certificate of eligibility given by the auditor
  • Auditor appointment letter given by the company to the auditor

(x.) The company shall prepare minutes of all the meetings such as Board meetings and members’ meetings.

Penalty if first auditor is not appointed (Section 147 of the Companies Act, 2013)

On Company – Minimum Rs 25000, Maximum Rs 5 Lakh

On Officer in default – Minimum Rs. 10000, Maximum Rs 1 Lakh