Companies Act, 2013 Procedure

Procedure for Appointment of First Auditor of the Company

Napur Rathore
Nupur Rathore

Published on: May 20, 2020 / Updated on: Jul 2, 2020

Introduction

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 and in the case of failure of the Board to appoint such Auditor, it shall inform the members of the Company, who shall within 90 days at an Extraordinary General Meeting appoint such Auditor and such Auditor shall hold office till the conclusion of the First Annual General Meeting. [Section 139(6)]

Mandatory Requirements for appointment of First Auditor

  1. To obtain written consent to such appointment shall be obtained from the Auditor on or before the date of appointment.
  2. To obtain a certificate from the Auditor that the appointment shall be in accordance with the following conditions as stated below
    • that the individual or the firm, as the case may be, is eligible for appointment and is not disqualified for appointment under the Act, the Chartered Accountants Act, 1949 and the rules or regulations made thereunder
    • that the proposed appointment is as per the term provided under the Act
    • that the proposed appointment is within the limits laid down by or under the authority of the Act
    • that the list of proceedings against the auditor or audit firm or any partner of the audit firm pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct.
  3. The Auditor shall also have to indicate/declare in the certificate as mentioned-above that it satisfies the criteria provided in section 141 of the Companies Act, 2013. [Section 141 read with Rule 4 & 10 of the Companies (Audit and Auditors) Rules, 2014]
  4. Consider the Qualifications and Experience of the Proposed Auditor. In case of a Company that is required to constitute an Audit Committee under section 177, the committee, and, in cases where such a committee is not required to be constituted, the Board, shall take into consideration the qualifications and experience of the individual or the firm proposed to be considered for appointment as auditor and whether such qualifications and experience are commensurate with the size and requirements of the Company. While considering the appointment, the Audit Committee or the Board, as the case may be, shall have regard to any order or pending proceeding relating to professional matters of conduct against the proposed auditor before the Institute of Chartered Accountants of India or any competent authority or any Court. [Section 139(11) and Rule 3 (1) of the Companies (Audit and Auditors) Rules, 2014]

First Auditor of the Company shall be appointed by

A. Board of Director in Board Meeting, OR
B. Members of the Company in an Extraordinary General Meeting.

The Following Procedure is to be followed for “Appointment of First Auditor of the Company

Part A- Appointment of First Auditor by Board of Directors in Board Meeting

  1. Convene a Meeting of Board of Directors [As per Section 173 & Secretarial Standard-1 (SS-1)]
    • Issue not less than 7 days’ notice of Board meeting, or a shorter notice in case of urgent business, in writing to every director of the company at his address registered with the company and call a Board Meeting within 30 days from the date of registration of the company to consider appointment of first auditor of the company.
    • Attach Agenda, Notes to Agenda and Draft Resolution with the Notice.
    • Hold a meeting of Board of Directors and pass a Board Resolution for the appointment and fixation of remuneration of the first auditor of the Company to hold office till the conclusion of the First Annual General Meeting. [Section 139(6)]
    • The Board may fix remuneration of the first auditor appointed by it. The remuneration shall, in addition to the fee payable to an Auditor, include the expenses, if any, incurred by the Auditor in connection with the audit of the Company and any facility extended to him but does not include any remuneration paid to him for any other service rendered by him at the request of the Company. [Section 142]
    • Prepare and Circulate Draft Minutes within 15 days from the conclusion of the Board Meeting, by Hand/Speed Post/Registered Post/Courier/E-mail to all the Directors for their comments. [Refer the Procedure for Preparation, Signing and Compilation of Minutes]
  2. Filing Notice of Appointment with ROC
    Inform the First Auditor so appointed and file a notice of such appointment with the Registrar in E-Form ADT-1 within 15 days of the general meeting. [Section 139(1) and Rule 4(2) of the Companies (Audit and Auditors) Rules, 2014] along with the following attachments:

    • Certified true copy of the Ordinary Resolution for Appointment of First Auditor or Board Resolution for Appointment of First Auditor, as the case may be;
    • Intimation/Offer Letter given by the Company to the Auditor;
    • Consent Letter given by the Auditor to the Company;
    • Certificate given be the Auditor to the Company.

OR

Part B- Appointment of First Auditor by members in Extraordinary General Meeting
If the Board fails to exercise its power within 30 days after the registration of the company, it shall inform the members of the Company, who shall within 90 days at an Extraordinary General Meeting appoint first auditor and such auditor shall hold office till the conclusion of the first Annual General Meeting. [Section 139(6)]
In this case, following procedure is to be followed

    >Convene a Meeting of Board of Directors [As per Section 173 & Secretarial Standard (SS-1)]

    • Issue not less than 7 days’ notice of Board meeting, or a shorter notice in case of urgent business, in writing to every director of the company at his address registered with the company and call a Board Meeting within 30 days from the date of registration of the company to consider appointment of first auditor of the company.
    • Attach Agenda, Notes to Agenda and Draft Resolution with the Notice.
    • Hold a meeting of Board of Directors and pass the following resolutions
      • to consider the first auditor to be appointed and the remuneration to be paid to him, to be recommended to the members
      • to fix day, date, time and venue for holding General Meeting of the Company for passing an ordinary resolution as required under the Companies Act, 2013
      • to approve the draft notice of General Meeting along with explanatory statement annexed to the notice as per requirement of the Section 102 of the Companies Act, 2013
      • iv. to authorize the Director or Company Secretary to sign and issue notice of the General Meeting
    • Prepare and Circulate Draft Minutes within 15 days from the conclusion of the Board Meeting, by Hand/Speed Post/Registered Post/Courier/E-mail to all the Directors for their comments. [Refer the Procedure for Preparation, Signing and Compilation of Minutes]
  1. Convene General Meeting [As per Section 96 and 100 and Secretarial Standard-2 (SS-2)]
    • Notice of General Meeting shall be given at least clear 21 days before the actual date of a General Meeting in writing, by hand or by ordinary post or by speed post or by registered post or by courier or by facsimile or by e-mail or by any other electronic means or a Shorter Notice can be issued with the consent of at least majority in number and ninety five percent of such part of the paid up share capital of the company giving a right to vote at such a meeting in accordance with Section 101.
    • Notice will be sent to all the Directors, Members and Auditors of Company, to the Secretarial Auditor, to Debenture Trustees and to others who are entitled to receive the notice of the General Meeting.
    • Notice shall specify the day, date, time and full address of the venue of the Meeting and contain a statement on the business to be transacted at the Meeting.
    • Hold a shareholder’s meeting on the fixed date and pass the Ordinary Resolution for appointment of the first auditor of the Company to hold office till the conclusion of the First Annual General Meeting and approving the amount of remuneration to be paid to him. [Section 139(6)].
    • Prepare the minutes of General Meeting, get them signed and compile accordingly. [Refer the procedure for preparation, signing and compilation of minutes of General Meeting].
  2. Filing Notice of Appointment with ROC
    Inform the First Auditor so appointed and file a notice of such appointment with the Registrar in E-Form No. ADT-1 within 15 days of the general meeting. [Section 139(1) and Rule 4(2) of the Companies (Audit and Auditors) Rules, 2014] along with the following attachments

    • Certified true copy of the Ordinary Resolution for Appointment of First Auditor or Board Resolution for Appointment of First Auditor, as the case may be;
    • Intimation/Offer Letter given by the Company to the Auditor;
    • Consent Letter given by the Auditor to the Company;
    • Certificate given be the Auditor to the Company.
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