Appointment of Auditor of a Company

This article explains the importance of appointing a company auditor, the procedure involved and the duties he/she has to perform!

It is mandatory for all private limited, one person or limited companies to maintain a book of accounts as per the norms of Companies Act and the accounts are to be audited.

After the incorporation of a company, it is desired to appoint an auditor for the concerned company’s board of directors.

As per the laws, the first auditor of the company is to be appointed within 30 days of the incorporation of the company.

If that is not possible, then the auditor has to be appointed within 90 days of the incorporation.

Here is a brief on the overall procedure and the requirements for the appointment of the auditor.

Appointment of the Auditor for the company- Procedure

A practicing Chartered Accountant is eligible for being the auditor of an incorporated company.

Prior to the appointment of an auditor of a company, a written consent of the auditor is to be mandatorily obtained along with a certificate which states the conditions prescribed by the auditor and the auditor should necessarily satisfy the criteria which are provided in Section 141 of the Companies Act, 2013.

After the auditor has given a consent to join, the Board of Directors of the concerned company can legally and fruitfully execute a resolution which states the appointment of the auditor.

The appointment of the auditor once made is conveyed to the concerned auditor within fifteen days of the appointment.

The first auditor has the capacity to hold office from that meeting’s conclusion until the sixth annual general meeting of the company.

It is also a norm that the appointment of the auditor has to be ratified by the members at every annual general meeting.

Related: Who can be appointed as statutory auditor to a company

Company’s failure in appointing an auditor

In case the Board of Directors of a particular company fails to appoint an auditor within the time period of 30 days of the company’s incorporation, the Board shall mandatorily inform the members regarding this failure to appoint an auditor.

If such a case arises, then the members within 3 months or 90 days should conduct an extraordinary general meeting in which appointment of an auditor should be done.

A Listed Company’s appointment of an auditor

There are certain provisions which are related to the appointment of an auditor for a listed company.

For example, a listed company is not able to appoint an individual as an auditor for more than one term which usually spans five consecutive years.

Also, there is a rule that an audit firm can’t be retained for more than two terms of five consecutive years.

Duties and capacity of an auditor of a company

An auditor of a company is a wholly independent person who is actively engaged by the concerned company with the goal of expressing his opinion regarding the financial statements that are prepared by the concerned company.

The auditor also checks whether the company had conducted any fraud, default in paying loans or any malpractice.

Preparation of the financial statements of the company is the company’s duty and the auditor is not allowed to make this as it would impair the independence of the auditor.

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