i. Procedure to appoint Statutory Auditors in the case of Companies not having an Audit Committee
a. An Auditor matching his qualification and experience with the size and requirements of the Company shall be chosen by the Board.
b. The Board shall then see whether there are any orders or pending proceedings relating to professional matters of conduct against the proposed Auditor before ICAI or any other competent Authority.
c. The Board has to see whether he satisfies the eligibility norms specified under Section 141.
d. The Board has to obtain a declaration from the Auditor that he is eligible to issue a certificate under rule 4(1).
Note: As per Rule 4(1), the Company has to get the eligibility certificate after the Auditor is appointed in the AGM. What if the management finds out if the Auditor is ineligible to issue the certificate after he is appointed? The Board should then take the pains to identify a new Auditor in replacement of the appointed Auditor. To avoid such a scenario, it is suggested that clause (d) be followed.
e. The Board has to finalize the remuneration payable to the Auditor in consultation with him and pass the resolution in the Board subject to the approval of the shareholders in the Annual General Meeting. Section 142 requires the Company to quantify the remuneration in the General Meeting.
Note: Under the Companies Act, 1956, The Company had the privilege to appoint Auditors in the AGMs on a remuneration that could be decided by the Board at a later date. That era is over.
f. With the Board’s consent on the Appointment as well as on the remuneration, the intended resolution to be passed could be mentioned in the AGM NOTICE itself. Here is the model resolution.
“Resolved that in accordance with the provisions of Section 139, 141 and 142 of the Companies Act, 2013 read with rule 3(7) of the Companies (Audit and Auditor) Rules, 2014, M/s.ABC & Co, Chartered Accountants, Bangalore be and are hereby appointed as Statutory Auditors of the Company so as to hold the said office from the conclusion of this meeting till the conclusion of the sixth Annual General Meeting on a consolidated remuneration of Rs.22,000 (Rupees twenty two thousand four hundred and seventy two only) for each Audit period unless otherwise revised subsequently at the time of ratifications in the subsequent Annual General Meetings”. for more information: Book keeping services
“Resolved further that M/s ABC & Co, Chartered Accountants, Bangalore shall in addition to the above remuneration be eligible to reimbursement of all expenses incurred during the course of Audit and availing all such facilities as are extended to them during Audit”.
g. The Company shall file an E Form in ADT–1 intimating the Registrar about the appointment of Auditors within 15 days from the date of his appointment
h. The Company shall also inform the Auditors about his appointment in the AGM within 15 days of his appointment.
ii. Procedure to appoint Auditors in the case of Companies having an Audit Committee
i. Instead of the Board, the Audit Committee has to go through the process of selection of Auditors as mentioned in Clause (a) to (e) and then recommend to the Board which in turn recommends to the Members for consideration in the AGM.
ii. a. If the Board disagrees the recommendation of the Audit committee, it shall refer back again to the said Committee citing reason for disagreement and recommending reconsideration.
b. If the Audit committee decides not to reconsider the recommendations made by the Board, the Board shall then record the reason for disagreement and send its own recommendations for consideration to the members to decide in the Annual General Meeting.
3. Conditions and Eligibility Criteria for Appointment of Auditors
The Auditor appointed by the Members or by the Board as the case may be, shall submit a certificate stating that
i. He is eligible for appointment and is not disqualified for appointment under the Companies Act, 2013, the chartered Accountants Act, 1949 and the rules and regulations made there under.
ii. The proposed appointment is asper the terms provided under the Act.
Note: Section 141 and rule 10 list out the eligibility criteria for the Auditors and Section 144 list out services that he should not render either directly or indirectly while serving as Auditor
iii. The proposed appointment is within the specified limits laid under the Act.
iv. 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.
4. Filling up of Casual Vacancy caused due to various reasons in the case of Companies not subject to Audit by the Comptroller and Auditor General of India
a. In the case of casual vacancy caused by the resignation of the Auditor, the following procedures have to be followed.
i. The Board of Directors shall approve the filling up the casual vacancy within thirty days and then recommend such appointments to the members.
ii. The members in an Extra Ordinary General Meeting shall confirm and approve the vacancy filled up by the Board on its recommendations within three months.
b. In the case of casual vacancy caused by any other reason other than resignation of the Auditor, the Board of Directors has the powers to fill such a vacancy within thirty days.
c. In the case of Companies having Audit Committee, filling up of casual vacancy shall be done after taking into account the recommendation of such a Committee in addition to the recommendation of the Board.
The Appointed Auditor shall hold office till the conclusion of the next Annual General Meeting
5. Filling up of Casual Vacancy in the case of Companies subject to Audit by the Auditor Controller General of India
i. The Comptroller and Auditor General of India shall fill up the casual vacancy within thirty days.
ii. In case the casual vacancy is not filled as mentioned in (i) above, the Board of Directors shall fill such vacancy within the next 30 days.
6. Reappointment of either the retiring Auditor or some other Auditor in the place of the retiring Auditor.
As per Section 139(9) of the Act, the retiring Auditor shall be reappointed at an Annual General Meeting if
i. He is not disqualified for reappointment
ii. He has not given the company a notice of unwillingness to be reappointed.
iii. A special resolution is passed at the Annual General Meeting appointing some other Auditor or providing expressly that he shall not be reappointed.
iv. The retiring Auditor shall continue to remain as Auditor till the end of this term viz., conclusion of the sixth Annual General Meeting if no other auditor is appointed or reappointed.
Note: This is contrary to rule 3(7) as mentioned earlier.
7. Services to be rendered by the Statutory Auditor
i. The Auditor shall conduct the Statutory Audit the manner in which it is laid down under Section 143.
ii. The Auditor in his report shall specify all matters as are enumerated in Section 143 and Rule 11.
iii. In case of frauds, the Auditor shall report in the manner laid under Rule 13.
iv. Section 146 requires the Auditor to attend either by himself or through his authorized representative who shall be qualified to be an Auditor all general meetings and he shall have the right to be heard on any part of business that concerns him. (However the Company may exempt the Auditor in complying with this provision)
8. Services not to be rendered in the capacity as Statutory Auditor
The Auditor shall not render either directly or indirectly to the Company, or its Holding or Subsidiary Company the following services.
a. Accounting and Book keeping service.
b. Internal Audit
c. Design and Development of any financial information system
d. Actuarial Services
e. Investment advisory services
f. Investment Banking Services
g. Rendering of outsourced financial services
h. Management Services
Any other services as may be prescribed by the Government.
9. Restrictions on Term of Office that a Statutory Auditor can hold applicable only to certain class of Companies
The term of office of an Individual Auditor shall be for five years and for a firm of Auditors shall be for two consecutive terms of five years for the following classes of Companies.
a. All listed Companies
b. All unlisted Public Companies having a share Capital of Rs.10 Crores or more.
c. All Private Companies having a capital of more than Rs.20 Crores
d. All Companies not falling under clause (b) and (c) but having Public borrowings from financial institutions, banks or Public deposits of Rs.50 Crores or more.
However the Act has given time to comply with the above provisions by the aforesaid companies within a period of three years viz., on or before 31–3–2017.
a. An Auditor matching his qualification and experience with the size and requirements of the Company shall be chosen by the Board.
b. The Board shall then see whether there are any orders or pending proceedings relating to professional matters of conduct against the proposed Auditor before ICAI or any other competent Authority.
c. The Board has to see whether he satisfies the eligibility norms specified under Section 141.
d. The Board has to obtain a declaration from the Auditor that he is eligible to issue a certificate under rule 4(1).
Note: As per Rule 4(1), the Company has to get the eligibility certificate after the Auditor is appointed in the AGM. What if the management finds out if the Auditor is ineligible to issue the certificate after he is appointed? The Board should then take the pains to identify a new Auditor in replacement of the appointed Auditor. To avoid such a scenario, it is suggested that clause (d) be followed.
e. The Board has to finalize the remuneration payable to the Auditor in consultation with him and pass the resolution in the Board subject to the approval of the shareholders in the Annual General Meeting. Section 142 requires the Company to quantify the remuneration in the General Meeting.
Note: Under the Companies Act, 1956, The Company had the privilege to appoint Auditors in the AGMs on a remuneration that could be decided by the Board at a later date. That era is over.
f. With the Board’s consent on the Appointment as well as on the remuneration, the intended resolution to be passed could be mentioned in the AGM NOTICE itself. Here is the model resolution.
“Resolved that in accordance with the provisions of Section 139, 141 and 142 of the Companies Act, 2013 read with rule 3(7) of the Companies (Audit and Auditor) Rules, 2014, M/s.ABC & Co, Chartered Accountants, Bangalore be and are hereby appointed as Statutory Auditors of the Company so as to hold the said office from the conclusion of this meeting till the conclusion of the sixth Annual General Meeting on a consolidated remuneration of Rs.22,000 (Rupees twenty two thousand four hundred and seventy two only) for each Audit period unless otherwise revised subsequently at the time of ratifications in the subsequent Annual General Meetings”. for more information: Book keeping services
“Resolved further that M/s ABC & Co, Chartered Accountants, Bangalore shall in addition to the above remuneration be eligible to reimbursement of all expenses incurred during the course of Audit and availing all such facilities as are extended to them during Audit”.
g. The Company shall file an E Form in ADT–1 intimating the Registrar about the appointment of Auditors within 15 days from the date of his appointment
h. The Company shall also inform the Auditors about his appointment in the AGM within 15 days of his appointment.
ii. Procedure to appoint Auditors in the case of Companies having an Audit Committee
i. Instead of the Board, the Audit Committee has to go through the process of selection of Auditors as mentioned in Clause (a) to (e) and then recommend to the Board which in turn recommends to the Members for consideration in the AGM.
ii. a. If the Board disagrees the recommendation of the Audit committee, it shall refer back again to the said Committee citing reason for disagreement and recommending reconsideration.
b. If the Audit committee decides not to reconsider the recommendations made by the Board, the Board shall then record the reason for disagreement and send its own recommendations for consideration to the members to decide in the Annual General Meeting.
3. Conditions and Eligibility Criteria for Appointment of Auditors
The Auditor appointed by the Members or by the Board as the case may be, shall submit a certificate stating that
i. He is eligible for appointment and is not disqualified for appointment under the Companies Act, 2013, the chartered Accountants Act, 1949 and the rules and regulations made there under.
ii. The proposed appointment is asper the terms provided under the Act.
Note: Section 141 and rule 10 list out the eligibility criteria for the Auditors and Section 144 list out services that he should not render either directly or indirectly while serving as Auditor
iii. The proposed appointment is within the specified limits laid under the Act.
iv. 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.
4. Filling up of Casual Vacancy caused due to various reasons in the case of Companies not subject to Audit by the Comptroller and Auditor General of India
a. In the case of casual vacancy caused by the resignation of the Auditor, the following procedures have to be followed.
i. The Board of Directors shall approve the filling up the casual vacancy within thirty days and then recommend such appointments to the members.
ii. The members in an Extra Ordinary General Meeting shall confirm and approve the vacancy filled up by the Board on its recommendations within three months.
b. In the case of casual vacancy caused by any other reason other than resignation of the Auditor, the Board of Directors has the powers to fill such a vacancy within thirty days.
c. In the case of Companies having Audit Committee, filling up of casual vacancy shall be done after taking into account the recommendation of such a Committee in addition to the recommendation of the Board.
The Appointed Auditor shall hold office till the conclusion of the next Annual General Meeting
5. Filling up of Casual Vacancy in the case of Companies subject to Audit by the Auditor Controller General of India
i. The Comptroller and Auditor General of India shall fill up the casual vacancy within thirty days.
ii. In case the casual vacancy is not filled as mentioned in (i) above, the Board of Directors shall fill such vacancy within the next 30 days.
6. Reappointment of either the retiring Auditor or some other Auditor in the place of the retiring Auditor.
As per Section 139(9) of the Act, the retiring Auditor shall be reappointed at an Annual General Meeting if
i. He is not disqualified for reappointment
ii. He has not given the company a notice of unwillingness to be reappointed.
iii. A special resolution is passed at the Annual General Meeting appointing some other Auditor or providing expressly that he shall not be reappointed.
iv. The retiring Auditor shall continue to remain as Auditor till the end of this term viz., conclusion of the sixth Annual General Meeting if no other auditor is appointed or reappointed.
Note: This is contrary to rule 3(7) as mentioned earlier.
7. Services to be rendered by the Statutory Auditor
i. The Auditor shall conduct the Statutory Audit the manner in which it is laid down under Section 143.
ii. The Auditor in his report shall specify all matters as are enumerated in Section 143 and Rule 11.
iii. In case of frauds, the Auditor shall report in the manner laid under Rule 13.
iv. Section 146 requires the Auditor to attend either by himself or through his authorized representative who shall be qualified to be an Auditor all general meetings and he shall have the right to be heard on any part of business that concerns him. (However the Company may exempt the Auditor in complying with this provision)
8. Services not to be rendered in the capacity as Statutory Auditor
The Auditor shall not render either directly or indirectly to the Company, or its Holding or Subsidiary Company the following services.
a. Accounting and Book keeping service.
b. Internal Audit
c. Design and Development of any financial information system
d. Actuarial Services
e. Investment advisory services
f. Investment Banking Services
g. Rendering of outsourced financial services
h. Management Services
Any other services as may be prescribed by the Government.
9. Restrictions on Term of Office that a Statutory Auditor can hold applicable only to certain class of Companies
The term of office of an Individual Auditor shall be for five years and for a firm of Auditors shall be for two consecutive terms of five years for the following classes of Companies.
a. All listed Companies
b. All unlisted Public Companies having a share Capital of Rs.10 Crores or more.
c. All Private Companies having a capital of more than Rs.20 Crores
d. All Companies not falling under clause (b) and (c) but having Public borrowings from financial institutions, banks or Public deposits of Rs.50 Crores or more.
However the Act has given time to comply with the above provisions by the aforesaid companies within a period of three years viz., on or before 31–3–2017.
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