With the compliance session coming up, there has been an increasing urgency among professionals and stakeholders about various provisions of the Companies Act, 2013. Especially pertaining to the new provisions of the Act. There has been a paradigm shift in the provisions relating to the appointment of auditors for a company. The new Act aims to strengthen Corporate Governance. The responsibility of auditors has increased paramount. Gone are the days where you could just rely on juniors or management’s claims. In this article, we are focusing on the procedures for appointment of auditors as per Companies Act 2013. 

Appointment of First Auditor:

What does old Act say?

As per section 224 (5), of the old Act, the first auditor/s of the Company shall be appointed by the Board of Directors within one month of the date of incorporation of the company. The auditor shall hold office till the conclusion of the next AGM. If the Board fails to do so, then the shareholders have the power to appoint first auditor in general meeting.

Loophole: The Old Act had not specified the time limit within which the shareholders have to exercise their power.

What does New Act say?

As per Section 139 (6), of the New Act, the first auditor/s of all companies (other than a Government Company), shall be appointed by the Board of Directors thirty days from the date of incorporation of the company. In case the Board fails to do so, it shall inform the members of the company, who shall within ninety (90) days at an extra-ordinary general meeting appoint such auditor.

Loophole: The new Act specifies the time within which the shareholders are entitled to exercise the powers. The Act, also bestows the duty on the Board of Directors to intimate the members. However, a major loophole in this is there is no time limit specified as to when the Board shall inform the members. It may be any time before the end of 90 days from the date of AGM.

Appointment of Auditor at AGM:

What does Old Act say?

As per Section 224 (1), of the old Act, every company shall, at each AGM, appoint an auditor/s to hold office from the conclusion of meeting to the next Annual General meeting         .

Highlight: Term of office of Auditor- 1 year

What does New Act say?

As per Clause 139 (1), of the New Act, every company shall, at the First AGM, appoint an auditor/s, who shall hold office from the conclusion of the first AGM till the conclusion of the sixth AGM.

Highlight: Term of office of auditor-5 years consecutively

Term of Appointment of Auditors:

What does old Act say?

For OPC and Small Company: No concepts of OPC and Small Companies

Other than OPC and Small Companies: Term of 1 year, after expiry of which, the term can be renewed.

What doe New Act say?

For OPC and Small Company: Same auditor can be re-appointed for every five years
Other than OPC and Small Companies:

Individual Auditor– One Term of 5 consecutive years and can be re-appointed only after cooling period of 5 years.
Firm of Auditors-Two terms of 5 consecutive years and can be re-appointed only after cooling period of 5 years.
Hence, these are the summarized provisions pertaining to the appointment of auditors as per Companies Act, 2013. We would soon return with a concise update on the provisions relating to auditors in general.

___________________________________________________________