Appointment and removal of auditor under corporate law

In any private limited company an auditor plays a significant role.

Every company is required to present its audit reports as the financial year approaches.

All the government & non-government organization have to keep track of their accounts & audit reports as the financial year approaches.

The financial statements of these firms need to be thoroughly analyzed & assessed before submitting them to the authorized departments. This assessment of financial document is done by an Auditor.

In case of any discrepancy in reports, the auditor is held responsible.

The fundamental aspects of auditing are, objective, techniques & principles of auditing, preparation for an audit, internal audit & internal check, vouching, verification & valuation of assets & liabilities etc..

In case of joint stock Company, the audit is a statutory requirement under the Companies Act, 2013.

Section 139 of Companies Act, 2013 states about appointment of Auditor in Company.

According to section 139 of Companies Act, 2013 in Government Company & Non-Government Company both the types of company has to appoint Auditor.

 

A. Appointment of Auditor in Government Company

Companies Act, 203 defines Government Company “as a company in which not less than 51% of the paid up share capital is held by the Central or State Government or Governments or partly by the Central government & partly by one or more State Governments”.

 

  1. Appointment of first Auditor(sec.139[7])

The first auditor of Government Company shall be appointed by the comptroller & Auditor General of India within 60 days from the date of registration of the company.

In case the Comptroller & auditor General of India does not appoint such auditor within 60 days, the Board of Directors of the company shall appoint first auditor within next 30 days.

In case failure of the Board to appoint the first auditor, it shall inform members of the company who shall appoint first auditor within 60 days at an Extraordinary General Meeting

First Auditor shall hold office till the conclusion of the first annual General Meeting.

 

2. Appointment of subsequent Auditor(sec.139[5])

The comptroller & Auditor General of India shall appoint subsequent auditor of Government companies within 180 days from the commencement of the financial year & who shall hold office till the conclusion of the annual General Meeting.

 

 

3. Appointment in case of casual vacancy (sec.139[8])

Appointment of auditor due to casual vacancy in Government Company is filled by the Comptroller & Auditor General of India within 30 days.

If he fails to do so, the Board of directors shall fill within 30 days.

 

B. Appointment of Auditor in Non-Government Company

 

  1. Appointment of first Auditor(sec.139[6])

The first Auditor of a company other than a Government Company shall be appointed by the Board of directors within 30 days from the date of registration of the Company.

In case of failure of the Board to appoint the auditor, it shall inform the members of the company. The members shall appoint the auditor within 90 days at an Extraordinary General Meeting.

Appointed first auditor shall hold office till the conclusion of the first Annual General Meeting.

 

2. Appointment of subsequent Auditor(sec.139[1])

Every company shall appoint an individual or a firm as auditor of the company at the First Annual General Meeting.

The appointed auditor shall hold the office till the conclusion of the sixth Annual General Meeting & thereafter till the conclusion of every sixth meeting.

The company shall place the matter relating to such appointment of ratification by member at every Annual General Meeting.

Before such appointment is made, the written consent of the auditor to such appointment & also a certificate from the auditor that he is eligible for appointment shall be obtained from the auditor.

The company shall inform the appointed auditor & also file a notice of such appointment with the Registrar within 15 days of the meeting in which the auditor is appointed.

 

3. Appointment in case of casual vacancy(sec.139[8])

Casual vacancy arises due to death or insanity or insolvency of an auditor. If an auditor is disqualified after his appointment, he shall vacate his office as auditor. Such vacation shall be deemed to be a casual vacancy in the office of the auditor.

Appointment of auditor in case of casual vacancy shall be done by the Board of Directors within a period of 30 days.

If vacancy is due to registration of an auditor, such appointment shall also be approved by the Company at a General Meeting convened within 3 months of the recommendation of the Board.

The auditor shall hold office till the conclusion of the next Annual General Meeting.

 

Removal

Removal of Auditor (sec.140 [1])

An auditor can be removed before the expiry of the term by obtaining the prior approval of the Central Government by filling an application.

The company shall hold the general meeting within 60 days of receipt of approval of the Central government for passing the special resolution.

The auditor concerned shall be given a reasonable opportunity of being heard.

 

Resignation of Auditor (sec. 140[3])

The auditor who has resigned from the Company shall file a statement in the prescribed form stating the reasons for his resignation to the Comptroller & Auditor General of India in case of a Government Company and to the Registrar of Companies in case of Non-Government Companies.

While filling the statement, reasons for resignation and other facts as may be relevant with regard to his resignation shall also be indicated.

In case of non-compliance, he shall be punishable with fine ranging from Rs. 50,000 to Rs. 5, 00,000.

  • Conclusion of topic

The main aim of hiring a auditor in a company is for knowing financial statements & records to confirm publicly held companies meeting their requirements.

Conclusion of topic is auditors are important for companies because they know the exact financial situation the company, they submit financial reports in every meeting.

And appointment & removal of auditor of a company is done according to section 139 & section 140 of Companies Act, 2013.

 

 

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