Appointment of First Auditor of Company

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Reading Time: 6 minutes| (Last Updated On: October 6, 2019)

The compliance of company’s financial records and accounting procedures with the right laws is an inevitable prerequisite. An auditor keeps a hawk-eye on the changes that are revised from time to time in the provisions mentioned in the 2013 Act with the purpose to ensure that the company is complying with the set of laws. Not only this, the auditing of the books of the company and representation and explanation of the affairs of the Company to the shareholders are also two of the major areas that are covered and managed by the Auditor of a company. Appointment of the first auditor of the company

Appointment of First Auditor of the Company

It’s significant to know that the provisions associated with the auditors in the 2013 Act have come up with substantial amendments as compared to those stated in the 1956 Act. Consequently, there are some provisions associated with the auditors for which the descriptions have been amended or revised in the companies Act, 2013.

Companies Act makes it mandatory for the companies to appoint a Statutory Auditor to do the audit of the books of account of the company. The primary responsibility of appointing the Auditor is on the Board Of Directors. We shall support you to appoint an auditor for your company. The board of directors of the company is obligated to find a suitable Chartered Accountant who is in full-time practice as a CA and is eligible to take a fresh assignment of statutory audit for the company. Please note that a CA is not eligible for audit of your company if he is also providing his services for the purpose of accounting, consulting or GST Return filing. In other words to become an auditor of your company the CA must be an independent person and not involved in day to day accounting, tax or any other manner.

When it comes to the appointment of the first auditor in a company, provided that  it’s not a government company or company owned/ controlled by CG/SG/CG and SG [139(6)]; Board of Directors appoint the First auditor of the company within thirty days of the date of incorporation for the period until the conclusion of the first annual general meeting of the company. Moreover, In case the board fails to appoint the first auditor of the company, the members of the company shall be informed, who shall further appoint the auditor within 90 days in an extraordinary general meeting.

We maintain a pool of experienced and independent chartered accountants who are eligible to conduct the statutory audit of the company as required under section 139 of the Companies Act. You may avail of our consulting service to find a suitable auditor in compliance with section 139 to 148 of the Act. We shall be working closely with the Board of Directors of the company to appoint the first auditor of the company. 

Applicability On Companies: The requirement to appoint an independent practicing chartered accountant is applicable to all companies and the board of directors of every company irrespective of its capital and type must appoint a statutory auditor within 30 days of the incorporation of the company, However in case of failure on the part of directors, the shareholders can appoint auditor within 90 days. In a properly called and conducted an extraordinary general meeting (EGM)

Who Can be Appointed as Auditor: Section 139 of the Companies Act, prescribes qualification and condition for appointment of an auditor, according to it the auditor must be an independent person and must be qualified Chartered Accountant with valid membership of ICAI.

The Auditor Must be an Independent Person: Audit of the company is a statutory requirement and it must be done by an Independent CA who is in full-time practice and is not engaged in any other service directly or indirectly for the company or its holding company. Section 144 clearly lays down certain restrictions on the auditors to ensure independence and integrity on the part of the auditor while discharging their responsibility as an auditor of the company. The law prescribes that an auditor must not engage in providing below services to the company or its holding company, whether directly or indirectly:

  1. Accounting and bookkeeping services;
  2. Internal Audit;
  3. Design and Implementation of any financial information system;
  4. Actuarial ServiceInvestment Advisory ServicesInvestment Banking Services;
  5. Rendering of outsourced financial services;
  6. Management Services; etc.

In other words, a statutory auditor must not do anything for the company other than the audit of the finalized final accounts of the company. The company is under the responsibility to prepare the books of account and draft the balance sheet, profit, and loss account, other financial reports and give to the auditor for expression of his opinion and Audit Report.

Intimation of Auditor Appointment: The appointment of the auditor is required to be intimated to the registrar of companies by filing Form ADT-1 with a prescribed fee within 15 days of appointment of the auditor. The first auditor appointed by the board of directors may not be intimated to ROC.

The stepwise process for appointment of the first auditor

  1. Shortlisting of Qualified Auditor: The process of auditor starts with the preparation of a list of possible auditors, who are a CA in full-time practice and is eligible to do statutory audit under the companies act, 2013. Next, the company should send a letter seeking their consent to act as a statutory auditor of the company.
  2. Obtain Consent from the Auditor: The auditor consent has to be in proper format wherein a specific declaration shall be made that the audit assignment shall be within the limits prescribed and that the auditor is eligible for appointment and is not disqualified for appointment under section 141 of the Companies Act, 2013, the Chartered Accountant Act, 1949 and rules and regulations made thereunder.
  3. Hold Board Meeting to Appoint the Auditor: The next step is to call a Board Meeting and decide about the appointment of the first auditor of the company and to fix the remuneration for the auditor, in general, one director is authorised to carry out the formalities of auditor appointment.
  4. Intimate Auditor of his appointment: The decision of the board of directors meeting, confirming the appointment of the auditor must be communicated to the auditor by way of a formal letter on the letterhead of the company duly signed by the authorised director of the company.
  5. File ADT-1 (Optional for First Auditor): The form ADT-1 is an intimation to the registrar of companies about the appointment of the statutory auditor for the company. The form ADT-1 must be filed within 15 days of the appointment of the auditor. 

It is not obligatory for the company pursuant to section 139(6) to give notice of appointment of First Auditor of the company to the Registrar. (Note: Filing of ADT-1 is not mandatory as the first auditor is appointed under section 139(1) of the companies act 2013 which is silent on the filing of ADT-1, However, we recommend to file it)

Drafting for the purpose of appointment of auditors appointment: Here is the list of documents which may be necessary for auditors appointment in the company. For any assistance in drafting please do let us know. To learn about our post company incorporation services please Click Here

  1. Letter to auditor seeking eligibility to take up an assignment as The Statutory Auditor as required under section 139 of the Companies Act, 2013. [This letter must be prepared on Company Letterhead and should be signed by one director or any other person who has been duly authorised by the board of directors in this connection]
  2. Letter from the qualified auditor expressing his eligibility, availability, and willingness to take up the assignment as the statutory auditor of the company [On the letterhead of Practicing Chartered Accountant/CA Firm]
  3. Minutes of the board meeting appointing the first auditor
  4. Letter to auditor confirming his appointment as the statutory auditor of the company [On the letterhead of the company]

Sample Board Resolution for the appointment of the first auditor of the company

“RESOLVED THAT pursuant to the provisions of Section- 139(6) and other applicable provisions, if any, of the Companies Act, 2013 and the Rules framed there under, as amended from time to time, M/S ________, Chartered Accountants, be and is hereby appointed as First Auditor of the Company to hold office from the conclusion of this meeting till the conclusion of the 1 st AGM of the Company to be held in the year 2016, at such remuneration as may be agreed upon between the Board of Directors and Statutory Auditors, in addition to the reimbursement of service tax and actual out of pocket expenses incurred in relation with the audit of accounts of the Company

RESOLVED THAT Mr. ___________be and is hereby authorized to file ADT-1 and other form and document to ROC and other regulatory authority, if necessary.”

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