Audit of accounts is compulsory for all types of companies All the companies registered under the Companies Act,

1956, whether public or private and whether having a share capital or not are required maintaining proper books of accounts under Section !9 of the Companies Act, 1956" Companies have also to get their #ooks of accounts audited as required under section $ of the Act" APPOINTMENT OF AUDITORS Section $ governs the appointment of auditors" %he auditors are to be appointed b& the shareholders of the compan& in an Annual 'eneral (eeting b& passing an ordinar& resolution" )indl& note appointment of Statutor& under section $*1+ is an ordinar& business read with Section 1,- of the Companies Act, 1956" .owever, special resolution is required to be passed when section $A comes into pla&" Appointment of first auditors [Section !"#$% As per section $*5+, the first auditor or auditors of a compan& shall be appointed b& the #oard ofdirectors within one month of the date of registration of the compan&/ and the auditor or auditors soappointed shall hold office until the conclusion of the first annual general meeting" 0lease note the following important provisions related to the appointment of first auditors1 "i$ Appointment of first auditors in general meeting&2A compan& in general meeting ma& appointthe first auditor or auditors if the #oard of directors fails to e3ercise its power of appointment of first auditors within one month of the date of incorporation of the compan&" "ii$ Appointment of first auditors through Memorandum and Articles of Association &'%he 4nstitute of Chartered Accountants of 4ndia has e3pressed its opinion vide Compendium of 5pinion 6olume 7o" 1 that the appointment of first auditors through the (emorandum and Articles of Association of the newl& floated private compan& is not a valid appointment" "iii$ Removal of first auditors&2%he compan& ma&, at a general meeting, remove first auditor*s+ or allor an& of such auditors and appoint in his or their places an& other person or persons who have been nominated for appointment b& an& member of the compan& and of whose nomination notice has been given to the members of the compan& not less than fourteen da&s before the date of the meeting" "iv$ Tenure of office of the first auditor &2%he first auditor*s+ shall hold office until the conclusion ofthe first annual general meeting of the compan& and then be eligible for re8appointment" Appointment of Auditor ot(er t(an first auditor As per Section $*1+ ever& compan& shall, at each annual general meeting, appoint an auditor orauditors to hold office from the conclusion of that meeting until the conclusion of the ne3t annual generalmeeting" Appointment of auditor s(all )e an ordinary )usiness As per section 1,-*l+*a+*iv+ of the Act, the appointment of, and the fi3ing of the remuneration of the auditors shall be an ordinar& business to be transacted at an Annual 'eneral (eeting of a compan&" 5nl& an ordinar& resolution is to be passed for this purpose e3cept, in the circumstances stated u9s $A requiring the passing of a special resolution" Re*appointment of t(e retirin+ auditor"s$ [Section

!" $%

As per section $* +, a retiring auditor shall be re8appointed sub:ect to the limit on ma3imum number of audits as stated u9s $*1#+" .owever, in the following cases, a retiring auditor shall not be reappointed12 *i+ he is not qualified for re8appointment/ *ii+ he has given the compan& a notice in writing of his unwillingness to be re8appointed/ *iii+ a resolution has been passed at that meeting appointing somebod& instead of him or providing e3pressl& that he shall not be re8appointed/ or *iv+ where notice has been given of an intended resolution to appoint some other person or persons in the place of a retiring auditor, and b& reason of the death, incapacit& or disqualification of that person or of all those persons as the case ma& be, the resolution cannot be proceeded with"

Deemed re*appointment ,, Re-uire some action on t(e part of t(e company

As per ;epartment<s Circular 7o" 59, , dated 18 819, , the appointment or reappointment of auditors at the annual general meeting is one of the items of ordinar& business to be transacted at such a meeting"As provided b& section $* + of the Act at an& annual general meeting, a retiring auditor shall be re8appointed e3cept, in four t&pes of cases referred to therein" %he e3pression shall be re8 appointed, postulates some action on the part of the compan& resulting in the auditor getting re8 appointed or automaticall& re8appointed at the annual general meeting" 4t has been clarified that passing of the resolution for that purpose at the annual general meeting is essential for the re8appointment of the retiring auditor who is still qualified and willing to act" %ill this is done, a retiring auditor cannot be said to have been re8appointed as contemplated b& the section" 4n this view, it is not correct to sa& that in the absence of the resolution to the effect that the retiring auditors shall not be re8appointed/ the retiring auditors shall stand re8appointed as auditors of the compan&" Appointment of auditor is mandatory at eac( annual +eneral meetin+ %he auditor*s+ appointed at the last annual general meeting ceases to hold office at the conclusion of the ne3t annual general meeting" %herefore, the auditor*s+ must be appointed at each annual general meeting to hold office till the conclusion of the ne3t annual general meeting" 4t has been held in the case of theInstitute of Chartered Accountants . Jnanendranath Saikia "/0##$ # 1omp 1as #23 ## "Assam$ that the appointment of auditor is mandator& in the annual general meeting for the ensuing &ear" Intimation as to appointment A compan& is required to give intimation of appointment to ever& auditor*s+ so appointed within seven da&s of the appointment as desired b& section $*1+" %he intimation ma& be given in form of a letter on the letter head of the compan& b& a responsible officer of the compan&" 4ritten certificate from auditor re+ardin+ eli+i)ility must )e o)tained %he compan& shall, before making an& appointment or re8appointment of auditor*s+ at an& annual general meeting, obtain a written certificate to the effect that the appointment or re8appointment, if made, shall be in accordance with the limits specified in section $*1#+ of the Act" 5IMIT ON NUM6ER OF AUDITS

%he e3pression <specified number< means2 *i+ in the case of a person or firm holding appointment as auditor of a number of companies each of which has a paid8up share capital of less than rupees twent&8five lakhs, twent& such companies/ *ii+ in an& other case, twent& companies, out of which not more than ten shall be companies each of which has a paid8up share capital of rupees twent&8five lakhs or more" 4n computing the specified number of companies in respect of which or an& part of which an& person or firm has been appointed as an auditor, whether singl& or in combination with an& other person or firm, shall be taken into account in computing the specified number as defined in Explanation I of section $*1C+" 1OMPANES NOT 1OUNTED IN T7E 5IMIT ON NUM6ER OF AUDITS %he following t&pes of companies s(all )e e8cluded from reckoning specified limits, in terms of share capital12 *a+ 'uarantee companies *;epartment<s =etter 7o" >91 9* $+9,$8C=86, dated >898,$+ *b+ ?oreign companies *Circular 7o" 1 of %S? 7o" -59-9,58C=8444, dated $89819,5+ As mentioned above, as per the Companies *Amendment+ Act, !!! private companies will not be taken into account for counting the ! number of companies audit as specified as per sub8section *1#+ of section $" *c+ #ranch audit of the 4ndian Companies not counted for calculating the specified number" *d+ ?oreign Compan& O)li+ation of t(e auditor to +i.e intimation to t(e Re+istrar @ver& auditor appointed under section $*1+ b& a compan& in annual general meeting shall inform the Aegistrar in writing that he has accepted, or refused to accept the appointment BSection $*1#+C" %he information shall be given in e8?orm -# within a period of thirt& da&s from the date of appointment" 7o9e.er3 first auditors appointed )y t(e 6oard of directors of a company pursuant to section !"#$ are under no o)li+ations to +i.e notice of t(eir appointment to t(e Re+istrar& Appointment of auditor )y t(e 1entral :o.ernment "Re+ional Director$ [Section !"2$% Section $*-+ provides that if no auditors are appointed or re8appointed at an annual general meeting of a compan&, the Central 'overnment ma& appoint a person to fill the vacanc&" %herefore, the power of the Central 'overnment to appoint auditors becomes e3ercisable when no auditors are appointed or reappointed at an annual general meeting of a compan&" %he Compan& is required to give intimation electronicall& to the Aegional ;irector *0owers of the Central 'overnment were delegated to the Aegional ;irector+ vide 7otification 7o" 'SA >>*@+ dated -1st (a&, 1991+ in new e8?orm $A prescribed b& 7otification 7o" 'SA 56*@+ dated 1!th ?eb", !!6" 5bligation has been cast on the compan& that within seven da&s of the Central 'overnment<s power u9s $*-+ becoming e3ercisable, it shall give a notice of that fact to that 'overnment/ and if a compan& fails to give such notice, the compan&, and ever& officer of the compan& who is in default, shall be punishable with fine which ma& e3tend to five thousand rupees"

1onse-uences of failure to pass a special resolution at an A'( for appointment of an auditor under
section $A12

*a+ it shall be deemed that no auditor or auditors had been appointed b& the compan& at its annual general meeting/ and *b+ the power of the Central 'overnment under section $*-+, to appoint auditors becomes e3ercisable"

1ASUA5 ;A1AN1< [Section

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Meanin+ of casual .acancy in t(e office of auditor"s$ %he e3pression <casual vacanc&< has not been defined in the Companies Act, 1956" Simpl& stated, a casual vacanc& in the office of an auditor means a vacanc& caused in the office of an auditor b& his death, disqualification, resignation, etc" Section $*6+ governs this aspect and relevant provisions are stated hereunder12 *a+ %he #oard ma& fill an& casual vacanc& in the office of an auditor, but while an& such vacanc& continues, the remaining auditor or auditors, if an&, ma& act" *b+ An& auditor appointed in a casual vacanc& shall hold office until the conclusion of the ne3t annual general meeting" Po9ers of t(e 6oard to fill up t(e casual .acancy only in case of deat( or dis-ualification of auditors 4n terms of section $*6+*a+ where a casual vacanc& arises in the auditors appointed b& a compan& due to death or disqualification, the #oard of directors ma& appoint another auditor" Only mem)ers in +eneral meetin+ may fill up t(e casual .acancy caused )y resi+nation of auditors 4f an& casual vacanc& in the office of an auditor is caused b& the resignation of an auditor, such vacanc& shall onl& be filled b& the compan& in general meeting and the #oard has no power to fill up the casual vacanc& in this case" %he auditor appointed in a casual vacanc& shall hold office till the conclusion of the ne3t annual general meeting" 4f a casual vacanc& arises, the remaining auditors if an&, will continue to Act"

REMO;A5 OF AUDITORS [Section

!">$%

6oard of directors (as no po9er to remo.e an auditor %he #oard of directors of a compan& has no powers to remove an auditor appointed b& the compan& in general meeting" Accordingl&, the said auditor can be removed onl& b& the compan& in general meeting after receiving the previous approval of the Central 'overnment under section $*,+" 0owers has been delegated to the Aegional ;irector vide 7otification 7o" 'SA >>*@+, dated -18581991" Remo.al of auditor"s$ 9it( t(e prior appro.al of t(e 1entral :o.ernment As per Section $*,+ an auditor can be removed before e3pir& of his term onl& b& the compan& in general meeting after obtaining the previous approval of the Central 'overnment *0ower has been delegated to the Aegional ;irector+" PRO1EDURE for remo.al of auditors %he compan& shall take further action as prescribed in section concerned Aegional ;irector in e8?orm $A" 5 and make an application to the

Time limit %he application has to be filed for appointment within seven da&s of the annual general meeting and for removal before general meeting" REMUNERATION OF AUDITORS [Section !"?$% Section $*>+ discusses the manner of fi3ation of remuneration of auditors" ?ollowing are the provisions in this regard1 Remuneration of first auditors ?i3ed b& the #oard, if the #oard does not fi3 such remuneration then remuneration of auditors shall be fi3ed b& the compan& in general meeting or in such manner as the compan& in general meeting ma& determine" Remuneration of ot(er t(an first auditors %he remuneration of auditors other than first auditors shall be fi3ed b& the compan& in general meeting or in such manner as the compan& in general meeting ma& determine" Remuneration of auditors appointed to fill up causal .acancy ?i3ed b& the #oard, if the #oard does not fi3 such remuneration then remuneration of auditors shall be fi3ed b& the compan& in general meeting or in such manner as the compan& in general meeting ma& determine" Remuneration of auditors appointed )y t(e 1entral :o.ernment %he remuneration ma& be fi3ed b& the Central 'overnment" #ut if the C' does not fi3 such remuneration then compan& in general meeting ma& fi3 the remuneration" Remuneration includes all e8penses allo9ed )y t(e company ?or the purposes of section $*>+, an& sums paid b& the compan& in respect of the auditors< e3penses shall be deemed to be included in the e3pression DremunerationD"