Every company has to mandatorily appoint statutory auditors for examining the true and fair view of the financial statements and to express an opinion on such financial statements. Apart from statutory auditors, there are other types of auditors to be appointed for monitoring the statutory compliances, risk / fraud management system, internal control system and for reviewing the overall performance of the management and various functions in an organisation. The webinar covers the aspects of provisions relating to appointment of statutory auditors/ internal auditors, qualification and eligibility criteria for appointment, statutory compliances and judicial precedents.

1. Appointment and qualification of
Auditors
CS Meenakshi Jayaraman

2. Credits and Acknowledgments
Sundar Rajan S

3. Legends used in the Presentation
Act Companies Act, 2013
AGM Annual General Meeting
BOD Board of Directors
C&AG Comptroller & Auditor General of India
CG Central Government
C.H.A.S.S Company, its Holding Company, its Associate Company, its Subsidiary
Company and Subsidiary of such holding Company
EGM Extra Ordinary General Meeting
ICAI Institute of Chartered Accountants of India
KMP Key Managerial Personnel
LLP Limited Liability Partnership
RD Regional Director
ROC Registrar of Companies
Rule Companies (Audit and Auditors) Rules, 2014

4. Presentation Schema
Who is an
auditor?
Types of auditors Audit Committee
Eligibility,
qualification and
disqualification of
auditors
Appointment of
First auditors
Appointment of
subsequent
auditors
Procedure and
manner of
appointment
Term and rotation
of auditors
Casual vacancy
and
Reappointment of
retiring auditor
Removal and
resignation of
auditor and giving
of special notice
Appointment of
internal auditor
Appointment of
Secretarial auditor
Appointment of
Cost auditor
ROC filing
requirements
Judicial
precedents

5. Who is an auditor?
An auditor is a person who examines the financial statements of an entity
With a view to express an opinion on such financial statements
And aims at prevention and detection of frauds and errors

6. Types of auditors
• These auditors are independent persons who are appointed by an entity to conduct
statutory audit
• These auditors report to the stakeholders of the Company
• They are appointed by the BOD/ shareholders of the CompanyExternal auditors
• These auditors are employees of an entity who review the performance of internal
control system of the entity and suggest measures to keep such systems in place
• These auditors report to the management of the Company
• They are appointed by the management of the CompanyInternal auditors

7. Audit Committee
The following companies shall compulsorily have an audit committee:
Every listed public Company
Public Companies having paid up share capital of Rs. 10 crores or more
Public Companies having turnover of Rs. 100 Crores or more
Public Companies which have, in aggregate, outstanding loans, debentures and deposits exceeding Rs. 50 Crores
The Audit Committee shall consist of a minimum of 3 directors with independent directors forming a majority
Majority of members of Audit Committee including its Chairperson shall be persons with ability to read and understand, the financial statement

8. Eligibility, qualification and disqualification –
Section 141 of the Act
In case of an individual, if such person is a Chartered Accountant in practice
In case of a partnership firm or an LLP, if majority partners of such firm or LLP are Chartered Accountants in practice in
India
In the above case, only the partners who are Chartered Accountants in practice shall act and sign on behalf of the firm/
LLP
Who shall be eligible to become an auditor of a Company?

9. Contd.
The following persons are disqualified to become an auditor of a Company:
Body corporate other than a LLP registered under LLP Act, 2008
Officer or employee of the Company
Person who is a partner, or who is in the employment, of an officer or employee of the Company
Person or a firm who, whether directly or indirectly, has business relationship with C.H.A.S.S except which are in the nature of
professional services and which are in the ordinary course of business
Person whose relative is a director or is in the employment of the Company as a director or KMP
Person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as auditor for more than 20
Companies other than OPC, small companies, dormant companies and private companies having paid up capital < Rs. 100 Crores
Person who has been convicted by a court of an offence involving fraud and a period of 10 years has not elapsed from the date of such
conviction

10. Contd.
Person who, directly or indirectly, renders any service referred to in section 144 of the Act to the Company or its holding
Company or its subsidiary Company (discussed in subsequent slide)
Person who, or his relative or partner
1. holds any security or interest in C.H.A.S.S*
2. is indebted to C.H.A.S.S in excess of Rs. 5 lakhs
3. has given a guarantee or provided any security in connection with the indebtedness of any third
person to C.H.A.S.S in excess of Rs. 1 lakh
• * Relative may hold security in the Company of face value not exceeding Rs. 1 lakh
• If the relative holds security of face value exceeding the above limit, corrective action shall be taken by the auditor within 60
days of such acquisition or interest

11. Auditor not to render certain services – Section
144
Following services shall not be rendered by an auditor, whether directly or indirectly, to the Company or its holding or subsidiary Company:
Accounting and
book-keeping
services
Internal audit and
actuarial services
design and
implementation of
any financial
information system
investment banking
and advisory services
management
services and
rendering of
outsourced financial
services
any other kind of
services as may be
prescribed
•In case of auditor being individual, either himself or through his relative or any other person connected or
associated with such individual or through any other entity, whatsoever, in which such individual has
significant influence or control, or whose name or trade mark or brand is used by such individualDirectly or indirectly
shall include rendering
of services by auditor,
•In case of auditor being a firm, either itself or through any of its partners or through its parent, subsidiary
or associate entity or through any other entity, whatsoever, in which the firm or any partner of the firm has
significant influence or control, or whose name/ trade mark/ brand is used by the firm or any of its partners

12. Appointment of First auditors
Shall be appointed within
60 days of incorporation by
C&AG of India
If not, then the Board shall appoint
the auditors within next 30 days
If not, Board shall inform
members who shall appoint
within 60 days at an EGM
In case of a Government Company: In case of other than Government Company:
Shall be appointed by the BOD
within 30 days from the date of
incorporation of the Company
If not, then the members shall
appoint the auditors within 90
days at an EGM
The first auditors shall hold office until the conclusion of first AGM

13. Appointment of subsequent auditors
In case of a Government Company: In case of other than Government Company:
C&AG shall, in respect of a Financial Year
appoint an auditor within 180 days from the
commencement of financial year
who shall hold office till the conclusion of AGM
At first AGM, members shall appoint an auditor
Who shall hold office from the conclusion of that
AGM till the conclusion of 6th AGM
And the manner and procedure of appointment shall
be as prescribed under Rule 3

14. Procedure and manner of appointment – Rule 3
Audit Committee or the Board shall take into consideration the qualifications and experience of the individual or the firm
proposed to be considered for appointment as auditor
Audit Committee or the Board shall consider whether such qualifications and experience are commensurate with the size
and requirements of the Company
They shall also have regard to any order or pending proceeding relating to professional matters of conduct against the
proposed auditor before the ICAI or any competent authority or any Court
Where a Company is required to constitute the Audit Committee, the committee shall recommend the name of an individual
or a firm as auditor to the Board for consideration and in other cases, the Board shall consider and recommend an individual
or a firm as auditor to the members in the AGM for appointment
If the Board agrees with the recommendation of the Audit Committee, it shall further recommend the appointment of an
individual or a firm as auditor to the members in AGM, else, it shall refer back the recommendation to the committee for
reconsideration citing reasons for such disagreement
If the Audit Committee, after considering the reasons given by the Board, decides not to reconsider its original
recommendation, the Board shall record reasons for its disagreement with the committee and send its own
recommendation for consideration of the members in AGM

15. Contd.
The auditor appointed under Rule 3 shall submit a certificate that,
the individual or the firm, as the case may be, is eligible for appointment and is not disqualified for appointment
under the Act, the Chartered Accountants Act, 1949 and the rules or regulations made thereunder
proposed appointment is as per the term provided under the Act
proposed appointment is within the limits laid down by or under the authority of the Act
list of proceedings against the auditor or audit firm or any partner of the audit firm pending with respect to
professional matters of conduct, as disclosed in the certificate, is true and correct or there are no pending
proceedings with respect to such professional matters of conduct
The certificate shall also indicate whether the auditor satisfies the criteria provided in section 141 of the Act

16. Term and rotation of auditors
• Shall not be appointed as auditor for more than one term of five consecutive years
• Shall not be eligible for re-appointment as auditor in the same Company for five years
from the completion of his term
Individual auditor
• Shall not be appointed as auditor for more than two terms of five consecutive years
• Shall not be eligible for re-appointment as auditor in the same Company for five years
from the completion of such term
Audit firm
• Subject to the provisions of this Act, members of a Company may resolve to provide that,
• the auditing partner and his team shall be rotated at such intervals as may be resolved
by members or
• audit shall be conducted by more than one auditor
Rotation
No audit firm having a common partner or partners to the other audit firm, whose tenure has expired in a Company immediately
preceding the financial year, shall be appointed as auditor of the same Company for a period of five years

17. Manner of rotation of auditors – Rule 6
In case of an auditor (whether an individual or audit firm), the period of holding office as auditor prior to the commencement of the
Act shall be taken into account for calculating the period of 5/ 10 consecutive years for rotation
For the purpose of the rotation of auditors, incoming auditor or audit firm shall not be eligible if such auditor or audit firm is
associated with the outgoing auditor or audit firm under the same network of audit firms
The term "same network" includes the firms operating or functioning, hitherto or in future, under the
same brand name, trade name or common control
A break in the term for a continuous period of five years shall be considered as fulfilling the requirement of rotation
If a partner, who is in charge of an audit firm and also certifies the financial statements of the Company, retires from the said firm
and joins another firm of chartered accountants, such other firm shall also be ineligible to be appointed for a period of five years

18. Casual vacancy
In case of Government
Company
Casual vacancy has to be filled by the
C&AG of India within 30 days
In case C&AG of India does not fill the
vacancy within the said period, the
BOD shall fill the vacancy within next
30 days
In case of other than
Government Company
Casual vacancy has to be filled by the BOD within 30 days
If such casual vacancy is due to resignation of an auditor,
such appointment shall also be approved by members at
a general meeting convened within 3 months of the
recommendation of the BOD
Such person shall hold the office till the conclusion of
the next AGM
Casual vacancy of an auditor shall be made after taking into account the recommendations of Audit committee where the Company is
required to constitute an Audit Committee u/s 177 of the Act

19. Reappointment of retiring auditor
A retiring auditor may be re-appointed at an AGM, if
1. He/she is not disqualified for re-appointment
2. He/she has not given the Company a notice in writing of his unwillingness to be re-
appointed, and
3. a special resolution has not been passed at that meeting appointing some other
auditor or providing expressly that he/she shall not be re-appointed
Where at any AGM, no auditor is appointed or re-appointed, the existing auditor shall continue to be the auditor of the Company

20. Removal and resignation of auditor – Section 140
• Auditor shall be removed before the expiry of his/her term only after obtaining approval from
CG/ RD and
• Special resolution has been passed in a general meeting within 60 days from the date of receipt
of approval of CG
• Before taking any action for such removal, the auditor concerned shall be given a reasonable
opportunity of being heard
Removal of auditor
• Auditor who has resigned from the Company shall intimate the Company, Registrar and C&AG
(if appointed by C&AG) within 30 days from the date of resignation
• The auditor shall intimate the reasons and other facts as may be relevant with regard to his/
her resignation
• Contravention of the above provision leads to penalty of Rs. 50,000 or amount of
remuneration of the auditor, whichever is less, and for continuing default, with further
penalty of Rs. 500 per day subject to a maximum of Rs. 5 lakhs
Resignation of auditor

21. Appointing an auditor other than a retiring auditor –
Section 140(4)
Where the retiring auditor makes representation in writing to the Company (not exceeding a reasonable length) and requests its
notification to members of the Company, it shall, unless the representation is received by it too late for it to do so,
in any notice of the resolution given to members of the Company,
state the fact of the representation made, and
send a copy of the representation to every member of the
Company to whom notice of the meeting is sent, whether before or
after the receipt of representation by the Company
On receipt of notice of such a resolution, the Company shall forthwith send a copy thereof to the retiring auditor
Special notice shall be required for a resolution at an AGM appointing as auditor a person other than a retiring auditor, or providing
expressly that a retiring auditor shall not be re-appointed, except where,
the retiring auditor has completed a consecutive tenure of 5 years
in case of an individual, OR
the retiring auditor has completed a consecutive tenure of 10
years in case of an audit firm
•The auditor shall require that the representation shall be read out at the meeting, if a copy of the representation is not sent as aforesaid
•If a copy of representation is not sent as aforesaid, a copy thereof shall be filed with the Registrar

22. Power of Tribunal or CG to appoint auditors –
Section 140(5)
Tribunal, by order, direct the Company to change its auditors if,
the Tribunal either suo moto or on an application made to it by
the Central Government or by any person concerned
if it is satisfied that the auditor of a Company has, whether
directly or indirectly, acted in a fraudulent manner or abetted or
colluded in any fraud by, or in relation to, the Company or its
directors or officers
Central Government may appoint another auditor in his place if,
application is made by the Central Government and the Tribunal is
satisfied that change of auditor is required and
within fifteen days of receipt of such application, makes an order
that he shall not function as an auditor

23. Appointment of internal auditor
The following class of companies shall be required to appoint an internal auditor :
1. Every listed Company
2. Every unlisted public Company
satisfying any of the following conditions:
paid up share capital is Rs.
50 crores or more during the
preceding FY
turnover is Rs. 200 crores or
more during the preceding FY
outstanding loans or
borrowings from banks or
public financial institutions is
Rs. 100 Crores or more
outstanding deposits is Rs.
25 Crores or more
3. Every private Company satisfying
any of the following conditions:
turnover of Rs. 200 Crores or more during
the preceding FY
outstanding loans or borrowings from banks or public
financial institutions is Rs. 100 Crores or more at any point
of time during the preceding financial year
at any point of time during the
preceding financial year

24. Contd.
Internal auditor may or may not be an employee of the Company
Internal auditor may be either an individual or a partnership firm or a body corporate
Internal auditor shall either be a chartered accountant or a cost accountant (whether in practice or not), or such
other professional as may be decided by the Board
Audit Committee of the Company or the Board shall, in consultation with the Internal Auditor, formulate the scope,
functioning, periodicity and methodology for conducting the internal audit

25. Appointment of secretarial auditor – Section 204
Companies which are mandatory to
appoint secretarial auditor:
• Every listed Company
• Public Company having paid-up
share capital of Rs. 50 Crores or
more
• Public Company having turnover
of Rs. 250 Crores or more
Who shall be a Secretarial auditor?
• Only a Company Secretary in
practice shall be a secretarial
auditor
• The format of the Secretarial
Audit Report shall be in Form
No. MR.3
Failure to appoint Secretarial
auditor by Companies which has to
appoint:
• Company shall be liable to a
penalty of Rs. 1 lakh to Rs. 5
lakhs

26. Appointment of Cost auditor
Applicability of cost record
• Companies including
Foreign Company as
defined in Section 2(42)
of the Act, engaged in the
production of the goods
or providing services,
specified in table A or B
and
• Overall turnover from all
its products and services
is Rs. 35 Crores or more
during the immediately
preceding financial year
Applicability of cost audit
• For Companies specified in
Table A:
• Overall annual turnover of the
Company from all its
products and services during
the immediately preceding
financial year is Rs. 50 Crores
or more
• aggregate turnover of the
individual product(s) or
service(s) for which cost
records are required to be
maintained is Rs. 25 Crores or
more
Applicability of cost audit
• For Companies specified in
Table B:
• Overall annual turnover of the
Company from all its
products and services during
the immediately preceding
financial year is Rs. 100
Crores or more
• aggregate turnover of the
individual product(s) or
service(s) for which cost
records are required to be
maintained is Rs. 35 Crores or
more
Non-applicability of cost
audit
• Company whose revenue
from exports, in foreign
exchange, exceeds 75% of
its total revenue
• Company which is
operating from a special
economic Zone
• Company which is
engaged in generation of
electricity for captive
consumption through
Captive Generating PIant

27. Contd.
Table – A: Regulated Sector
•Telecommunication services
•Generation, transmission,
distribution and supply of
electricity
•Petroleum products
•Drugs and pharmaceuticals
•Fertilisers
•Sugar and industrial alcohol
Table – B: Non-regulated Sector (List is not exhaustive)
•Machinery and mechanical appliances used in defence, space and atomic energy sectors
•Turbo jets and turbo propeller
•Arms and ammunitions
•Steel
•Coffee and tea
•Rubber and allied products
•Cement
•Ores and Mineral products
•Mineral fuels (other than Petroleum), mineral oils, etc
•Base metals
•Jute and Jute Products
•Edible Oil
•Construction Industry
•Milk powder
•Education services, other than such similar services falling under philanthropy or as part of
social spend which do not form part of any business
•Insecticides
•Production, import and supply or trading of following medical devices, namely:
•Cardiac stents, Drug eluting stents, Catheters, Intra ocular lenses, Bone cements, Heart
valves, Orthopaedic implants, Urethral stents, etc.

28. ROC filing requirements
Form ADT-1
• This form has to be filed in case of appointment or re-appointment of statutory auditors
• Such form shall be filed within 15 days from the date of the meeting in which the auditor is appointed
• In case of Specified IFSC (Public and Private) Company, this form shall be filed within 30 days of appointment
Form ADT-2
• This form has to be filed in case of application to CG for removal of auditor before expiry of his/ her term
• It has to be filed within 30 days of resolution passed by the BOD of the Company
Form ADT-3
• This form has to be filed in case of resignation of an auditor
• It has to be filed within 30 days from the date of resignation of the auditor
The above filing requirements is only for statutory auditors

29. Judicial Precedents
It was held that R-1 shall immediately cease to function as statutory auditor of R-2 Company. The petitioner, MCA, is permitted to appoint an
independent auditor for R-2 Company to replace R-1, in terms of the first proviso to section 140(5) of the Companies Act, 2013
It is recorded that family members of the statutory auditor, R1, are shareholders of respondent Company and R1 has issued audit certificate
of the Company even without examining any books of account of the respondent-Company which is clear cut violation of section 141(3)(d)
Inspecting Officer under section 207(3) issued summons to all the directors of the respondent Company in addition to summons to R1, who
were the Statutory Auditors of the respondent Company for the financial years 2014-15 and 2015-16
A complaint was filed alleging that shares of respondent Company (R-2) were not listed on Pune Stock Exchange and there was siphoning of
investors' money
Union of India, Ministry of Corporate Affairs vs. Mukesh Maneklal Choksi – [2019] 101 taxmann.com 98 (NCLT - Mum.)

30. Thank You
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