Appointment of Auditors under the Companies Act 2013

By | October 16, 2014
SECTION 139, 141,142, and 144 of the Companies Act, 2013 and the Companies (Audit and Auditors ) Rules, 2014 deal with appointment of Auditors, the criteria to become Auditors and payment of their remuneration etc. The new Act has not simplified the process. It is for us to understand the complexities involved and  to a possible extent  present the same in a simplified manner. Section 139 starts with the appointment of First Auditors and Rule3 (7) deals with appointment of subsequent auditors. Payment of remuneration is dealt in Section 143 and duties and responsibilities of the Auditors are dealt in Section 144. Section 141 deals with criteria to become a Statutory Auditor. Rule 10 gives some explanations to Section 141 who is not eligible to become Auditors .Rule 3 deals with the manner and selection of Auditors by the Audit committee of certain classes of Companies. Restriction on terms of office of a Statutory Auditor is dealt in Section 139 and Rule 5.

After studying the Act and the Rules, I have made an attempt to simply the legal aspects of appointments, manner of appointments , criteria of appointments, payment of remunerations, casual vacancy appointments, services rendered concerning the Auditors.


1. Appointment of a Statutory Auditor

A. Appointment of Auditors by Companies (other than Government Owned/controlled Companies )

i. Section 139(6) reads that the First Statutory Auditors shall be appointed within 30 days of registration of the Company by the Board so as to hold office from the conclusion of the First Board Meeting till the conclusion of the First Annual General Meeting and thereafter the Auditors shall be appointed by the members in the First Annual General meeting so as to hold office from the conclusion of the First Annual General Meeting till the Conclusion of the Sixth Annual General Meeting.


ii. Asper Rule 3 (7), all existing Companies registered on or before 31.3.2014 and which are not supposed to appoint the First Auditors shall appoint Auditors in the forthcoming Annual General meeting so as to hold office from the conclusion of that meeting till the conclusion of the sixth Annual General Meeting.


iii. If the Board fails to appoint the first Auditor, it shall inform the members who shall appoint an Auditor within 90 days in an Extra Ordinary General Meeting and the appointed Auditor shall hold office till the conclusion of the next Annual General Meeting.


iv. However in every Annual General Meeting, the appointment of Statutory Auditors should be ratified. If ratification of appointment is not made by the members in the Annual General meeting, the Board shall appoint another individual or Firm as Auditors as per procedures laid down under the Act.


Note : Rule 3(7) states under the heading Explanation “”If ratification of appointment is not made by the members in the Annual General meeting, the Board shall appoint another individual or Firm as Auditors as per procedures laid down under the Act.’ This is contrary to the provisions contained in Section 139(10) wherein it states if no auditor is appointed or reappointed, the existing auditor shall continue to be the auditor of the Company.


We can pose one more question also. If the existing Auditor continues to be the Auditor in the absence of any resolution for appointment, then why a ratification is necessary as required under Section 139(1)?


B. Appointment of Auditors in Government owned/controlled Companies


i. The Controller and Auditor General of India shall appoint the first Auditor within sixty days from the date of registration of Company. If the Controller and Auditor General of India fails to appoint the Auditor within the above period, the Board of Directors shall appoint the Auditor within the next thirty days, failing which, it shall inform the members who shall appoint the Auditor within 60 days in an Extra Ordinary General Meeting.

ii. The subsequent Auditors shall be appointed by the Controller and Auditor General of India within 180 days from the commencement of the financial year and the appointed Auditor shall hold office till the conclusion of the next Annual General Meeting.

PROCESS OF APPOINTMENT OF AUDITOR
STEP 1. INTIMATION FOR APPOINTMENT BY COMPANY TO AUDITOR.
Date of Such Intimation will be before the Date of Board Meeting in which Notice of AGM will be issue.
STEP 2. CONSENT & CERTIFICATE BY AUDITOR TO COMPANY
Date of Consent & Certificate will be after the Date of Letter of Intimation and before the Date of Board Meeting in which Notice of AGM will be issue.
STEP 3 – ISSUE OF NOTICE OF AGM BY COMPANY BY PROPOSING APPOINTMENT OF SUCH PERSON AS AUDITOR OF COMPANY.
STEP 4- APPOINTMENT OF AUDITOR IN GENERAL MEETING BY PASSING OF ORDINARY RESOLUTION.
STEP 5- ISSUE OF INTIMATION LETTER BY COMPANY TO AUDITOR WITH IN 15 DAYS OF ANNUAL GENERAL MEETING
STEP 6- FILLING OF FORMAT-1 AND CONSENT OF AUDITOR AS AN ATTACHMENT IN GNL-2 WITH MCA BY COMPANY WITH IN 15 DAYS OF AGM.

APPOINTMENT OF AUDITOR,
Section – 139 read with rules The Companies
(Audit and Auditors) Rules, 2014
YOU MAY SEE THE FOLLOWING TABLE SHOWING THE RELEVANT PROVISIONS RELATING TO APPOINTMENT OF FIRST AUDITOR OF COMPANY.
Which Section will apply for appointment of First Auditor Section 139(1)
Who will Appoint First Auditor Board of Directory By Passing Board Resolution in Board Meeting
Time Limit for Appointment of First Auditor Within 30 days from Incorporation of Company
Who will Appoint First Auditor if Board of Director Fails to Appoint First Auditor Members of Company by Passing of Ordinary Resolution in Extra Ordinary General Meeting
What is the Tenure of Office of First Auditor? First Auditor may hold office until conclusion of First Annual General Meeting
Whether First Auditor can be remove before First Annual General Meeting, If appointed in General Meeting. Yes, by Members of Company by Passing of Special Resolution, After obtaining the previous approval of Central Government in that behalf
Whether First Auditor can be Appoint Through AOA & MOA. No, the Appointment of First Auditor by the Articles of Company will not be valid.

DRAFTS OF THE DOCUMENTS REQUIRED FOR THE APPOINTMENT OF AUDITOR
I. INTIMATION FOR APPOINTMENT BY COMPANY TO AUDITOR 
 22nd August, 2014
M/s Name of auditor firm.
Chartered Accountants,
Address:————
Ref: Consent & Certificate for re-appointment as statutory auditor under the Companies Act, 2013
Dear Sir,
The company is planning to hold 1st Annual General Meeting on 25th September, 2014 and in accordance with provisions of Section 139 of Companies Act, 2013, we need your consent and certificate under section 141 of Companies Act, 2013 for your re-appointment as Statutory Auditor of Company.
Thanking you,
Yours sincerely,
For Name of Company

(Name of Director)
Director
DIN: —————
Add: ————-

II. CONSENT OF AUDITOR
To
Date: 25th August, 2014
The Board of Directors
Name of Company
Address
Dear Sirs,
Sub: Letter of Consent for re-appointment as auditors of Divine Advertisers Private Limited.
We thank you for your letter dated: 22nd August, 2014, seeking our consent for re-appointment as auditors of Divine Advertisers Private Limited (“the company”). We hereby consent to our re-appointment as auditors of the company pursuant to the provisions of Section-139 of the Chapter X of the Companies Act, 2013.
Thanking you,
Yours Sincerely,
Name of Auditor Firm
Chartered Accountants
Firm Registration No. ———–

(Name of Partner/Proprietor)
Partner
Membership No. ———–
Place: Delhi

III. ELIGIBILITY CERTIFICATE FROM AUDITOR
Certificate
[Pursuant to the provisions of Section 139 of the Chapter X of the Companies Act, 2013 read with
the Companies (Audit and Auditors) Rules, 2014]
Date: 25th August, 2014
To,
The Board of Directors
Name of Company
Address

Dear Sirs,
Sub: Letter for re-appointment as statutory auditor under the Companies Act, 2013
In connection with re-appointment of Name of Auditor firm. (“the Firm”), Chartered Accountants as auditors of Divine Advertisers Private Limited (“the Company”) in accordance with the provisions of the Companies Act, 2013 (the Act) and rules and regulations made there under, we are pleased to confirm that:
1) The firm is eligible for re-appointment and is not disqualified for re-appointment under section 141 of the Companies Act, 2013, the Chartered Accountant Act, 1949 and rules and regulations made thereunder;
2) Our proposed re-appointment would be as per the terms provided under the Act;
3) The proposed appointment is within the limits laid down by or under the authority of the Act;
4) There are no proceedings pending against either of the partners or the firm with respect to professional matters of conduct.
5) We satisfy other criteria as provided under Section 141 of the Act.
Thanking you,
Yours Faithfully,
Name of Auditor Firm
Chartered Accountants
Firm Registration No. ———–

(Name of Partner/Proprietor)
Partner
Membership No. ———–
Place: Delhi
III. LANGUAGE IN NOTICE FOR APPOINTMENT
Re-appointment of Auditor
To consider and if thought fit, to pass with or without modification(s), the following resolution as an Ordinary Resolution:
“RESOLVED THAT pursuant to the provisions of Section- 139 and other applicable provisions, if any, of the Companies Act, 2013 and the Rules framed there under, as amended from time to time, M/s. Name of Chartered Accountant., Chartered Accountants, (FRN No. ———-) be and is hereby re-appointed as Auditor of the Company to hold office from the conclusion of this Annual General Meeting (AGM) till the conclusion of the 6th AGM of the Company to be held in the year 2019 (subject to ratification of their re-appointment at every AGM), at such remuneration as may be agreed upon between the Board of Directors and Statutory Auditors, in addition to the reimbursement of service tax and actual out of pocket expenses incurred in relation with the audit of accounts of the Company.
IV. LANGUAGE IN DIRECTOR REPORT.
Auditors of the Company M/s Name of firm., Chartered Accountants, hold office until the conclusion of the ensuing Annual General Meeting and being eligible offer themselves for re-appointment until the conclusion of 6th Annual General Meeting of the company to be held in the Year 2019 (subject to ratification of their appointment by the Members at every Annual General Meeting held after the ensuing Annual General Meeting).
As required under the provisions of section – 139(1) of the Companies Act, 2013, the company has received a written consent from M/s Name of firm., Chartered Accountant to their re-appointment and a certificate, to the effect that their re-appointment, if made, would be in accordance with the new Act and the Rules framed there under and that they satisfy the criteria provided in section- 141 of Companies Act, 2013. The Board recommends their appointment.
V. LANGUAGE OF ordinary resolution.
1. RE-APPOINTMENT OF RETIRING AUDITORS
The Chairman informed the meeting that the Retiring Auditors, M/s NAME OF AUDITOR FIRM., Chartered Accountants, have shown their willingness to be re-appointed as Auditors of the Company and have confirmed that their re-appointment, if made, would be within the limits prescribed under Section 139 of the Companies Act, 2013.
On this connection, the Chairman invited the member/s to propose the following resolution which was proposed by Mr. Sumit Khanna the Managing Director and Member of the Company:
“RESOLVED THAT pursuant to the provisions of Section- 139 and other applicable provisions, if any, of the Companies Act, 2013 and the Rules framed there under, as amended from time to time, M/s. NAME OF AUDITOR FIRM., Chartered Accountants, (FRN No. ————–) be and is hereby re-appointed as Auditor of the Company to hold office from the conclusion of this Annual General Meeting (AGM) till the conclusion of the 6th AGM of the Company to be held in the year 2019 (subject to ratification of their re-appointment at every AGM),
FURTHER RESOLVED THAT the remuneration of the Statutory Auditors of the Company be and is here-by decided either by Mr. Name of Director or Mrs. Name of Director, both Directors of the Company.”
The resolution then was seconded by Mr. Name of Director, Director /Member of the Company.
The Chairman then put the resolution to members present at this meeting to vote by show of hands in response to which all the members present, raised their hands in favor of the resolution. Then the Chairman declared the same as passed unanimously.
VI. INTIMATION LETTER TO AUDITOR.
25th September, 2014
M/s Name of auditor firm.
Chartered Accountants,
Address:————
Sub. : Reappointment as Statutory Auditors of the Company.
Dear Sir,
With reference to the resolution passed at the Annual General Meeting held on 25th September, 2014, we bring to your kind notice that you have been re-appointed as Statutory Auditors of the Company till the conclusion of the 8th AGM of the Company to be held in the year 2019 (subject to ratification of their re-appointment at every AGM). The remuneration shall be decided mutually.
Thanking you,
Yours sincerely,
For Name of Company

(Name of Director)
Director
DIN: —————
Add: ————-

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