AUDITOR APPOINTMENT.
MANNER AND PROCEDURE OF APPOINTMENT AND SELECTION OF AUDITORS (RULE 3)
In case of a company that is needed to constitute an Audit Committee under section 177, the committee and, in cases where such a committee is not needed to be constituted, the Board, shall take into consideration the individual qualification and experience or the proposed firm to be considered as auditor for appointment and whether qualifications such and experience are commensurate with the company size and requirements.
While taking the appointment into consideration, the Audit committee or the Board, as may be the case, shall have regard to any order or proceeding pending relating to the professional matters of conduct against the auditor proposed before the Institute of Chartered Accountants of India or any authority competent or any Court.
The Board or the Audit Committee, as may be the case, may call for such other information as it may deem fit from the auditor proposed.
When a comhpany is needed to constitute the Audit committee, the committee shall recommend the individual name or as a firm auditor for the consideration to the Board and in other cases, the Board shall make sure and recommend an individual or as auditor firm to the members for appointment in the annual general meeting.
If the Board disagrees with the Audit Committee recommendation, it shall recommend further the individual appointment or a firm as auditor in the annual general meeting to the members
If the Board disagrees with the Audit committee recommendation
It shall refer back to the committee the recommendation for citing reasons for reconsideration for disagreement such.
If the Audit committee, after considering the reasons given by the Board, decides not to reconsider its original recommendation, the Board shall record reasons for its disagreement with the committee and send its recommendation of own for consideration in the general annual meeting of the members and if the board agrees of the Audit committee with the recommendations, it shall place the consideration matter in the annual general meeting by the members.
The auditor in the annual general meeting appointed shall hold office from the conclusion of that meeting till the conclusion of the annual general meeting sixth meeting with the meeting such appointment wherein has made being counted as the first meeting.
Such appointment shall be subject in every annual general meeting till the sixth such meeting of an ordinary resolution by way of passing.
If the appointment is not ratified by the company members, the Board of Directors shall appoint another individual or as its auditor firm or auditors after following the procedure in this behalf under the Act laid down.
CONDITIONS FOR APPOINTMENT AND TO REGISTRAR NOTICE (RULE 4).
The appointed auditor under rule 3 shall submit a certificate that—
the firm or the individual, as may be the case, for appointment is eligible and is not disqualified under the Act for appointment, the Chartered Accountants Act, 1949 and the regulations or rules there-under made;
the appointment proposed is as per the provided term under the Act;
the appointment proposed is within the laid limits down by or under the Authority of the Act;
the proceedings list against the auditor or audit firm or any partner of the pending audit firm in accordance to professional matters of conduct in the certificate as disclosed, is true and correct.
The Registrar notice about the auditor appointment under fourth proviso to the sub-section (1) of section 139 shall be in Form ADT-1.
NOTIFIED CLASS OF COMPANIES U/S 139 (2) [RULES 5]
For the sub-section (2) purposes of section 139, the companies class shall mean the following companies classes excluding one person companies and companies that are small:-
all public companies that are unlisted having paid up share capital of rupees more than ten crores ;
all companies having share capital paid up of below threshold limit above mentioned, but having from financial institutions public borrowings, Rupees fifty crores public deposits or banks or more.
MANNER OF ROTATION OF AUDITORS ON EXPIRY BY THE COMPANIES OF THEIR TERM (RULE 6).
The Audit committee to the Board shall recommend, the name of an individual auditor or of an audit firm who may replace the auditor incumbent of the term expiry of such incumbent.
Where a required company to constitute an Audit committee, the Board may consider such committee recommendation, and in other cases, the board shall consider itself the matter of rotation of auditors and make its recommendation for appointment in annual general meeting by the members of the next auditor.
For the purpose of rotation of auditors.
a break in the term for a five years continuous period shall be considered as the requirement of rotation fulfilling.
If a partner, who is in an audit firm charge and also certifies the company financial statements retires from the firm mentioned and chartered accountants auditor firm such other firm shall be ineligible for a five years period to be appointed.
Consecutive years shall mean all the following financial years for which the firm has been auditor until there has been a five years break or more.
Where a company has appointed two or more individuals or firms or thereof combination as joint directors, the company may continue the rotation of auditors in such a manner that both or all of the joint auditors as may be the case do not complete in the same year their term.
REMOVAL, AUDITOR RESIGNATION (SECTION 40)
REMOVAL OF BEFORE EXPIRY OF THE AUDITOR OF HIS TERM (RULE 7)
The central government application of auditor removal shall be made in Form ADT-2 and shall be accompanied as provided with fees for the purpose under the companies (Registration Fees and Offices) Rules, 2014.
The application shall be made within thirty days to the Central Government by the Board of the resolution passed.
The company shall hold the general meeting of receipt within the sixty days of the Central Government approval for passing the resolution.
AUDITOR RESIGNATION.
For sub-section (2) purposes of section 140, when an auditor from the company has resigned he shall file in Form ADT-3 a statement.
ELIGIBILITY, AUDITOR QUALIFICATION AND DISQUALIFICATION (SECTION 141)
AUDITOR DISQUALIFICATION
Section 141(3), inter alia as under provides:
The following persons shall not be eligible for appointment of the company as an auditor namely:-
a, a person who or his partner or his relative–
i, is holding any security or in the company interest or its subsidiary, or of its holding or associate company or a subsidiary of holding company such.
Provided that the relative may hold interest or security in the company for face value not exceeding rupees one thousand or as may be prescribed such sum;
ii, to the company is indebted, or its subsidiary, or its holding or associate company or such holding company subsidiary, in such amount excess as may be prescribed; or
iii, has given a guarantee or any security in connection provided with the indebtedness to the company of any third person, or its subsidiary or its associate company or holding or such holding company subsidiary as may be prescribed for such amount;
a firm or a person who, whether indirectly or directly, has business with the company relationship or its subsidiary, or its holding or such holding company subsidiary or associate company or such nature of associate company as may be prescribed.
For the purpose to sub-clause (i) proviso of clause (d) of sub-section (3) of section 141, an auditor relative in the company may hold securities of face value not exceeding one lakh rupees.
The condition provision under this sub-rule shall, wherever relevant, be also applicable in the company case not having other securities or share capital.
The provision in the acquiring event any security or by a relative interest above the prescribed threshold, the corrective action to maintain the specified limits above shall be taken within sixty days by the auditor of such interest or acquisition.
For the purpose of sub-clause (ii) of clause (d) of sub-section (3) of section 141, a person who or whose relative or indebted to the company partner or its subsidiary or associate company or holding or a subsidiary of holding company such, in excess of five lakh rupees for appointment shall not be eligible.
For the purpose of sub-clause (iii) of clause (d) of sub-section (3) of section 141 a person who or whose partner or relative has given a guarantee or any security provided in connection with any third person indebtedness to the company, or its subsidiary or associate company or holding or a such holding company subsidiary in excess of rupees one lakh shall not be eligible for appointment,.’
For the purpose of clause (e) of sub-section (3) of section 141, the term business relationship shall be construed as entered any transaction into for a commercial purpose except–
commercial transactions that are in the professional services nature allowed to be rendered by an audit firm or an auditor under the Act and the Chartered Accountants Act, 1949 and the rules or made under those Acts the regulations;
commercial transactions that are in the business ordinary course at arm’s length price – like products sale or to the auditor services as customer, in the business ordinary course, by engaged companies of telecommunications in the business, hospitals, hotels, airlines and such other businesses that are similar.
POWERS AND AUDITORS DUTIES (SECTION 143)
OTHER MATTERS IN AUDITORS REPORT TO BE INCLUDED (RULE 11)
The report of the auditor’s shall include also their comment and view on the following matters, namely:-
whether the company has impact disclosed, if any, of ligitations pending in its financial statement on its financial position
whether the company has provision made, as needed under any accounting standards or law, for forseeable losses material, if any, on long contracts term including contracts that are derivative.
whether there has been in transferring amounts any delay, needed to be transferred to the Investor Education and Protection Fund by the company.
DUTIES AND THE COMPANY”S AUDITOR POWERS WITH REFERENCE TO THE BRANCH AUDIT AND THE AUDITOR OF THE BRANCH (RULE 12)
For the sub-section(8) purpose of section 143, the company’s auditor powers and the duties with reference to the branch audit and the branch auditor, if any, shall be contained in sub-sections (1) to (4) of section 143.
The auditor of the branch shall submit to the auditor of the company’s his report.
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