Auditor

APPOINTMENT OF FIRST AUDITORS

• A Board meeting should be conveyed within one month of the date of registration of the Company and a Resolution should be passed appointing and fixing remuneration of the first Auditors who shall hold office until the conclusion of first Annual General Meeting (AGM).
• The person being appointed as the first Auditors of the Company should not hold any security carrying voting right of that Company. If the Board fails to appoint first Auditors within one month after the registration, then a General Meeting should be held by issuing 21 days notice with relevant Explanatory statement and Auditor can be appointed by passing ordinary resolution.
• In case of listed Public Limited Company for such appointment of Auditors in General Meeting, 3 copies of the notice and copy of the proceedings of the General Meeting should be forwarded promptly to the Stock Exchange where such shares of the Company are listed. 

APPOINTMENT OF RETIRING AUDITORS

• An Auditor is normally being reappointed at the A.G.M. Therefore, the Company should obtain a written certificate from the Auditor that the re-appointment, if made, will be in accordance with the limits specified in Section 224(1B).
• Though the limits as specified in section 224(1B) does not apply to a Private Company after Companies (Amendment) Act, 2000, as per Institute’s Code of Ethics the limit continues to apply, which should be borne in mind while accepting the audit. 
  
  The Company convening the AGM, (after issuing notices in writing at least 21 days before the meeting along with the Explanatory statement), should pass ordinary resolution in the A.G.M. appointing the retiring Auditor as Auditor of the Company, who shall be holding the office till the conclusion of next A.G.M. and the resolution should also contain details of his remuneration. 
  
  Three copies of the notice and proceedings of A.G.M. should be sent to the Stock Exchange, where such shares of the Company are listed.
• Instead of Ordinary Resolution, a Special Resolution by 3/4th majority is required to be passed in case of a Company in which not less than 25% of the subscribed share capital is held singly or in any combination by Government Company/Central Government/State Government, Nationalised Banks/Insurance Company/Financial Institution etc. [Section 224A(1)]
• The Company should intimate the Auditor about his appointment within 7 days of the passing of the Resolution appointing him.
• The Auditor should inform the Registrar of Companies in Form No. 23B within one month of the receipt of the intimation from the Company that he has accepted or refused to accept his appointment.

APPOINTMENT OF BRANCH AUDITOR

• The accounts of the branch office of a Company, if any, is required to be audited by the Company’s auditor appointed u/s. 224 or by a person qualified for appointment as auditor u/s. 226. Where the branch office is situated outside India, the accounts to be audited either by the Company’s auditor or by an accountant duly qualified to act as an auditor in accordance with the laws of that country. The shareholders may authorise the Board to appoint the branch auditors in consultation with the Company’s auditors. However the Central Government is empowered to make such rules as it may deem fit for the matters specified in relation to the branch auditors.
• Notwithstanding that the accounts of the branch are audited by a person other than the Company’s auditor, the Company’s auditor shall have the right to visit the branch and have access to the book and accounts and vouchers of the Company. However, in case of a banking Company having a branch outside India, the Company’s auditor may have right to access of copies and extracts of the books of account.
• The branch auditors shall have the same powers and duties as that of Company’s auditors. The branch auditor shall forward his report to the Company’s auditors.

APPOINTMENT OF AN AUDITOR OTHER THAN THE RETIRING ONE  (Change of Auditor)

• The Company must receive a Special Notice from a member/shareholder not less than 14 days before the ensuing A.G.M. indicating his intention to move a resolution for changing the existing Auditor of the Company and for appointing another Auditor in his place.
• The Company must send forthwith a copy of such notice to the existing auditor of the Company.
• A certificate in writing should be obtained from the proposed new Auditor to the effect that his appointment, if made, will be in accordance with the limits as specified in Sec. 224(1B).
• The Company must issue notice in writing at least 21 days before the date of A.G.M. stating about the Special Notice received and proposing the ordinary resolution for change of the Auditor along with Explanatory statement.
• The retiring Auditor has a right to make representation either in writing to the Company or orally at the A.G.M. If the representation is received from the Auditor the same should be enclosed along with notice. If the representation could not be sent along with the notice for being received late, it should be sent later at any time, being reasonable time, but before the A.G.M.
• In case it is not possible to send special notice and representation in the notices of the A.G.M., then the Company should inform the shareholders by advertisement in newspaper having appropriate circulation or by any other mode as allowed by the Articles of Association not less than 7 days before such A.G.M.
• However, if a copy of such representation by the retiring auditor is not possible to be sent as aforesaid, because they were received too late or because of the default of the Company, such written representation shall be read out at the meeting. This is without prejudice to the right of the Auditor to be heard orally in the A.G.M. But in certain circumstances the Company Law Board can exempt the Company from sending or reading out such representation of the retiring Auditor on the application either of the Company or of any of the persons, who claims to be aggrieved.
• Three copies of such notices to be forwarded to the Stock Exchange, where such shares of the Company are listed.
• The Company should then hold a General Meeting and pass a Resolution.
• Only after such Resolution is passed in the A.G.M. the new Auditor shall be considered as duly appointed in place of the Retiring Auditor.
• The new Auditor should inform the concerned Registrar of Companies in Form No. 23B about his accepting the appointment within one month from the receipt of Intimation of his appointment from the Company.

REMOVAL OF AN AUDITOR BEFORE THE EXPIRY OF HIS TERM

• An Auditor is appointed at the A.G.M. and he holds the position till the conclusion of the next A.G.M. However, circumstances may permit a Company to remove the Auditor before the expiry of his term.
• For this, Board of Directors, should convene a meeting after giving notice to all the Directors, to approve the draft of the application to be sent to the Central Government for the removal of the Auditor.
• Such an application is to be made to the Regional Director of the concerned Region seeking approval of the removal of the Auditor before the expiry of his term. Such application should be made on the letterhead of the Company mentioning the details and reasons.
• Necessary formalities of enclosing documents, payment of fees etc. are to be complied with.
• The Regional Director after considering the merit of the application and based on facts and circumstances of the case, may approve such removal of the Auditor.
• On receipt of such approval a meeting should be called of Board of Directors to fix the date, time, place and agenda of the Meeting where the previous Auditor will be removed and a new Auditor will be appointed in his place.
• Notice should be issued in writing at least 21 days before the date of A.G.M. and ordinary resolution should be passed appointing new Auditor in the place of previous Auditor at the A.G.M.

CODE OF ETHICS AND OTHER PROVISIONS ON CHANGE OF AUDITORS

• Part I of the First Schedule of Chartered Accountants Act, 1949 deals with the Code of Ethics of the Profession of Chartered Accountancy. As per clause 8, a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he accepts the position of Auditor previously held by another Chartered Accountant without first communicating with him in writing.
• It is important to remember that every client has an inherent right to choose his Auditor. But underlying objective of this clause is that besides the professional courtesy the member being removed must have an opportunity to know the reasons for the change in order to be able to safeguard his own interest, the legitimate interest of the public and the independence of the existing Auditor. Therefore the new Auditor, who is being appointed in place of Retiring Auditor should not accept the audit unless he communicates with the previous Auditor and ensure that such communication in writing has reached to the Retiring Auditor. Therefore, a letter under U.P.C. is not considered as effective communication and the same should be sent by Registered Post Acknowledgement Due letter or hand delivery. The professional reasons for not accepting an Audit in place of the Retiring Auditor would be:

• Non-compliance of the provisions of sections 224 and 225 of the Companies Act;
• Undercutting of fees;
• Non-payment of undisputed audit fees by auditees (other than in case of sick units) for carrying out the statutory audit under the Companies Act, 1956 or various other statutes; and
• Issuance of a qualified report.

• No company or its Board of directors shall appoint or re-appoint any person who is in full-time employment elsewhere or firm as its auditors.
• Where at an annual general meeting no auditors are appointed or re-appointed, the Central Government may appoint a person to fill the vacancy.
• The remuneration of the auditors includes any sum paid by the company in respect of the auditors expenses.

APPOINTMENT OF AUDITORS FOR LISTED COMPANIES

The Council of ICAI have accepted the recommendation of Securities & Exchange Board of India (SEBI) that audit of listed companies shall be carried out by the auditors who have undergone Peer Review Process and have been issued Peer Review Certificate by the Peer Review Board

The above decision is effective for accounting periods commencing on or after April 1, 2009.

Consequent to the above decision, all the auditors of Listed Companies are required to undergo Peer Review Process and get Peer Review Certificate issued from the Peer Review Board.