Why statutory audit matters
Proper and accurate preparation of financial statements by the companies and its disclosure, in a manner that is standardised and understood by stakeholders, and its audit under the Companies Act 2013 is central to the credibility of the corporates and the soundness of investment decisions by the investors. The financial statements’ preparation, disclosures and its audit for companies is regulated through solid law with stringent provisions to set high corporate governance and fair reporting among corporates.
The Companies Act 2013 has made the audit of accounts of companies compulsory. Sections 139 to 148 provide for the qualifications, disqualifications, appointment, removal, rights, duties & liabilities of company auditors. Some of the key provisions in this regard are given below.
How the first auditor is appointed
- (a) Non-Government Company: The first auditor shall be appointed by the Board of Directors within 30 days from the date of incorporation of the company, and if the Board fails to do so, then the Shareholders of the company within 90 days at an Extraordinary General Meeting shall appoint the first auditor.
- (b) Government Company: The first auditor shall be appointed by CAG within 60 days from the date of incorporation, and if CAG fails to appoint, by the Board of Directors of the company within the next 30 days. Upon failure of the Board of Directors, the shareholders of the company shall appoint the first auditor within 60 days at an Extraordinary General Meeting.
- (c) Tenure: Tenure of appointment of the first auditor in both the above cases is till the conclusion of the first AGM.
How subsequent auditors are appointed
At the 1st AGM, the company shall appoint an individual or a firm as an auditor who shall hold office from the conclusion of that AGM till the conclusion of the 6th AGM of the company.
In the case of a Government company, CAG appoints an auditor duly qualified to be appointed as an auditor of the company within a period of 180 days from the commencement of the financial year, who shall hold office till the conclusion of the AGM.
Rotation of Auditors — who is covered
Section 139 read with Rule 5 of the Companies (Audit and Auditors) Rules, 2014 deals with Rotation of Auditors (applicable to listed companies and prescribed classes of companies, excluding One Person Companies and Small Companies). Accordingly, the following companies (or any company belonging to such class or classes of companies) shall not appoint or re-appoint:
- (a) an individual as auditor for more than one term of 5 consecutive years; and
- (b) an audit firm as auditor for more than two terms of 5 consecutive years.
Companies covered by the rotation requirement:
- All Listed Companies.
- All Unlisted Public Companies having paid-up share capital of Rs. 10 crore or more.
- All Private Limited Companies having paid-up share capital of Rs. 50 crore or more.
- All companies having paid-up share capital below the threshold limits mentioned above, but having public borrowings from banks, financial institutions or public deposits of Rs. 50 crore or more.
The above provisions of “Auditor Rotation” are not applicable to:
- One Person Company (OPC).
- Small Company.
- Specified IFSC Public Company.
- Specified IFSC Private Company.
- Dormant Companies (per the proviso to Rule 6 of the Companies (Miscellaneous) Rules, 2014).
How we help
Our firm, with a young and dynamic team of experienced professionals, is well equipped in Statutory Audit of Companies including audit of Section 8 Companies under the Companies Act, 2013. We also provide Internal Audit Services for corporates as per Section 138 of the Companies Act, 2013.
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