Appointment of First Auditor Sec. 141 Companies Act 2013

The following article is an detailed explanation of Appointment of First Auditor under the Companies Act 2013. A proviso to section 141(1) states that a firm whose majority of partners practicing in India are qualified for appointment as auditor may be appointed by its firm name to be auditor of a company. The article clearly explains Eligibility and Qualification of Auditor, Appointment of first Auditor, Procedure of Appointment of First Auditor, Procedure where the auditor is not appointed by the Board and Procedure where the auditor is not appointed even by the Board etc.

Introduction

Appointment of First Auditor Section 141 Companies Act 2013

Company registered in India is required to appoint an individual or a audit firm as it’s first auditor after its incorporation. Accounts of the company’s are required to be audited by such first auditor.

At the year end, financial statements along with the auditor’s report are to be filled with register of companies (ROC) within 30 days after completion of annual general meeting.

According to the companies act 2013, only a chartered accountant in practice can be appointed as first auditor of the company. No other persons can be appointed as an auditor of the company.

Eligibility and Qualification of Auditor

Section 141 (1) & (2) of the Act prescribed the following eligibility and qualifications of auditor which are as under:-

  1. Only a Chartered Accountant (individual) or a firm where majority of partners practicing in India are Chartered Accountants can be appointed as auditor.
  2. Where a firm including a limited liability partnership (LLP) is appointed as an auditor of a company, only the partners who are chartered accountants shall be authorized to act and sign on behalf of the firm.

Appointment of First Auditor

The procedure of appointment of first auditor can be described under two broad headings as per the details given below.

Appointment of first auditor in case of every company except government company or company owned/ controlled by Central Government/State Government/Central Government and State Government [Section 139(6)] :

The first auditor of a company, other than a Government company, shall be appointed by the Board within thirty days from the date of registration of the company and if the Board fails to appoint such auditor, it shall inform the members of the company and the members shall make the appointment of first auditor within ninety days of information at an extra ordinary general meeting and such auditor shall hold office till the conclusion of the first annual general meeting.

Appointment of first auditor in case of government company or company owned/controlled by Central Government (CG)/State Government(SG)/Central Government and State Government [Section139(7]) :

Appointment of first auditor shall be made by Comptroller and Auditor-General of India (CAG) within sixty days of registration of the company. If CAG fails to appoint the first auditor within given time then Board of such company shall appoint first auditor within next 30 days.

If Board fails to appoint the first auditor within given time then it shall inform to members and members shall make the appointment of first auditor within 60 days of information at an extra ordinary general meeting. The First Auditor shall hold office till the conclusion of first AGM.

Government Company Meaning 

According to section 2(45) of the Act, Government company means any company in which not less than fifty-one percent of the paid-up share capital is held by-

  1. Central Government; or
  2. State Government(s);or
  3. Partly by Central Government and partly by State Government(s).

‘Government Company’ includes a company which is a subsidiary company of a Government company.

Tenure of first auditor: The first auditor shall hold office till the conclusion of the first annual general meeting[Section 139(6) and 139(7)]

Procedure of Appointment of First Auditor

In case of a company, other than a Government company:

General procedure of appointment of first auditor in case of a company, other than a Government company is as follows.

  1. Obtain certificate in writing from the proposed auditor confirming his eligibility and consent to be appointed as auditor of the company.
  2. Convene a Board meeting within 30 days of registration of the company after giving notice to all directors as per section 173 of the Act and pass a resolution for appointing the first auditor and fixing his remuneration.
  3. Inform the first auditor so appointed with a certified copy of the resolution.

Procedure where the auditor is not appointed by the Board

Section 139 (6) lays down that if the Board fails to exercise its power to appoint the first auditor within 30 days of registration of company, the Board shall intimate such failure to the members of the company. In this case, the following procedure is to be adopted-

  1. Convene a Board meeting, discuss the matter, decide the day, date, time and place of the general meeting (extra-ordinary general meeting) which shall not be beyond 90 days of Board’s information of failure to appoint first auditor and approve the notice of the meeting.
  2. Issue notice of extra-ordinary general meeting to the members of the company
  3. Hold the extra-ordinary general meeting and pass resolution for appointing the first auditor.
  4. Immediately inform the first auditor of his appointment, forwarding therewith a certified copy of the resolution passed at the meeting.
  5. In case of listed company, forward promptly to the stock exchange three copies of notice and copy of proceedings of the meeting.

Appointment of First Auditor – Government Companies

Appointment of first auditor shall be made by the Comptroller and Auditor-General of India (CAG) within sixty days of registration of the company. If CAG fails to appoint the first auditor within the 60 days of registration of the company, the following procedure follows.

  1. Obtain certificate in writing from the proposed auditor confirming his eligibility and consent to be appointed as auditor of the company.
  2. Convene a Board meeting within 30 days of getting information of CAG’s failure to appoint first auditor after giving notice to all directors as per section 173 and pass a resolution for appointing the first auditor and fixing his remuneration.
  3. Inform the first auditor so appointed with a certified copy of the resolution.

Procedure where the auditor is not appointed even by the Board

Section 139 (7) lays down that if the Board fails to exercise its power to appoint the first auditor within 30 days of getting information of CAG’s failure to appoint first auditor of company, the Board shall intimate such failure to the members of the company. In this case, the following procedure is to be adopted

  1. Convene a Board meeting, discuss the matter, decide the day, date, time and place of the general meeting (extra-ordinary general meeting) which shall not be beyond 60 days of Board’s information of failure to appoint first auditor and approve the notice of the meeting.
  2. Issue notice of extra-ordinary general meeting to the members of the company.
  3. Hold the extra-ordinary general meeting and pass resolution for appointing the first auditor.
  4. Immediately inform the first auditor of his appointment, forwarding therewith a certified copy of the resolution passed at the meeting.
  5. In case of listed company, forward promptly to the stock exchange three copies of notice and copy of proceedings of the meeting.

Appointment of Subsequent Auditor in case of Government Company or company owned/ controlled by CG/SG/ CG and SG [Section 139(5)]:

Appointment or reappointment of auditor in case of Government Company or company owned/ controlled by CG/ SG/CG and SG shall be made by CAG within 180 days from the commencement of financial year i.e. 1st April of each year. The Auditor shall hold office for a till the conclusion of AGM.

Conclusion:

The above all the information Prepared on the basis of the Relevant Provisions under the Companies Act 2013. For better Understanding Cross check the Companies Act 2013. For any doubts and quarries comment below.