Introduction
In the complex world of running a business, regular financial check-ups are essential to maintain transparency, follow the law, and ensure everything runs smoothly. Audits happen at different intervals: every day, every week, every month, every six months, and every year. Their purpose is to keep the company’s financial health in good shape and make sure it complies with all the necessary regulations.
This article delves into the important process of selecting an auditor for a company, especially when you’re choosing the first one, as required by section 139 of the Companies Act, 2013.
The Role of the Company Auditor
Auditors are like financial doctors for a company. They carefully examine the company’s financial records to determine its financial health. This information is valuable for investors, shareholders, stakeholders, and the company’s leadership, enabling them to make informed decisions about the company’s future.
Selecting the First Auditor under Company Act, 2013
Section 139 of the Companies Act, 2013, explains how to choose the first auditor for your business. Within a month of starting your company, your board should select the first auditor.
If that doesn’t happen, you can also choose the auditor during a special meeting called an Extraordinary General Meeting (EGM) within 90 days.
This 90-day period starts from when your company was created, not from the end of the first 30 days.
Once you’ve chosen the first auditor, you need to fill out a form called Form ADT to make the choice official. Your board of directors has to make a decision and get the auditor’s agreement. After that, you must send all the details about the auditor’s appointment to the Registrar of Companies within 15 days. The first auditor’s job lasts until your company’s sixth Annual General Meeting (AGM).
However, you should ask your members if they’re okay with keeping the auditor at every AGM after the first one.
Step-by-Step Process for Choosing the First Auditor
Auditor’s Term: The first auditor serves until the end of the first AGM.
Filling out Forms: You need to submit Form ADT-1, along with the required fees, to the Registrar of Companies.
Choosing an Auditor for Public Companies: If your company is publicly traded, the Comptroller General of India, along with the auditor general, selects the first auditor within 60 days of starting your company.
If They Don’t Choose: If the Comptroller General of India doesn’t decide within that time, your company’s board has 30 days to make the choice. If they don’t, you’ll need to independently appoint the auditor.
Selecting Subsequent Auditors
Choosing auditors after the first one requires a meeting with your company’s members. Once they agree, the new auditor starts their job, and their term begins.
In cases where your auditor leaves and you need a temporary replacement, your board must get your members’ approval within three months. The newly appointed auditor continues to serve until the next AGM. It is essential to submit Form ADT-1 within 15 days of choosing the new auditor.
Important Documents for Selecting an Auditor
Choosing an auditor requires submitting essential documents, including:
Form MGT-14: This form includes the resolution documents for the first auditor’s appointment.
Form ADT-1: This is a critical form that you need to send to the Registrar of Companies (ROC).
Additionally, the ROC needs the following details:
• The name and address of the new auditing firm.
• The PAN, email, and phone number of the auditing firm.
• The duration of the contract between the company and the auditing firm.
• Information about the previous auditing firm.
• The date the new auditing firm starts.
• ADT-1 form with the director’s signature and a digital signature.
Summing Up the Process of Choosing an Auditor
The Companies Act, 2013, emphasizes the importance of selecting auditors for every company. The rules for choosing auditors are stricter for publicly traded companies. Auditors can only work for five years in a row, and a firm of auditors can’t serve for more than two terms or five consecutive years in a publicly traded company.
In conclusion, choosing an auditor, especially the first one, is crucial for making sure your finances are in order, you’re following the law, and you can make informed decisions about your company’s future. The steps may seem a bit complicated, and there’s some paperwork involved, but it’s all about transparency and following the rules. As businesses grow, having auditors becomes even more important to ensure you’re doing well and complying with the law.
