The proper and accurate preparation of financial statements by companies, along with their disclosure in a standardized and comprehensible manner for stakeholders, is crucial for maintaining corporate credibility and ensuring sound investment decisions. To achieve this goal, the Companies Act 2013 establishes stringent provisions for financial statement preparation, disclosure, and audit, which aim to promote high standards of corporate governance and fair reporting.
Under the Companies Act 2013, the audit of a company’s accounts is mandatory. Sections 139 to 148 of the Act outline the qualifications, disqualifications, appointment, removal, rights, duties, and liabilities of company auditors. The following are some key provisions in this regard.
1. Appointment of First Auditor
- According to the Companies Act 2013, the first auditor of a non-government company must be appointed by its Board of Directors within 30 days of incorporation. If the Board fails to do so, the shareholders must appoint the first auditor at an extraordinary general meeting within 90 days.
- For a government company, the first auditor is appointed by the Comptroller and Auditor General (CAG) within 60 days of incorporation. If the CAG fails to make the appointment, the Board of Directors must do so within the next 30 days. If the Board also fails, the shareholders must appoint the first auditor within 60 days at an extraordinary general meeting.
- In both cases, the tenure of the first auditor’s appointment lasts until the conclusion of the first Annual General Meeting.
2. Appointment of Subsequent Auditor
According to the Companies Act 2013, a company must appoint an individual or a firm as its auditor at the first Annual General Meeting (AGM), and this auditor will hold office until the conclusion of the sixth AGM. In the case of a government company, the Comptroller and Auditor General (CAG) must appoint a qualified auditor within 180 days of the start of the financial year, who will hold office until the conclusion of the AGM.
Section 139, along with Rule 5 of the Companies (Audit and Auditors) Rules, 2014, deals with the rotation of auditors. Listed companies, unlisted public companies with paid-up share capital of Rs. 100 crore or more, private limited companies with paid-up share capital of Rs. 50 crore or more, and companies with public borrowings or deposits of Rs. 50 crore or more must not appoint an individual as an auditor for more than one term of five consecutive years, or an audit firm for more than two terms of five consecutive years.
However, the above provisions regarding auditor rotation do not apply to One Person Companies (OPCs), small companies, and specified IFSC (International Financial Services Centre) public and private companies.
Our firm has a young and dynamic team of experienced professionals who are well-equipped to conduct statutory audits of companies, including Section 8 companies under the Companies Act 2013. We also provide internal audit services for corporates in accordance with Section 138 of the Companies Act 2013.