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TMI BlogAPPOINTMENT OF AUDITORS UNDER NEW COMPANY LAW (Part -1)X X X X Extracts X X X X X X X X Extracts X X X X ..... APPOINTMENT OF AUDITORS UNDER NEW COMPANY LAW (Part -1) - By: - Dr. Sanjiv Agarwal - Corporate Laws / IBC / SEBI - Dated:- 26-12-2013 - - Statutory Provision ( Section 139 ) Section 139 corresponds to section 224 of the Companies Act, 1956 and seeks to provide that a company shall appoint an individual or a firm as an auditor at Annual General Meeting subject to his written consent, who shall hold office till conclusion of sixth annual general meeting. The manner and procedure of selection committee shall be prescribed by the Central Government. A notice of appointment should be filed with the Registrar. The Section provides for the provisions for rotation of auditors. The Central Government may prescribe the manner in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the companies shall rotate their auditors. The Comptroller and Auditor-General of India appoints auditor of Government Companies. First auditor of a company, other than a Government company, is appointed by Board within 30 days of registration and in case of failure to appoint, the members at a general meeting shall appoint the same. In case of a Government Company or a Company owned or controlled by Government, Comptroller and Auditor-General of India shall appoint auditor. In case of their failure, the Board shall appoint first auditor and in case of failure members of company in general meeting will appoint an auditor. Shift from earlier provision This section corresponds to section 224 Appointment and remuneration of aud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itors of the Companies Act, 1956 and deals with the matters relating to appointment of auditors, ceiling on number of audit terms and the period for which the auditors can hold the office. The significant changes are as follows: (a) an individual or firm shall hold office of auditors till the conclusion of its 6 th Annual General Meeting, (b) listed company or specified company shall not re-appoint an individual, who as Auditor for more than one term and a firm as an Auditor for more than 2 terms of 5 consecutive years, has completed in the same company, (c) rotation of auditing partner and his team, (d) power of Central Government to appoint an auditor in case no auditor is appointed in AGM, has been dispensed with; existi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng auditor to continue in such cases. (e) all appointments including filling of casual vacancy . Appointment of auditor in AGM Sub-section (1) provides that in the first annual general meeting , the shareholders appoint the auditor till the conclusion of the sixth annual general meeting i.e. for 5 years and the company shall place the matter relating to such appointment of auditor for ratification by members at every annual general meeting. A written consent of the auditor and a certificate to the effect that such appointment and reappointment is in accordance with the conditions as may be prescribed, shall be obtained from the auditor, before the appointment or reappointment of auditor is made at any annual general meetin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g. The certificate shall also indicate that the auditor satisfies the criteria provided in Section 141 of the Act regarding eligibility, qualifications and disqualification of auditors. The conditions of appointment shall be prescribed by way of Rules. Intimation of appointment The company after appointing auditor at annual general meeting shall intimate to the auditor about his appointment and file a notice of such appointment or reappointment with the Registrar within fifteen days of the annual general meeting in which the auditor so appointed. Now in case of appointment of Auditor, the Company has to intimate both, the Auditor and the Registrar within15 days of the appointment, as against the provisions of Companies Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 956 wherein the onus of intimation of appointment was upon the Auditor. Period of office Sub-section (1) provides that auditor appointed in annual general meeting shall hold office from the conclusion of the annual general meeting in which he is appointed until the conclusion of the sixth annual general meeting of the company i.e. for five years subject to his appointment is ratified by the shareholder in every annual general meeting thereafter. The appointment ,including reappointment if any, of the auditors shall be made for a period or term of five years i.e., till the conclusion of 6 th Annual General Meeting, if made in first annual general meeting and for subsequent appointments, till the conclusion of every 6 th meetings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, members will have a right to ratify such continuation of appointment in every AGM, making it a requirement that practically, continuation of auditor shall require a shareholders nod at every AGM. It is to be noted that the auditor will continue the office up to the conclusion of the sixth annual general meeting and will not retire until the meeting is actually held and also concluded. Thus, in case where an annual general meeting is not held within the period prescribed by Section 96, the auditor shall continue its office, until the next annual general meeting is held and concluded. The period of office of auditor is not for any particular year or financial year as such and therefore, he can audit the accounts pertaining to al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l financial years which are laid down before the general meeting held during his tenure of office as auditor. It should be noted that sub-section (10) provides that where in any annual general meeting, no auditor is appointed or reappointed, the existing auditor shall continue to be the auditor of the company. Ceiling on term for specified companies Any listed company or a company belonging to such class or classes of companies as may be prescribed shall not appoint or reappoint (a) an individual as auditor for more than five consecutive years; (b) an audit firm as auditor for more than two terms of five consecutive years i.e. ten years. Following conditions on the audit terms have been provided in the Act : (a) Proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sub-section (2) provides that in case an individual has completed his terms of consecutive five years and a firm has completed his term of consecutive ten years shall, he or it, shall not be reappointed in the same company as auditor for five years from the completion of such terms. Thus, there will be a cooling period of five years. (b) As on date of the appointment, audit firm having a common partner or partners in the other audit firm, whose tenure has expired in a company in the immediately preceding financial year, shall not be appointed as auditor of the same company for a period of five years. (c) A transition period of 3 years from the commencement of the Act has been prescribed for the company existing on or before the comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncement of the Act, to comply with the provisions of the rotation of auditor. (d) The right of the company to remove the auditor or the right of the auditor to resign from such office of the company is not affected by this sub-section. Thus, an auditor can resign or be removed by the shareholders before completion of his term as notified in sub-section(2). In case of appointment of auditor ,other than the retiring auditor or expressly stating that auditor shall not be appointed, a special resolution will be required. (e) The firm shall include a limited liability partnership incorporated under the Limited Liability Partnership Act, 2008 . (To be continued ..) - Reply By JAYARAMAN M as = in the case of listed companies, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power of appointment should be with SEBI, who will get list from icai empanelment and according to their size, no of partners, exp companies are to be alloted and informed to the companies. This type of mechanism will ensure independent of the auditor and the younger generation be given lot of weitage and preference so that large pool of unemployed will be evenly utilised instead of handled exclusively dominated by the so called big four Dated: 12-1-2014 - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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