Appointment of Auditors as per the Requirements of Companies Act, 2013

Appointing an auditor is essential for maintaining sound corporate governance and financial accountability in Indian companies. An auditor is responsible for independently examining the company’s financial records to ensure that its financial statements accurately represent its financial status and operational results. The Companies Act, 2013 (“the Act”), along with the relevant Rules and standards prescribed by the Institute of Chartered Accountants of India (ICAI), provides a robust legal framework for the appointment, reappointment, rotation, removal, and resignation of auditors in India.

This guide provides a comprehensive explanation of the appointment of auditors in companies incorporated in India.

What is the Definition of an Auditor?

An auditor is an independent Chartered Accountant (CA) who reviews a company’s accounting records and financial statements to ensure:

• They give an accurate and fair view of the financial position;
• They are free from material misstatements.
• They comply with statutory requirements and accounting standards.
• There is no fraud or irregularity.

Statutory framework governing the appointment of auditors

The appointment of auditors is primarily governed by the following provisions:

• Sections 139 to 148 of the Companies Act, 2013
• Companies (Audit and Auditors) Rules, 2014
• ICAI’s Code of Ethics and Auditing Standards
• SEBI (LODR) Regulations, 2015 for listed companies

Applicability of auditor appointment

The appointment of a statutory auditor is compulsory for the following entities under the Companies Act, 2013:

1. Private Limited Companies
2. Public Limited Companies
3. One Person Companies (OPCs)
4. Companies incorporated under Section 8 of the Companies Act, 2013
5. Producer Companies
6. Nidhi Companies

NOTE: There is no exemption for dormant companies or companies with no financial transactions during the year

1. First auditor for the newly incorporated companies

For companies other than government companies

As per Section 139(6) of the Companies Act, 2013:

• The Board of Directors must appoint the first auditor within 30 days of incorporation.
• If the Board fails to do so, the members shall appoint the auditor at an Extraordinary General Meeting (EGM) within 90 days.
• The ADT-1 form is filed with the MCA on the appointment of the first auditor

Tenure: The first auditor shall hold office until the conclusion of the first Annual General Meeting (AGM). No ratification is required.

For the government companies (Section 139(7))

• The Comptroller and Auditor General of India (CAG) appoints the first auditor within 60 days of the date of incorporation.
• If the CAG fails to appoint, the Board shall appoint within the next 30 days.
• In the event of the Board’s failure, shareholders shall appoint the auditor within the next 60 days at an EGM.

2. Subsequent appointment – Statutory auditor at AGM

Section 139(1) of the Companies Act, 2013 provides that every company shall, at its first AGM, appoint an individual or firm as an auditor, who shall hold office from the conclusion of that AGM until the conclusion of its sixth AGM, i.e., for a term of five years.

3. Appointment by ordinary resolution

• The appointment of an auditor requires an ordinary resolution.
• The company has to file Form ADT-1 within 15 days of the AGM at which the appointment is made.

Eligibility for an auditor

Section 141 of the Companies Act, 2013 prescribes who is qualified to be appointed as an auditor:

• The person must be a Chartered Accountant (CA), as per the Chartered Accountants Act, 1949.
• A firm of CAs may be appointed as an auditor, provided the majority of partners practising in India are qualified CAs.

Disqualifications

Section 141 (3) of the Companies Act, 2013 prescribes that the following are not eligible:

1. A body corporate (other than LLPs).
2. An officer or employee of the company.
3. A person who is a partner or in the employment of an officer or employee of the company.
4. A person who, or whose relative or partner:
   • Holds any security or interest in the company or its subsidiaries.
   • Is indebted to the company exceeding ₹5 lakh.
   • Has given a guarantee or provided security in respect of indebtedness of a third person to the company exceeding ₹1 lakh.
5. A person who has a business relationship with the company.
6. A person who has been convicted of fraud and ten years have not elapsed.
7. A person providing non-audit services is prohibited under Section 144.

Appointment in case of a casual vacancy

If an auditor resigns or the position falls vacant due to any other reason:

• The Board of Directors can appoint a new auditor within 30 days if the vacancy was not due to resignation.
• If the vacancy arises from resignation, the members in the general meeting must appoint a new auditor within 3 months.
• Filing of Form ADT-1 is required in such cases as well.

Rotation of auditors

Rotational auditors are mandatory in the case of:

• Listed companies
• All unlisted public companies having a paid-up share capital of ₹10 crore or more
• Private companies having a paid-up share capital of ₹50 crore or more
• All companies having public borrowings from financial institutions, banks, or public deposits of ₹50 crore or more

What is form ADT-1?

Form ADT-1 is an official document submitted online through the MCA21 portal to inform the Registrar of Companies (ROC) about the appointment or reappointment of an auditor. The form includes details of the auditor, tenure, appointment date, and related board or shareholder resolution.

Who is required to file the form ADT-1?

The responsibility of filing Form ADT-1 lies with the company and not the auditor. It is applicable in the case of:

• Appointment or reappointment of statutory auditors at the AGM.
• Appointment to fill a casual vacancy.
• Form ADT-1 is not mandatory for the first auditor appointed by the Board under Section 139(6) of the Companies Act, 2013. However, companies often file it voluntarily to ensure transparency and future ease of reference.

Due date for filing

• The form must be filed within 15 days from the date of the AGM (or Board meeting, in case of vacancy) at which the auditor is appointed.
• Delay in filing attracts additional fees and may result in compliance default notices from the MCA.

Information required for Form ADT-1

The following information must be provided in the form:

• Company Name and CIN (Corporate Identity Number)
• Address of the Registered Office
• Date and Type of Meeting (Board/AGM/EGM)
• Auditor’s Name
• Auditor’s Membership Number or Firm Registration Number
• PAN of the Auditor or Firm
• Auditor’s Address, Email, and Contact Details
• Tenure of appointment
• Category (individual or firm)

Documents to be attached with ADT-1

1. Certified copy of the Board Resolution or Shareholders’ Resolution
2. Written consent from the auditor
3. Eligibility certificate under Section 141
4. Proof of intimation sent to the auditor
5. Optional attachments if applicable

Step-by-step procedure to file form ADT-1

Step 1: Obtain consent from the auditor

The proposed auditor must submit a written consent to act as the auditor, along with the certificate stating that:

• They are eligible to act as an auditor under section 141 of the Companies Act, 2013.
• They are not disqualified from being appointed as an auditor.

Step 2: Hold a board meeting

• Convene a board meeting to recommend the appointment of the auditor.
• Pass a resolution recommending the appointment/reappointment.
• Fix the date for the Annual General Meeting (AGM) where the appointment will be approved.

Step 3: Convene the Annual General Meeting (AGM)

At the AGM, shareholders must approve the appointment/reappointment of the auditor by passing an ordinary resolution.

Step 4: Fill in the form adt-1

Download and open Form ADT-1 from the official MCA website (www.mca.gov.in ). Complete the form with the following details:

• Corporate Identity Number (CIN) of the company.
• Name, address, and email ID of the company.
• Category of auditor: individual or firm.
• PAN, membership number, and FRN (if firm).
• Period for which the auditor is appointed.
• Date of AGM in which the auditor was appointed.
• SRN of the previous MGT-7/MGT-7A, if applicable.

Attach the required documents in PDF format. Make sure that each attachment is legible and properly scanned.

Step 5: Digital signature and certification

• A Director of the company must digitally sign the form.
• Depending on the requirements, it may need to be certified by a practising professional (CA, CS, or CMA in practice).

Step 6: Upload the form to the MCA portal

• Log in to the MCA21 portal using valid credentials.
• Go to the “MCA Services” > “E-Filing” > “Upload e-Forms.”
• Upload the completed and digitally signed Form ADT-1.
• Proceed to make the payment of the prescribed fee as per the company’s authorised capital.

Step 7: Save acknowledgement

• After successful submission, the portal will generate a Service Request Number (SRN) and an acknowledgement receipt.
• Keep a copy of both for future reference.