Appointment of First Auditors
1. Appointment by Board of Directors
1. Within one month from the date of registration of the company, the first auditor or auditors may be appointed by the Board of Directors.
2. The First auditors may remain in office until the conclusion of the First Annual General Meeting.
Companies (Amendment) Bill, 2003, extends the time to 3 months.
2. Appointment by company at a General Meeting
In case, the first auditors are not appointed by the Board of Directors, the company may appoint the first auditors at a general meeting.
Procedure for the appointment of First Auditors
For the appointment of first auditors, a company may adopt the following procedure.
1. Any member of the company may nominate a person, to be appointed as First Auditor.
2. At least 14 days’ notice should be given to the members before the scheduled date of the meeting.
3. Some companies name their first auditors in their Articles of Association. Such appointment is invalid since provisions of Companies Act arc not complied with.
Appointment of Auditors other than First Auditors
1. Appointment of auditors by Share Holders
1. At each Annual General Body meeting of the company, the shareholders shall appoint an auditor for the company.
2. The auditor so appointed shall hold office until the conclusion of the subsequent annual general body meeting.
3. The company should intimate the auditor about the appointment within 7 days of such appointment.
4. The acceptance or refusal of such appointment should be intimated by the auditor to the Registrar of Companies within 30 days of the receipt of the intimation of such appointment.
5. Such acceptance / refusal should be made in a prescribed form.
6. The intimation to the Registrar about the acceptance / refusal of appointment is necessary only if the auditor / auditors are appointed in an annual general body meeting.
In the above paragraph, we have noted that an auditor holds his office from the conclusion of one annual general body meeting until the conclusion of the subsequent annual general meeting. In this regard, let us consider the following two situations.
Period of Auditors appointed by shareholders
It is known that the annual general meeting of every company should be held within the prescribed time period. Section 166 of the Indian Companies Act specifies the time limit for holding the annual general meeting of a company.
If the annual general meeting of a company is not held within the prescribed time limit, what is the tenure of the existing auditor?
The auditor will continue to hold office even after the expiry of the time limit for conducting the annual general meeting and shall remain till the annual general meeting is conducted.
Let us assume that the annual general body meeting of a company is held within the prescribed time period. Let us suppose that the balance sheet and profit and loss accounts for the period for which the existing auditor was appointed, are not presented before the annual general meeting. Is he entitled to audit the accounts and certify the financial statements for the period for which he was appointed as auditor, even after he ceases to hold office at the conclusion of the annual general body meeting?
The auditor is not entitled to certify the financial statements, since such statements are not laid before the annual general meeting in which he was the auditor. However, he has the right to report about the financial position of the company to the shareholders for the period for which he was appointed as auditor.
From the above, we can conclude that auditors are appointed only for a particular period and not with reference to accounts (of the company) of a particular period.
2. Appointment of auditors by Central Government
The central government may appoint an auditor in the following situations.
1. When no auditor is appointed or reappointed in a annual general body meeting.
2. Where a special resolution is required (discussed elsewhere in this chapter) for appointment of auditors, and the company fails to pass such resolution at the time of appointment.
3. Where the auditor is appointed in contravention to the provisions of the Companies Act.
4. Where the auditor, appointed at the AGM has not accepted the appointment.
5. Where the appointment of the auditors at AGM is void ab initio.
The company should apply to the Central Government, along with the list of names of the auditors, whom the company suggests for appointment of auditor. The Central government, after due consideration, appoints the auditor.
If the company fails to inform the central government about the situation mentioned above, the company and officers in default are punishable with fine to the extent of Rs 500/-.