Appointment & Change of auditors
PROCEDURE FOR APPOINTMENT AND REAPPOINTMENT OF AUDITORS
APPOINTMENT OF FIRST AUDITORS
A Board meeting
should be conveyed within one month of the date of registration of the Company
and a Resolution should be passed appointing and fixing remuneration of the
first Auditors who shall hold office until the conclusion of first Annual
General Meeting (AGM).
The person being
appointed as the first Auditors of the Company should not hold any security
carrying voting right of that Company. If the Board fails to appoint first
Auditors within one month after the registration, then a General Meeting
should be held by issuing 21 days notice with relevant Explanatory statement
and Auditor can be appointed by passing ordinary resolution.
In case of listed
Public Limited Company for such appointment of Auditors in General Meeting, 3
copies of the notice and copy of the proceedings of the General Meeting should
be forwarded promptly to the Stock Exchange where such shares of the Company
APPOINTMENT OF RETIRING AUDITORS
An Auditor is
normally being reappointed at the A.G.M. Therefore, the Company should obtain
a written certificate from the Auditor that the re-appointment, if made, will
be in accordance with the limits specified in Section 224(1B).
Though the limits
as specified in section 224(1B) does not apply to a Private Company after
Companies (Amendment) Act, 2000, as per Institute’s Code of Ethics the limit
continues to apply, which should be borne in mind while accepting the audit.
convening the AGM, (after issuing notices in writing at least 21 days before
the meeting along with the Explanatory statement), should pass ordinary
resolution in the A.G.M. appointing the retiring Auditor as Auditor of the
Company, who shall be holding the office till the conclusion of next A.G.M.
and the resolution should also contain details of his remuneration.
Three copies of
the notice and proceedings of A.G.M. should be sent to the Stock Exchange,
where such shares of the Company are listed.
Ordinary Resolution, a Special Resolution by 3/4th majority is required to be
passed in case of a Company in which not less than 25% of the subscribed share
capital is held singly or in any combination by Government Company/Central
Government/State Government, Nationalised Banks/Insurance Company/Financial
Institution, etc. [Section 224A(1)]
should intimate the Auditor about his appointment within 7 days of the passing
of the Resolution appointing him.
should inform the Registrar of Companies in Form No. 23B within one month of
the receipt of the intimation from the Company that he has accepted or refused
to accept his appointment.
APPOINTMENT OF BRANCH AUDITOR
The accounts of
the branch office of a Company, if any, is required to be audited by the
Company’s auditor appointed u/s. 224 or by a person qualified for appointment
as auditor u/s. 226. Where the branch office is situated outside India, the
accounts to be audited either by the Company’s auditor or by an accountant
duly qualified to act as an auditor in accordance with the laws of that
country. The shareholders may authorise the Board to appoint the branch
auditors in consultation with the Company’s auditors. However the Central
Government is empowered to make such rules as it may deem fit for the matters
specified in relation to the branch auditors.
that the accounts of the branch are audited by a person other than the
Company’s auditor, the Company’s auditor shall have the right to visit the
branch and have access to the book and accounts and vouchers of the Company.
However, in case of a banking Company having a branch outside India, the
Company’s auditor may have right to access of copies and extracts of the books
auditors shall have the same powers and duties as that of Company’s auditors.
The branch auditor shall forward his report to the Company’s auditors.
APPOINTMENT OF AN AUDITOR OTHER THAN THE RETIRING ONE
The Company must
receive a Special Notice from a member/shareholder not less than 14 days
before the ensuing A.G.M. indicating his intention to move a resolution for
changing the existing Auditor of the Company and for appointing another
Auditor in his place.
The Company must
send forthwith a copy of such notice to the existing auditor of the Company.
A certificate in
writing should be obtained from the proposed new Auditor to the effect that
his appointment, if made, will be in accordance with the limits as specified
in Sec. 224(1B).
The Company must
issue notice in writing at least 21 days before the date of A.G.M. stating
about the Special Notice received and proposing the ordinary resolution for
change of the Auditor along with Explanatory statement.
Auditor has a right to make representation either in writing to the Company or
orally at the A.G.M. If the representation is received from the Auditor the
same should be enclosed along with notice. If the representation could not be
sent along with the notice for being received late, it should be sent later at
any time, being reasonable time, but before the A.G.M.
In case it is not
possible to send special notice and representation in the notices of the A.G.M.,
then the Company should inform the shareholders by advertisement in newspaper
having appropriate circulation or by any other mode as allowed by the Articles
of Association not less than 7 days before such A.G.M.
However, if a
copy of such representation by the retiring auditor is not possible to be sent
as aforesaid, because they were received too late or because of the default of
the Company, such written representation shall be read out at the meeting.
This is without prejudice to the right of the Auditor to be heard orally in
the A.G.M. But in certain circumstances the Company Law Board can exempt the
Company from sending or reading out such representation of the retiring
Auditor on the application either of the Company or of any of the persons, who
claims to be aggrieved.
Three copies of
such notices to be forwarded to the Stock Exchange, where such shares of the
Company are listed.
should then hold a General Meeting and pass a Resolution.
Only after such
Resolution is passed in the A.G.M. the new Auditor shall be considered as duly
appointed in place of the Retiring Auditor.
The new Auditor
should inform the concerned Registrar of Companies in Form No. 23B about his
accepting the appointment within one month from the receipt of Intimation of
his appointment from the Company.
REMOVAL OF AN AUDITOR BEFORE THE EXPIRY OF HIS TERM
An Auditor is
appointed at the A.G.M. and he holds the position till the conclusion of the
next A.G.M. However, circumstances may permit a Company to remove the Auditor
before the expiry of his term.
For this, Board
of Directors, should convene a meeting after giving notice to all the
Directors, to approve the draft of the application to be sent to the Central
Government for the removal of the Auditor.
application is to be made to the Regional Director of the concerned Region
seeking approval of the removal of the Auditor before the expiry of his term.
Such application should be made on the letterhead of the Company mentioning
the details and reasons.
formalities of enclosing documents, payment of fees, etc. are to be complied
Director after considering the merit of the application and based on facts and
circumstances of the case, may approve such removal of the Auditor.
On receipt of
such approval a meeting should be called of Board of Directors to fix the
date, time, place and agenda of the Meeting where the previous Auditor will be
removed and a new Auditor will be appointed in his place.
Notice should be
issued in writing at least 21 days before the date of A.G.M. and ordinary
resolution should be passed appointing new Auditor in the place of previous
Auditor at the A.G.M.
CODE OF ETHICS AND OTHER PROVISIONS ON CHANGE OF AUDITORS
Part I of the
First Schedule of Chartered Accountants Act, 1949 deals with the Code of
Ethics of the Profession of Chartered Accountancy. As per clause 8, a
Chartered Accountant in practice shall be deemed to be guilty of professional
misconduct if he accepts the position of Auditor previously held by another
Chartered Accountant without first communicating with him in writing.
It is important
to remember that every client has an inherent right to choose his Auditor. But
underlying objective of this clause is that besides the professional courtesy
the member being removed must have an opportunity to know the reasons for the
change in order to be able to safeguard his own interest, the legitimate
interest of the public and the independence of the existing Auditor. Therefore
the new Auditor, who is being appointed in place of Retiring Auditor should
not accept the audit unless he communicates with the previous Auditor and
ensure that such communication in writing has reached to the Retiring Auditor.
Therefore, a letter under U.P.C. is not considered as effective communication
and the same should be sent by Registered Post Acknowledgement Due letter or
hand delivery. The professional reasons for not accepting an Audit in place of
the Retiring Auditor would be:
of the provisions of sections 224 and 225 of the Companies Act;
undisputed audit fees by auditees (other than in case of sick units) for
carrying out the statutory audit under the Companies Act, 1956 or various
other statutes; and
Issuance of a
No company or its
Board of directors shall appoint or re-appoint any person who is in full-time
employment elsewhere or firm as its auditors.
Where at an
annual general meeting no auditors are appointed or re-appointed, the Central
Government may appoint a person to fill the vacancy.
of the auditors includes any sum paid by the company in respect of the
APPOINTMENT OF AUDITORS FOR LISTED COMPANIES
The Council of ICAI have accepted the recommendation of
Securities & Exchange Board of India (SEBI) that audit of listed companies
shall be carried out by the auditors who have undergone Peer Review Process
and have been issued Peer Review Certificate by the Peer Review Board
The above decision is effective for accounting periods
commencing on or after April 1, 2009.
Consequent to the above decision, all the auditors of
Listed Companies are required to undergo Peer Review Process and get Peer
Review Certificate issued from the Peer Review Board.