For any corporation, incorporating a company and ensuring compliance with statutory obligations are two key duties that a company fulfils. A key compliance step for the newly incorporated company or even an existing company is the requirement to appoint an auditor. The auditor will need to check whether the company’s financial statements give a true and fair view of the company’s financial position.
However, before being appointed, the company must obtain a letter of consent from the proposed auditor confirming that they are willing and eligible to act as statutory auditor for the company, and that letter of consent states a commitment to accept the appointment. The letter of consent manifests formal acceptance, and at the same time, the contents of that letter of consent are proof that the auditor has accepted the assignment of auditing the company in accordance with the purpose of the law.
This post will give you a comprehensive overview of the format of a consent letter, its legal background, important features, and an example to assist companies in completing the consent letter correctly.
Understanding the Function of an Auditor
An auditor is an independent and competent individual who examines the company’s books of accounts, financial transactions, and records for compliance with accounting standards and statutory requirements. The auditor’s report gives comfort to shareholders, investors, and statutory authorities about the reliability and accuracy of the company’s financial statements.
Auditors are expected to issue an objective opinion regarding the financial position of the company. Therefore, it is essential that auditors agree to this position in writing formally. This is the rationale for requiring a consent letter, which establishes the auditor’s consent and availability to perform the audit, along with a declaration that he/she is suitable to perform the audit free from any disqualifications against the Companies Act, 2013.
Legal Provisions Governing Auditor Consent
The Companies Act 2013 in section 139(1) mandates that every company should appoint its first auditor within 30 days of incorporation and the other auditor(s) in the annual general meeting of the company.
In addition, the provisions of Rule 4(1) of the Companies (Audit and Auditors) Rules, 2014 state that the company should obtain the written consent of the auditor before the auditor is appointed. The auditor would also obtain the certificate of eligibility as per section 141 of the Act.
This ensures that –
– The auditor meets all the qualification criteria.
– The auditor is not disqualified under Section 141(3).
– The appointment is in line with the limits on the number of auditor(s).
The consent letter and eligibility certificate, therefore, form part of the mandatory documents to be maintained on the records and files along with Form ADT-1 filed with the Registrar of Companies (ROC).
Sample Format of Consent Letter for Auditor Appointment
The following is a template that companies may follow to prepare their consent letter. It is based on the provisions of the Companies Act 2013, and can be used for an individual auditor or an audit firm.
On the letterhead of Auditor/Audit Firm
Date
To,
The Board of Directors
(Company Name)
(Company address)
Subject – Consent to Act as Statutory Auditor under Section 139 of the Companies Act, 2013
Dear Sir/Madam,
Pursuant to the provisions of Section 139(1) and Section 141 of the Companies Act, 2013 and the Companies (Audit and Auditors) Rules, 2014, I/we hereby confirm my/our consent to act as the Statutory Auditor of [Company Name], if appointed at the Board of Directors/Annual General Meeting (AGM) to be held.
I/we further confirm that –
- I/we am/are eligible to be appointed as an auditor under Section 141 of the Companies Act, 2013.
- I/we am/are not disqualified under Section 141(3) of the Act.
- The appointment made, if made, will be within the limits prescribed under Section 141(3)(g) of the Act.
- I/we hold a valid Certificate of Practice issued by the Institute of Chartered Accountants of India.
Kindly take this consent on record.
Thanking you,
Yours faithfully,
For [Name of the Audit Firm / Auditor]
(Chartered Accountants)
Firm Registration No.:
Signature: ______________________
Name of Auditor / Partner:
Membership No.:
Place:
Date:
Typical Errors to Prevent
- Using an old format – The consent letter must be in the latest Companies Act and guidelines of ICAI.
- Missing the declaration of eligibility – The declaration under Section 141 is compulsory.
- Failure to use letterhead or firm seal – A formal consent letter should always be on professional letterhead.
- Failure to attach supporting documents – Include copies of registration/updating certificate, if applicable.
- Filing late with the ROC – The company must file Form ADT-1, together with the consent letter, within 15 days of the auditor’s appointment.
Conclusion
The Consent Letter for the appointment of an auditor is a key compliance document for formalising an auditor’s willingness and eligibility to perform auditing of the company. This way, the compliance landscape can ensure transparency, accountability, and compliance with the statutory requirements of the Companies Act, 2013.
Companies can avoid compliance lapses by practising proper formatting and structure, and establishing a trustworthy foundation with the auditor and applicable regulatory authorities in an environment of compliance. A consent letter will not only fulfil legal obligations but will also indicate that the Company intends to conduct their fiscal affairs ethically and transparently.
Whether you are a newly incorporated organisation appointing your first auditor or an established company appointing a new auditor, this small but very important document does go a long way in ensuring continued compliance, while safely operating the Company on a day-to-day business fundamentals.
