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What is the Difference Between ADT-2 and ADT-3 Forms?

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Last Updated on September 3, 2024 by Sachin Jaiswal

In the field of corporate governance and company compliance, auditors’ tasks and obligations take the front stage. Maintaining the trust of stakeholders depends on their honesty and independence. Still, situations might develop that cause an auditor to be removed or resigned. India’s Companies Act 2013 has certain forms for these circumstances: ADT-2 and ADT-3. This blog will discuss the contrasts between these two types, along with their applications, procedures, and effects on businesses and auditors.

Understanding ADT-2: Removal of Auditor

ADT-2 is the form used to inform the ROC about the removal of an auditor before the end of their term. This form is important for achieving openness and compliance within corporate governance. The removal of an auditor is a major decision and must be treated with care to keep the purity of the auditing process.

Circumstances for Filing ADT-2

ADT-2 is usually made under the following circumstances:

  • Should an auditor’s performance fall short of expectations, a corporation may decide to terminate them.
  • Changes in the direction or structure of the business might call for a new auditor who fits more with its objectives.
  • Should an auditor have a conflict of interest compromising their independence, the business might have to dismiss them.

Process for Filing ADT-2

The process for filing ADT-2 includes several key steps:

  • Board Resolution: The first step is to pass a board resolution for the removal of the auditor. This document should explain the reasons for the choice.
  • Chance to be Heard: The auditor must be allowed to make their case before the board. This step is important for ensuring fairness and openness.
  • Special Resolution: The dismissal of the auditor has to be finalised by a general meeting of the shareholders passing a specific resolution.
  • Filing with ROC: Once the procedures described above are finished, ADT-2 must be submitted to the ROC within 30 days after the auditor’s departure.

Information Required in ADT-2

When filing ADT-2, the following information is required:

  • CIN/FCRN of the Company: This is the Corporate Identification Number or Foreign Company Registration Number.
  • Name and Address of the Company: Basic identification information of the company.
  • Category of Auditor: Whether the auditor is a person or a company.
  • PAN, Name, Membership Number, and Address of Auditor: Details of the auditor being deleted.
  • Reasons for Removal: A clear account of why the monitor is being removed.
  • Opportunity of Being Heard: Confirmation that the auditor was given a chance to state their case.

Understanding ADT-3: Resignation of Auditor

ADT-3 is the form that an auditor must file to tell the ROC about their resignation. Unlike ADT-2, which was started by the company, ADT-3 is initiated by the auditors themselves. This form records the auditor’s choice to quit and ensures that the company and the ROC are informed.

Circumstances for Filing ADT-3

ADT-3 is usually made under the following circumstances:

  • An auditor may decide to resign for personal reasons or in response to a professional transition.
  • Should an auditor see himself in a position where they cannot agree with the management on important matters, they may choose to quit.
  • Personal health issues might also cause an auditor to quit their post.

Process for Filing ADT-3

The process for filing ADT-3 includes several steps:

  • Resignation Letter: The auditor sends a resignation letter to the company, outlining their reasons for leaving.
  • Board Meeting: The company holds a board meeting to officially accept the departure.
  • Appointment of New Auditor: The business has to name a new auditor to cover the opening left by a resignation.
  • Filing with ROC: The resigning auditor must submit ADT-3 to the ROC within 30 days of leaving.

Information Required in ADT-3

When filing ADT-3, the following information is required:

  • CIN/FCRN of the Company: Similar to ADT-2, this defines the company.
  • Name and Address of the Company: Basic identification information of the company.
  • Category of auditor: Whether the auditor is a person or a company.
  • PAN, Name, Membership Number, and Address of Quitting Auditor: Details of the auditor quitting.
  • Reasons for Resignation: A clear account of why the auditor is leaving.
  • Attachment of Resignation Letter: The retirement letter must be added to the form.

Critical Differences Between ADT-2 and ADT-3

Understanding the key differences between both forms is important for businesses and auditors. Here are the main distinctions:

Reason for Filing

  • ADT-2: Filed when a company chooses to remove an auditor before the end of their term.
  • ADT-3: Filed when an auditor willingly resigns from their job.

Initiator of the Process

  • ADT-2: The company starts the removal process.
  • ADT-3: The auditor starts the departure process.

Opportunity for Hearing

  • ADT-2: The auditor must be given a chance to be heard before removal.
  • ADT-3: There is no requirement for the auditor to be given a chance to be heard since the departure is optional.

Resolution Requirement

  • ADT-2: A special motion must be passed in a general meeting.
  • ADT-3: Only a board vote is needed to accept the departure.

Filing Responsibility

  • ADT-2: The company is responsible for filing the form with the ROC.
  • ADT-3: The leaving auditor is responsible for filing the form with the ROC.

Filing Deadline

ADT-2 and ADT-3, respectively, must be submitted thirty days after the auditor’s termination or resignation.

Penalties for Non-Compliance

  • While the Companies Act does not specify specific fines for failing to file ADT-2, companies that do not follow proper processes may face attention from regulatory authorities.
  • Should the resigning auditor fail to submit the paperwork within the designated period for ADT-3, they might be subject to a penalty of ₹50,000 or their existing pay, whichever is less. This finesse reminds us of the need for quick obedience.

Conclusion

In summary, while both ADT-2 and ADT-3 relate to the removal or resignation of auditors, they serve separate goals and involve different processes. ADT-2 is made when a company removes an auditor, needing a special decision and a chance for the auditor to be heard. In comparison, ADT-3 is filed by the auditor upon voluntary retirement, requiring only a board vote.

Businesses and auditors equally depend on an awareness of these variations. Accurate and quick filing is crucial to guarantee Company Act compliance and help to avoid penalties. Following these regulations helps companies to maintain transparency and promote the validity of their financial reporting systems.

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Sachin Jaiswal

Sachin Jaiswal B.A.(Hons)! Sachin Jaiswal has been writing material on his own for more than five years. He got his B.A.(Hons) in English from the well-known University of Delhi. His success in this job is due to the fact that he loves writing and making material that is interesting. He has worked with a lot of different clients in many different fields, always giving them high-quality content that their target audience will enjoy. Through his education and work experience, he is able to produce high-quality content that meets his clients' needs.