Companies Act, 2013 Procedure

Procedure for Rotation of Auditor

Nupur Rathore Nupur Rathore
Nupur Rathore

Published on: Sep 25, 2020

Updated on: Jun 17, 2021

(11 Rating)


Rotation of Auditor is appointing a new auditor when

  • an individual had been appointed as an auditor for more than one term of five consecutive years
  • an audit firm had been appointed as an auditor for more than two terms of five consecutive years.

Mandatory Requirements

For the purpose of the rotation of auditors

  • in case of an auditor (whether an individual or audit firm), the period for which the individual or the firm has held office as auditor prior to the commencement of the Companies Act, 2013 shall be taken into account for calculating the period of five consecutive years or ten consecutive years.
  • the incoming auditor or audit firm shall not be eligible if such auditor or audit firm is associated with the outgoing auditor or audit firm under the same network of audit firms.
    The term “same network” includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control.
  • a break in the term for a continuous period of five years shall be considered as fulfilling the requirement of rotation.
  • if a partner, who is in charge of an audit firm and also certifies the financial statements of the company, retires from the said firm and joins another firm of chartered accountants, such other firm shall also be ineligible to be appointed for a period of five years.

Following Procedure is to be followed

  1. Obtain written consent and Certificate from the Proposed Auditor [Section 139(1) & Rule 4(1) of the Companies (Audit and Auditors) Rules, 2014]
    Company shall receive before such appointment is made, the written consent of the auditor to such appointment and a certificate from him or it that the appointment, if made, shall be in accordance with the conditions. The Auditor shall submit a certificate
    • 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.
  2. Obtain recommendations for appointment from the Audit Committee [Section 139 (11), 177]
    Where a Company is required to constitute an Audit Committee under section 177, shall receive a recommendation from the committee for the appointment and remuneration of the Auditor. In other cases, the Board shall itself consider the matter of rotation of auditors and make its recommendation for appointment of the next auditor by the members in annual general meeting. [For convening meeting of Audit Committee, Refer the Procedure for Conducting Audit Committee Meeting].
  3. Convene a Meeting of Board of Directors [As per Section 173 & Secretarial Standard-1 (SS-1)]
    • Issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the Company, at least 7 days before the date of Board Meeting. A shorter notice can be issued in case of urgent business.
    • Attach Agenda, Notes to Agenda and Draft Resolution with the Notice.
    • Hold a meeting of Board of Directors and pass Board Resolution
      • to consider and recommend the appointment of Auditor for a period of 5 years.
      • to fix the day, date, time and venue of the Annual General Meeting (AGM)
      • to approve the draft notice convening the AGM along with explanatory statement annexed to the notice as per requirement of the Section 102 of the Companies Act, 2013
      • to authorize the Director or Company Secretary to sign and issue notice of AGM.
      • 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 and Signing of Minutes of Board Meeting]
  4. Convene Annual General Meeting [As per Section 96 and Secretarial Standard-2 (SS-2)]
    • Notice of General Meeting shall be given at least clear 21 days before the actual date of Annual 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, Auditors, Secretarial Auditor, 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 the Annual General Meeting on the fixed date and pass the Ordinary Resolution for appointment of the Auditor for a period of 5 years and shall fix the remuneration to be paid to the Auditor.
    • Listed Companies shall disclose the proceedings of General Meeting to the Stock Exchange within 24 hours from the conclusion of General Meeting and same shall be posted on the website of the company within 2 working days. [Regulation 30 and 46(3) of the SEBI (LODR) Regulations, 2015]
    • Listed Companies shall submit to the stock exchange the details of the voting results within two working days from the conclusion of the meeting and post the same on the website of the Company. [Regulation 44 of the SEBI (LODR) Regulations, 2015]
    • Prepare the minutes of General Meeting, get them signed and compile accordingly. [Refer the Procedure for Preparation and Signing of Minutes of General Meeting].
  5. Filing Notice of Appointment with ROC
    The Company shall inform the Auditor so appointed about the appointment 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 passed in the AGM
    • Intimation/Offer Letter given by the Company to the Auditor
    • Consent Letter given by the Auditor to the Company
    • Certificate given by the Auditor to the Company.

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