Appointment of First Auditor As Per Companies ACT, 2013 in Non-Government Companies

The appointment of the first auditor is one of the most important post-incorporation compliances of any company in India. The Companies Act, 2013, has provided elaborate provisions to maintain transparency, accountability, and financial discipline through relevant auditing. In the case of non-government companies, the steps involved in appointing the first auditor are well spelt out under Section 139(6) of the Act in conjunction with Rule 3 of the Companies (Audit and Auditors) Rules, 2014.

This blog gives a description of legal provisions, process, schedules, and implications of the appointment of the first auditor in non-government companies under the Companies Act, 2013.

Understanding the Role of an Auditor

The auditor is crucial in providing the company with a true and fair picture of its financial status in the financial statements. The auditor does an independent audit of the books of accounts, vouchers, and records to see their accuracy and legality. Specifically, the first auditor establishes the company’s financial reporting standards and internal control procedures.

Application of the Law to the Appointment

Part of Section 139(6) of the Companies Act, 2013 is mostly concerned with the appointment of the first auditor. The section states:

“The auditor of a company, other than a Government company, shall be appointed by the Board of Directors within 30 days after the date of registration of the company, and in case the Board fails to do so, the members of the company shall be responsible for appointing the first auditor within 90 days at an extraordinary meeting.”

This implies that the Board of Directors is the first to have the chance of appointing the auditor. In case of failure by the Board, the shareholders should assume the role within the stipulated time.

Step-by-Step Procedure to be Followed in Appointing the First Auditor

1. Responsibility of Board (Within 30 days of incorporation)

• The first auditor has to be the one appointed by the Board of Directors within 30 days of incorporation of the company.
• This appointment normally takes place in the inaugural Board meeting following incorporation.
• The appointment requires a written consent and an eligibility certificate from the proposed auditor.
• The resolution of the Board approving the appointment should be passed, and copies of it should be registered in the minutes.

2. If the Board Fails to Appoint

• When the Board fails to appoint the auditor within 30 days, then it falls on the members (shareholders).
• The shareholders shall appoint the first auditor either in the Extraordinary General Meeting (EGM) during a period of 90 days of incorporation.
• The nominated auditor will act up to the first Annual General Meeting (AGM).

3. Consent and Intimation

• The auditor whose suggestion has been made must give a written consent to audit the company in the form of ADT-1 and also give a certificate of the appointment to audit in the scope of Section 141 of the Act.
• Post appointment, on appointment, the company shall notify the Registrar of Companies (ROC) of the appointment within 15 days of the appointment by filing Form ADT-1.

Documents Required for Auditor Appointment

To ensure a smooth compliance, the following documents are needed:

1. Board Resolution to approve the appointment.
2. Consent Letter by the auditor under section 139(1).
3. An Eligibility Certificate from the auditor stating that they have complied with Section 141.
4. Duly filled and filed Form ADT-1 with the ROC.
5. An application letter by the auditor upon accepting the appointment.

Tenure of the First Auditor

The first auditor, whether nominated by the Board or by the shareholders, will serve till the end of the first Annual General Meeting (AGM). Under Section 139(1), a regular statutory auditor is to be appointed by the company after the AGM and must serve a term of five years in that capacity.

Eligibility Criteria for Appointment

According to Section 141 of the Companies Act, 2013, the auditor should meet the following requirements:

1. The auditor has to be a chartered accountant with a valid certificate of practice.
2. The person or the company should not have more than the maximum number of audit assignments required by Section 141(3)(g).
3. The auditor should be devoid of disqualification like holding securities in the company, owes money to the company or a business association with the company.
4. The auditor is not supposed to be either an officer or an employee of the company.

Form ADT-1 – Registration with Registrar of Companies

Form ADT-1 has to be filed following the appointment.

1. It is registered on the MCA website with a list of information such as the name, address, and membership number of the auditor.
2. A director or company secretary must sign the form digitally.
3. Failure to file ADT-1 may result in the penalties provided by Section 147 of the Act as a penalty against non-compliance.

Penalties For Non-Compliance

A penalty may be imposed for failure to appoint the first auditor within the time limit or failure to file ADT-1:

1. Section 147(1) of the Act may require the company and all officers in default to pay a fine.
2. Without a valid auditor’s report, the company’s financial statements may be considered invalid.
3. It may also cause complications in further ROC filings and annual compliance.

Practical Example

We will assume that XYZ Private Limited was incorporated on 1st August 2025.

• The first auditor must be appointed by the Board by 31st August 2025.
• In case of failure, the shareholders are to appoint the auditor at the 29th October 2025 EGM.
• Upon appointment, the company has to submit Form ADT-1 to the ROC by 15th November 2025.
• The designated auditor will be in the office up to the first AGM, which is likely to be in 2026.

Conclusion

Every non-government company has one of the most important compliance requirements set by the Companies Act, 2013: the appointment of the first auditor. It has the advantage of ensuring that, even at the start of the company, the books of account are audited by a qualified professional, enhancing financial transparency and accountability.

The inability to follow the recommended timelines can lead to legal actions and break future compliance. Thus, any new company should consider appointing its first auditor and filing Form ADT-1 within the allotted time to ensure it fully complies with corporate law requirements.