Procedures under Companies Act, 2013

Appointment of first Auditor

Section 139(6) of the Companies Act, 2013 lays down that first auditor of a company, other than a Government company, shall be appointed by the Board of Directors within 30 days from the date of registration of the company and in the case of failure of the Board to appoint such auditor, it shall inform the members of the company, who shall within 90 days at an extraordinary general meeting appoint such auditor and such auditor shall hold office till the conclusion of the first annual general meeting.

The following procedure is to be followed for appointment of the first auditor of the company [Section 139 & 141 and Rule No. 3, 4 & 10 of the Companies (Audit and Auditors) Rules, 2014]:-

Part A- Appointment of First Auditor by Board of Directors in Board Meeting:

1. Obtain written consent and a certificate from the proposed auditor to the effect of eligibility under section 139 & 141 of the Act.

The certificate obtained from the proposed auditor shall certify that:-

(a) He is eligible for appointment and is not disqualified for appointment under the Act, the Chartered Accountants Act, 1949 and Rules and Regulations made therein.

(b) The proposed appointment is as per the term allowed under the Act.

(c) The proposed appointment is within the limit laid down in the Act.

(d) The list of proceedings against the auditor or audit firm or any partner of the audit firm pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct.

(e) The proposed auditor satisfies the criteria provided in section 141. [Rule No. 4 & 10 of the Companies (Audit and Auditors) Rules, 2014]

2. In case of a company that is required to constitute an Audit Committee under section 177, the committee, and, in cases where such a committee is not required to be constituted, the Board, shall take into consideration the qualifications and experience of the individual or the firm proposed to be considered for appointment as auditor and whether such qualifications and experience are commensurate with the size and requirements of the company. While considering the appointment, the Audit Committee or the Board, as the case may be, shall have regard to any order or pending proceeding relating to professional matters of conduct against the proposed auditor before the Institute of Chartered Accountants of India or any competent authority or any Court. [Section 139(11) and Rule No. 3 (1) of the Companies (Audit and Auditors) Rules, 2014]

3. Issue not less than 7 days notice and agenda of Board meeting, or a shorter notice in case of urgent business, in writing to every director of the company at his address registered with the company and call a Board Meeting within 30 days from the date of registration of the company to consider appointment of first auditor of the company. Also follow the procedure prescribed for issuing and signing of notice of Board Meeting.

4. Hold a meeting of Board of Directors within 30 days of incorporation of the Company :

To pass a Board Resolution for the appointment and fixation of remuneration of the first auditor of the company to hold office till the conclusion of the first annual general meeting . [Section 139(6)]

5. The Board may fix remuneration of the first auditor appointed by it. The remuneration shall, in addition to the fee payable to an auditor, include the expenses, if any, incurred by the auditor in connection with the audit of the company and any facility extended to him but does not include any remuneration paid to him for any other service rendered by him at the request of the company.[Section 142]

6. Inform the First Auditor so appointed and file a notice of such appointment with the Registrar in E-Form No. ADT-1 within 15 days of the board meeting.[Fourth Proviso to Section 139(1) and Rule 4(2) of the Companies (Audit and Auditors) Rules, 2014] along with the following attachments:

Certified true copy of the Board Resolution for Appointment of First Auditor.

Intimation Letter given by the Company to the Auditor

Consent Letter given by the Auditor to the Company

7. Prepare and circulate draft minutes within 15 days from the date of the conclusion of the Board Meeting, by hand/speed post/registered post/courier/e-mail to all the Directors for their comments. Alsofollow the procedure prescribed for preparing, circulation, signing and compiling of Board Minutes.(Secretarial Standards-1 )

Part B- Appointment of First Auditor by members in Extraordinary General Meeting:

Section 139 (6) of the Act provides that if the Board fails to exercise its power within 30 days after the registration of the company, it shall inform the members of the Company, who shall within 90 days at an extraordinary general meeting appoint first auditor and such auditor shall hold office till the conclusion of the first annual general meeting.. In this case, following procedure is to be followed:

1. Obtain written consent and a certificate from the proposed auditor to the effect of eligibility under section 139 & 141 of the Act.

The certificate obtained from the proposed auditor shall certify that:-

(a) He is eligible for appointment and is not disqualified for appointment under the Act, the Chartered Accountants Act, 1949 and Rules and Regulations made therein.

(b) The proposed appointment is as per the term allowed under the Act.

(c) The proposed appointment is within the limit laid down in the Act.

(d) The list of proceedings against the auditor or audit firm or any partner of the audit firm pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct.

(e) The proposed auditor satisfies the criteria provided in section 141. [Rule No. 4 & 10 of the Companies (Audit and Auditors) Rules, 2014]

2. In case of a company that is required to constitute an Audit Committee under section 177, the committee, and, in cases where such a committee is not required to be constituted, the Board, shall take into consideration the qualifications and experience of the individual or the firm proposed to be considered for appointment as auditor and whether such qualifications and experience are commensurate with the size and requirements of the company. While considering the appointment, the Audit Committee or the Board, as the case may be, shall have regard to any order or pending proceeding relating to professional matters of conduct against the proposed auditor before the Institute of Chartered Accountants of India or any competent authority or any Court. [Section 139(11) and Rule No. 3 (1) of the Companies (Audit and Auditors) Rules, 2014]

3. Issue not less than 7 days notice and agenda of Board meeting, or a shorter notice in case of urgent business, in writing to every director of the company at his address registered with the company and call a Board Meeting within 30 days from the date of registration of the company to consider first auditor to be recommended to the members of the company. Also follow the procedure prescribed for issuing and signing of notice of Board Meeting.

4. Hold a meeting of Board of Directors-

Consider the first auditor to be appointed and the remuneration to be paid to him, to be recommended to the members.

To fix day, date, time and venue for holding general meeting of the Company for passing an ordinary resolution as required under the Companies Act, 2013.

To approve the draft notice of general meeting along with explanatory statement annexed to the notice as per requirement of the Section 102 of the Companies Act, 2013. .

To authorize the Director or Company Secretary to sign and issue notice of the general meeting

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5. Prepare and circulate draft minutes within 15 days from the date of the conclusion of the Board Meeting, by hand/speed post/registered post/courier/e-mail to all the Directors for their comments. Alsofollow the procedure prescribed for preparing, circulation, signing and compiling of Board Minutes.(Secretarial Standards-1 )

6. Send notice of the General meeting to all the shareholders, directors, auditors and other persons entitled to receive it by giving not less than clear 21 days notice or shorter notice, if consent for shorter notice is given by at least 95% of members entitled to vote at such meeting, either in writing or through electronic mode in accordance with the Section 101 of the Act. Also follow the procedure prescribed for issuing and signing of notice and convening of General Meeting.

7. Hold a shareholders meeting on the fixed date and pass the Ordinary Resolution for appointment of the first auditor of the company to hold office till the conclusion of the first annual general meeting and approving the amount of remuneration to be paid to him. [Section 139(6)]. Alsofollow the procedure prescribed for preparing, signing and compiling of Minutes of Members Meeting.(Secretarial Standards-2 )

8. Inform the First Auditor so appointed and file a notice of such appointment with the Registrar in E-Form No. ADT-1 within 15 days of the general meeting.[Fourth Proviso to Section 139(1) and Rule 4(2) of the Companies (Audit and Auditors) Rules, 2014] along with the following attachments:

Certified true copy of the Ordinary Resolution for Appointment of First Auditor.

Intimation Letter given by the Company to the Auditor

Consent Letter given by the Auditor to the Company

Notes:

1. First auditor shall hold office till the conclusion of the first annual general meeting.[Section 139(6)]

2. Where a company constituted an Audit Committee under section 177, all appointments shall be made after taking into account the recommendations of such committee. [Section 139(11) and Rule No. 3 of the Companies (Audit and Auditors) Rules, 2014]

3. The remuneration of the auditor of a company shall be fixed in its general meeting or in such manner as may be determined therein. Provided that the Board may fix remuneration of the first auditor appointed by it.

The remuneration of the auditor shall, in addition to the fee payable to an auditor, include the expenses, if any, incurred by the auditor in connection with the audit of the company and any facility extended to him but does not include any remuneration paid to him for any other service rendered by him at the request of the company. (Section 142)


Procedure Authors

ACS Divya Jain
ACS Palak Jain
ACS Ankita Jain
ACS Sugandh Jain
ACS Mansi Kapor
ACS Bhawna Sharma


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