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

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


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

An Auditor in simple words can be defined as an individual who has been trained for reviewing and verifying the accounting data and has been recognized as a Chartered Accountant as per Chartered Accountant Act, 1949. They hold the responsibility to review and evaluate the reliability and validity of the financial statements of a company. For this, they would scrutinize the books of accounts of a company with reference to the documents, vouchers, and such other documents which are relevant and pertaining to the entity to ensure that the entries made therein are giving a reliable and valid view of the business and its transactions.

Appointment of Auditor

Every company at their first AGM appoints an individual or firm as their auditor. Before such appointment, it is mandatory to obtain by the Company that written consent of the auditor with respect to such appointment, and a certificate from him stating that such appointment of him as an auditor of the company shall be in accordance with the conditions as prescribed under the Companies Act with regard to the same.

Appointment of Auditor by a Company other than a Government Company

First Auditor

As per section 139(6), the first auditor of a company (other than the Government Company) shall be appointed by the Board of Directors within 30 days from the date of registration of the company.
In case of the failure of the Board of Directors to appoint such an auditor, they shall inform the same to the members of the company.
The members of the company should then within a period of 90 days at an extraordinary general meeting appoint such an auditor. Such auditor shall hold the office from the conclusion of the EGM (in which the auditor was appointed) up to the conclusion of the first AGM.
This appointment of an auditor shall be communicated by the company in writing such that the same would be documented. And the remuneration paid to the auditor shall be fixed by the shareholders in the EGM or the responsibility of the same can be delegated to the Board of Directors. Along with the remuneration, the reimbursement of any expense incurred by the Auditor with respect to those expenses which were incurred by the auditor on behalf of the company should also be reimbursed.

Subsequent Auditor

The appointment shall be done by the members in the AGM and such auditor shall hold the office till the conclusion of the 6th AGM i.e., for the next 5 years’ subject to ratification by the members of the Company in every AGM.

Appointment of Auditor by Government Company

First Auditor

A Government Company is a company which is owned or controlled, directly or indirectly, by the Central Government or by any State Government, or Governments, or partly by Central Government and partly by one or more State Governments. Following would be the manner in which such appointment shall be done:

Appointment by CAG

In case of a Government Company, the appointment of first auditor shall be done by CAG which means Comptroller, Auditor General of India. The appointment by CAG shall be done within 60 days from the date of incorporation. This shall be then notified in the meeting of the Board of Directors, held immediately after the appointment. And this appointment shall be intimated to the auditor of the company as well.
The remuneration of such auditor shall then be fixed by the Board of Directors, and the appointment of this auditor shall be made by passing board resolution in Board Meeting.

In case of failure of CAG

If the CAG fails to appoint such auditors for the Government Company within said period of 60 days, then Board of Directors of the company shall appoint the auditor within the next 30 days.

In case of failure of Board of Directors

If the Board of Directors also fails to appoint the auditors within the period of 30 days, the Board shall intimate the same to the members of the company and they shall make such appointment within a period of 60 days at the extraordinary general meeting, who shall then hold the office till the conclusion of the first AGM.
It is to be noted that, there is a total of 90 days (60+30 days) to the CAG and Board to appoint the first auditor. And the period of 60 days starts immediately from the date on which the information regarding non-appointment or failure to appoint auditor has been passed by the Board to the members of the company.

Subsequent Auditors

The CAG of India shall appoint subsequent auditors within a period of 180 days from the commencement of the Financial Year and such auditor shall hold the office till the conclusion of the AGM.

Appointment of Auditor in case of a Casual Vacancy

Casual Vacancy in the office of an auditor arises due to;
– Death,
– Auditor gets disqualified as per section 141 of the Companies Act and it shall be treated as a casual vacancy,
– A ratification resolution fails at AGM which shall be counted as arising of casual vacancy.

Other than Government Company

In the case of a company, other than a Government Company the casual vacancy shall be filled by the Board of Directors within 30 days of arising of such casual vacancy. But if such casual vacancy has arisen as a result of the resignation of the auditor, such appointment shall also be approved by the company in a general meeting which is to be convened within 3 months of the recommendation made by the Board. Such Auditor shall hold the office until the next AGM.
This shall be filed with ROC or Registrar of Companies within 15 days of such appointment.

Government Company

In case of the casual vacancy arising in the office of auditor in a Government Company, the same shall be filled by CAG within 30 days and if they fail to appoint within the said period then, the Board of Directors shall fill the vacancy within the next 30 days.
Say, Mr. X who was appointed as auditor of ABC Limited initially accepted the offer and was appointed on 30th September 2020. He later resigned on 31st October 2020 due to certain personal reasons, giving rise to a casual vacancy. The Board can now fill such vacancy by appointing Mr. Y by passing an ordinary resolution at a general meeting of the company which must be convened by Board within 3 months of the recommendation of the Board and he shall hold the office till the conclusion of the next AGM.

Re-appointment of a Retiring Auditor

  • A retiring auditor may be re-appointed by the company if;
  1. i) he is not disqualified for re-appointment,
  2. ii) he has not given a notice in writing to the company stating his unwillingness to be re-appointed.

And if in the AGM, no auditor is appointed or re-appointed then the existing auditor shall continue to be the auditor of the company.

  • In case of every listed company or a company which belongs to such class or classes of companies as may be prescribed, shall appoint or re-appoint:

(i) an individual as auditor for not more than one term of five consecutive years andshall not be eligible for re-appointment for a term of 5 years from completion of his term; and
(ii) an audit firm as an auditor for not more than two terms of five consecutive years and shall not be eligible for re-appointment for a term of 10 years from completion of their term.

  • It should also be noted that on the date of appointment no audit firm having a common partner or partners to the other audit firm, whose tenure has expired in a company immediately preceding the financial year, shall be appointed as auditor of the same company for a period of five years.

It should be noted that the auditors help in protecting the interests of shareholders and the public. Thus, an audited financial statement will increase the reliability of the same and thereby our confidence in the company and its financial statements. Due to this the appointment of an Auditor is a crucial process and an essential one as per the Companies Act.



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