The appointment of auditors is a critical process in ensuring the financial integrity and transparency of a company. Auditors play a vital role in independently examining and verifying the financial statements and records of the company, providing assurance to stakeholders.

Legal Framework

In India, the appointment of auditors is governed by the Companies Act, 2013, along with the rules and regulations issued by the Ministry of Corporate Affairs (MCA). The relevant sections include Section 139 to Section 148 of the Companies Act, 2013.

Types of Auditors

Auditors can be classified into different categories based on their scope and nature of work:

1. Statutory Auditors
   • Appointed to conduct the statutory audit of the company’s financial statements.
   • Must be an independent Chartered Accountant or a firm of Chartered Accountants.
2. Internal Auditors
   • Appointed to review the internal controls and processes within the company.
   • Can be an individual or a firm with expertise in internal auditing.
3. Cost Auditors
   • Appointed to conduct cost audits and verify cost records.
   • Must be a Cost Accountant or a firm of Cost Accountants.

Appointment Procedure

1. First Auditor
   • The Board of Directors appoints the first auditor within 30 days of incorporation.
   • If the Board fails to appoint, the members must appoint the auditor within 90 days at an Extraordinary General Meeting (EGM).
2. Subsequent Auditors
   • Subsequent auditors are appointed at the Annual General Meeting (AGM) by the shareholders.
   • The term of the auditor is five consecutive years, subject to ratification by members at each AGM.
3. Filing with MCA
   • The company must file Form ADT-1 with the MCA within 15 days of the appointment.
   • This form includes details of the appointed auditor and their consent to act as the auditor.

Eligibility Criteria

To be eligible for appointment as an auditor, the individual or firm must:

• Be a Chartered Accountant or a firm of Chartered Accountants.
• Not be disqualified under Section 141 of the Companies Act, 2013, which includes conditions like holding any security of the company, being indebted to the company, or having business relationships with the company.

Remuneration

The remuneration of the auditor is determined by the shareholders at the AGM. It includes fees for audit services, certification, and other expenses incurred during the audit process.

Rotation of Auditors

• As per the Companies Act, 2013, certain classes of companies are required to rotate their auditors.
• An individual auditor cannot be appointed for more than one term of five consecutive years.
• An audit firm cannot be appointed for more than two terms of five consecutive years each.
• There must be a mandatory cooling-off period of five years before reappointment.

Resignation and Removal

• An auditor can resign by submitting a resignation letter to the Board of Directors.
• The company must file Form ADT-3 with the MCA within 30 days of the resignation.
• An auditor can be removed before the expiry of their term by passing a special resolution at a general meeting and obtaining prior approval from the Central Government.

Importance of Auditors

Auditors ensure the accuracy and reliability of financial information, enhancing the credibility and trust of stakeholders. Their independent assessment helps in identifying financial irregularities, ensuring compliance with accounting standards, and promoting good corporate governance.