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Easy Guide to Appointment of Auditors in India

Appointment of Auditors

All companies registered in India must go through appointment of auditors and get their financial records audited every year. This guide explains everything about the audit process and the appointment of auditors under the Companies Act in a simple and easy-to-understand manner.

Who is an Auditor and What is Their Role?

An auditor is a qualified individual or firm responsible for checking a company’s financial records. Their job is to ensure that the financial statements are accurate and give a fair picture of the company’s financial health.

To be eligible as an auditor:

The auditor examines financial records, gives an independent opinion, and ensures compliance with laws.


How is an Auditor Appointed?

  1. First Auditor: When a company is newly formed, the Board of Directors must appoint the first auditor within 30 days of incorporation. If they fail, the company members must appoint one within 90 days at an Extraordinary General Meeting (EGM). The first auditor serves until the first Annual General Meeting (AGM).
  2. Subsequent Auditors: At the first AGM, shareholders appoint an auditor for up to 5 years (until the 6th AGM). The appointment may also be renewed annually.

Why is an Auditor Important?

Auditors help protect shareholders’ interests by ensuring that financial records are transparent and accurate. Their reports give investors confidence in a company’s financial stability.


Documents Required for Appointment of Auditors

When appointing a new auditor, the company must submit certain documents to the Registrar of Companies (ROC):


Steps to Appointment of Auditors

  1. Check Eligibility: Only a practicing Chartered Accountant can be appointed as an auditor.
  2. Get Auditor’s Consent: The auditor must give a written consent and a certificate stating they meet all legal requirements.
  3. Pass a Board Resolution: The Board of Directors approves the appointment.
  4. File Form ADT-1: Submit this form to the ROC within 15 days of appointment.
  5. Notify the ROC: Inform the ROC about the appointment in a timely manner.
  6. Ratification at AGM: Annual approval of auditor appointment is no longer mandatory under recent amendments.

Special Rules for Different Types of Companies


Replacing an Auditor

If a company wants to change auditors, it must issue a special notice under Section 115 of the Companies Act, 2013. The outgoing auditor can submit a written representation, which must be shared with shareholders before voting on the change.

Rotation of Auditors

What Happens If an Auditor Leaves Mid-Term? (Casual Vacancy)


Re-Appointment of an Auditor

An auditor can be re-appointed if:


Are Auditors Only Concerned with Annual Accounts?

Typically, auditors focus on annual financial statements, which must be submitted to the Registrar of Companies (RoC). However, in some cases, audits may be conducted more frequently, such as:

Many large companies, such as Reliance Industries or Tata Consultancy Services (TCS), engage auditors year-round to maintain transparency and efficiency.

Apart from financial audits, auditors may also provide services like tax advisory, bookkeeping, and business consulting, but they must not be involved in company management to maintain independence.


Are All Companies Required to Conduct an Audit?

Not all companies need an audit. Small and dormant companies may qualify for exemption. As per the Companies Act, a private company is exempt from an audit if it:

However, companies like banks, NBFCs (Non-Banking Financial Companies), and those listed on the stock exchange must undergo audits.


Appointment of Auditors & Removal of Auditors

How is an Auditor Appointed?

Can an Auditor Be Removed?

For example, in 2018, Deloitte resigned as the auditor of Manpasand Beverages due to corporate governance concerns, leading to investor scrutiny.


Who Can Act as an Auditor?

An auditor must be independent and hold a valid certificate of practice from a recognized regulatory body. In India, the following professional bodies regulate auditors:

Auditors cannot be employees or directors of the company they audit to avoid conflicts of interest.


What Happens After an Audit?

For example, Infosys publishes its audited financials regularly, allowing investors to make informed decisions.


Conclusion

Auditors play a critical role in maintaining corporate transparency and accountability. Their work ensures that companies comply with legal requirements, prevent fraud, and protect shareholder interests. With increasing corporate governance norms in India, companies must maintain strong auditing practices to build investor confidence and long-term success.

Appointing and auditing financial records are crucial for good corporate governance. Following these guidelines ensures transparency and accountability in a company’s financial affairs. Staying updated with Companies Act regulations helps businesses comply with legal requirements efficiently.

 

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More information can be found at: https://mca.gov.in

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