Audit and certification · Audit and assurance
How is a company's auditor appointed, and when must auditors be rotated?
Short answer
The board appoints the first auditor within 30 days of incorporation. After that, members appoint the auditor at the AGM for a five-year term, and the company files ADT-1 within 15 days. Listed companies, and unlisted or private companies above specified sizes, must rotate auditors: an individual can serve one five-year term and a firm two, followed by a five-year gap. Small companies and OPCs need not rotate.
Appointment
| Stage | Who appoints | Term |
|---|---|---|
| First auditor | Board, within 30 days of incorporation (or members within 90 days if the board fails) | Until the first AGM |
| Later auditors | Members at the AGM | Five years, from that AGM to the sixth AGM |
| Casual vacancy | Board, within 30 days (if caused by resignation, approved by members within 3 months) | Until the next AGM |
| Government companies | The Comptroller and Auditor General of India | Each year |
The company obtains the auditor's written consent and eligibility certificate, and files ADT-1 within 15 days of the meeting. Annual ratification by members is no longer required.
Who cannot be appointed (section 141)
Among others: a person who holds shares or a security in the company, a relative or partner of a director, someone indebted to the company beyond the limit, someone in a business relationship with it, and a person who already holds 20 company audits (OPCs, small and dormant companies, and private companies with paid-up capital below ₹100 crore are not counted).
Rotation
Rotation applies to:
- listed companies;
- unlisted public companies with paid-up capital of ₹10 crore or more;
- private companies with paid-up capital of ₹50 crore or more; and
- any company with public borrowings (from banks, financial institutions or deposits) of ₹50 crore or more.
| Auditor | Maximum | Cooling-off |
|---|---|---|
| Individual | One term of 5 years | 5 years |
| Audit firm | Two terms of 5 years (10 years) | 5 years |
During the cooling-off period, a firm with a common partner, or in the same network, cannot be appointed.
Removal and resignation
- Removal before the term ends: a special resolution and the Central Government's approval (ADT-2), after hearing the auditor.
- Resignation: the auditor files ADT-3 within 30 days, stating the reasons.
Legal basis
- Sections 139, 140 and 141, Companies Act, 2013
- Rules 3 to 6, Companies (Audit and Auditors) Rules, 2014
Official sources
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