Appointment and Removal of Company's Auditor [Auditing Notes BCOM]

Appointment and Removal of Company's Auditor

Appointment of a Company Auditor  2014

According to Section 224 of the Companies Act, every company whether private or public must appoint an Auditor or auditors to audit the final accounts. The provisions relating to the appointment of auditor are as follows:

Appointment of First Auditors

(a) In case of a Non-Government Company[Sec. 139(6)]:

The first auditor of the company is to be appointed by BOD within 30 days from the date of incorporation of company. Note here that this is not from the date of commencement of business. First auditor shall hold office upto the conclusion of first AGM. If BOD fails to appoint the first auditor, it shall inform the members of the company. The members of the company shall within 90 days at an extraordinary general meeting appoint the auditor.

(b) In case of a Government Company [Sec. 139(7)]:

In case of any government company or any other company which is owned or controlled by central or state government either directly or indirectly, the first auditor shall be appointed by the Comptroller and Auditor General (CAG) of India within 60 days from the date of registration of the company. In case the CAG does not appoint such auditor within the above period, the Board of directors of the company shall appoint such auditor within next 30 days.

Appointment of Subsequent auditors:

(a) In case of Non-Government Company [Sec. 139(1)]:

Every company shall, at the first AGM appoint an individual or firm as an auditor who shall hold office form the conclusion of that meeting till the conclusion of its 6^th AGM and thereafter till the conclusion of every 6^th meeting. The following points need to be noted in this regard:

a. The company shall place the matter relating to such appointment by member at every annual general meeting.

b. Before such appointment is made, the written consent of the Auditor to such appointment and a certificate should be obtained. The certificate shall also indicate whether the auditor satisfies the criteria provided in sec. 141.

c. The company shall inform the auditor concerned of his or its appointment.

d. The company shall also file a notice of such appointment with the registrar within 15 days of such appointment.

(b) In Case of Government Companies [Sec. 139(5)]:

In case of any government company or any other company which is owned or controlled by central or state government either directly or indirectly, the Comptroller and Auditor General (CAG) shall in respect of a financial year, appoint an auditor duly qualified to be appointed as an auditor of companies under this act, within a period of 180 days from the commencement of the financial year, who shall hold office till the conclusion of the AGM.

Filling of Casual Vacancies [Section 139(8)]:

In the case of a company other than a company whose accounts are subject to audit by an auditor appointed by the CAG of India:

(a) Any Casual Vacancy due to reasons other than resignation:

Any casual vacancy in the office of an auditor shall be filled by the board of directors within 30 days.

(b) Any Casual vacancy due to resignation:

Such appointment shall also be approved by the company at a general meeting convened within 3 months of the recommendation of the board and he shall hold the office till the conclusion of the next annual general meeting.

In the case of a company whose accounts are subject to audit by an auditor appointed by the CAG of India:

- Any casual vacancy in the office of an auditor shall be filled by the CAG of India within 30 days.

- In case the CAG of India does not fill the vacancy within the said period the board of directors shall fill the vacancy within next 30 days.

Removal, Resignation of auditor and giving of special notice to the Company Auditor

Provisions relating to removal of auditor before the expiry of term [Sec. 140 (1)]: As per section 140(1), the auditor appointed under sec. 139 may be removed from his office before the expiry of his term only by a special resolution of the company, after obtaining the previous approval of the central government in that behalf.

Procedure for removal:

a) Holds board meeting to pass the resolution

b) Make an application to the central government along with prescribed fees within 30 days of the board’s resolution.

C) Hold the general meeting to pass the special resolution within 60 days of receipt of approval of the central government.

d) Before taking any action for removal before expiry of terms, the auditor concerned shall be given a reasonable opportunity of being heard.

Resignation by auditor [Sec. 140 (2) and Sec. 140(3)]:

When an auditor resigns, he is required to file a statement in the prescribed form with the company and the registrar stating the reasons and other facts which are relevant with regard to his resignation. In case of a government company, the statement shall also be filled with the CAG. The above mentioned statement shall be filled within 30 days from the date of resignation.

Special notice for not appointing the retiring auditor [Sec. 140(4)]:

According to Sec. 140, special notice at an AGM shall be required for appointing as auditor a person other than the retiring auditor or providing expressly that the retiring auditor shall not be reappointed. However, special notice shall not be required if the retiring auditor has completed consecutive tenure of 5 years/ 10 years as provided u/s 139(2).

On receipt of notice of such a resolution, the company shall forthwith send a copy thereof to the retiring auditor.

The retiring auditor is entitled to make a representation against his removal. The representation shall be in writing and shall be sent to the company.

The company shall send a copy of the representation to every member of the company to whom notice of the meeting is sent.

If a copy of the representation is not sent because if was received too late or because of the company’s default, then the auditor may require that the representation shall be read out at the meeting and a copy of representation shall be filed with the registrar.