Every entity running the business is required to do the audit on a day to day basis or a quarterly basis or a monthly basis or a half year or yearly basis. Audit is required to be carried out in the Company to know the financial stability, for verifying the Annual Accounts, Compliance, risk policy, and other laws applicable to the Company.
Types of Auditor required to be appointed in the Company
- First Auditor Appointment
- Subsequent Appointment of Auditor
- Casual Vacancy
- Internal Auditor
- Secretarial Auditor
- Cost Auditor
According to Companies Act, 2013[1] section 139(6) the first auditor of the company other than a government company shall be appointed within 30 days of the incorporation by the Board. In case of the Board’s failure, within 90 days an EGM shall be held for appointing the first auditor. The law does not provide the time concerning from when the time limit of 90 days be calculated. Thus, the benefit is in taking a stricter view and construe that the limit of 90 days starts from Incorporation date rather than the expiry of 30 days.
Procedure of Appointment of Auditor as per Companies Act, 2013
First Auditor Appointment
An auditor so appointed will hold the office until the conclusion of the first Annual General Meeting. The Company is required to file the form ADT-1 with the Registrar of Companies along with the prescribed fees.
In case of Government Companies the first auditor shall be appointed by the Comptroller and Auditor General of India within sixty days from the date of incorporation of the Company and in case the Comptroller General of India does not appoint such auditor within the said period of time, then the Board of Director of the Company shall appoint such auditor within the next thirty days and in the case of failure of the Board to appoint such auditor within the next thirty days then the member approval is required to be taken within sixty days in the Extra Ordinary General Meeting. The First Auditor shall hold the office until the conclusion of the First Annual General Meeting.
Subsequent Appointment of Auditor
The appointment is done by the Members and he will hold the office till the conclusion of the sixth Annual General Meeting.
The retiring auditor may be re-appointed at the Annual General Meeting if:
- he is not disqualified for re-appointment;
- he has not shown the unwillingness to the Company for re-appointment; and
- A Special Resolution has not been passed for appointing some other auditor in the meeting or providing expressly that he shall not be re-appointed.
The following class of Companies shall appoint or reappoint:
- An Individual as Auditor for more than one term of five consecutive years and
- An audit firm as auditor for more than two terms of five consecutive year
If the individual auditor or audit firm which has completed his term as mentioned above shall not be eligible for re-appointment in the same Company for five years from the completion of such term.
Casual Vacancy
If the Company has appointed the auditor and if it results due to the Resignation of the Auditor then it will be treated as the casual vacancy of the Auditor, then such appointment shall be filled by the Board of Director within thirty days and such appointment shall be approved by the Company at the general meeting to be convened within three months of the recommendation of the Board and shall hold office till the conclusion of General Meeting.
In case of Government Companies, the casual vacancy shall be filled by the Comptroller Auditor General of India within thirty days, if the Comptroller Auditor General of India fails to appoint within the said period the Board of Directors shall fill the vacancy within next thirty days.
Internal Auditor
Internal Audit is carried out by the professionals which involve risk management, continuous monitoring, accounting, and corporate governance depending upon the functionality of the business.
The following class of the Company is required to appoint an Internal Auditor:
- every Listed Company;
- every unlisted Company having:
- Paid-up share capital of Rs. 50 crore or more during the preceding financial year or;
- Turnover of Rs. 200 crore or more during the preceding financial year.
- Outstanding loans or borrowings from banks or financial institutions exceeding Rs. 100 crore rupees or more at any point in time during the preceding financial year.
- Every private Company having:
- Turnover of Rs. 200 crore or more during the preceding financial year; or
- Outstanding loans or borrowings from banks or financial institutions exceeding Rs. 100 crore rupees or more at any point in time during the preceding financial year.
The Process to be followed for the appointment of the Internal Auditor
- Hold the Board Meeting and send at least 7 days prior notice before the date of the Board Meeting.
- Convene the Board Meeting and pass the resolution for the same.
- After passing the resolution Form MGT-14 is required to be filed with the Registrar of Companies within 30 days from the day of the passing of the resolution.
Secretarial Auditor
It is Audit which gives guidance and overview of the Compliance by the Company of the applicable laws and regulations.
As per the Companies Act, 2013, the following classes of the Companies are required to appoint the Secretarial Auditor of the Company:
- Every Listed Company; or
- Every Public Company having a paid-up share capital of Rs. 50 crore or more; or
- Every Public Company having turnover Rs. 250 crore or more.
The Process to be followed for the appointment of the Internal Auditor
- Hold the Board Meeting and send at least 7 days prior notice before the date of the Board Meeting.
- Convene the Board Meeting and pass the resolution for the same.
- After passing the resolution Form MGT-14 is required to be filed with the Registrar of Companies within 30 days from the day of the passing of the resolution.
Non Compliance:
If a company or any officer of the company or the company secretary in practice, contravenes the provisions of this section, the company, every officer of the company or the company secretary in practice, who is in default, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
Cost Auditor
The Cost Audit is the audit process for verifying the cost allocation of each product or Services comprising of labor cost, manufacturing cost or any other item of cost as applicable.
The following is the process for the appointment of cost auditor:
- Hold the Board Meeting and send at least 7 days prior notice before the date of the Board Meeting.
- Convene the Board Meeting and pass the resolution for the same.
- After passing the resolution file the prescribed form with ROC within 30 days of the passing of Resolution or within 180 days of the commencement of financial year whichever is earlier.
Penalty for Non-Compliance:
Any non- compliance made under this Cost Audit, the Company and every officer of the Company who is in default shall be punishable as mentioned under:
- Company shall be punishable with fine which shall not be less than Rs. 25,000 but it may extend to Rs. 5 Lakh and
- Every officer of the Company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than Rs. 10,000 but it may extend to Rs. 1Lakh or both
- If the Cost Auditor has contravened the provisions, he shall be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than Rs. 50,000 but it may extend to Rs. 25 Lakh or eight times the remuneration of the Cost Auditor, whichever is less.
Documents required in appointing auditor?
The various documents required for appointing an auditor is given below:-
- Proposed Auditor’s Consent
- Qualified Certificate to be appointed as auditor
- Resolution of Board
- Resolution of Annual General Meeting and notice of Annual General Meeting
- Non objection certificate from older audit
Conclusion
The Appointment of Auditor is mandatory if the Company falls under the prescribed class of companies mentioned in the Companies Act, 2013 and needs to appoint the auditor accordingly. The Audit is essential in the Company to track Compliance, Taxation, and Financial Stability. To obtain more information get in touch with us.
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