Compliances-Procedural

Change in Auditor

Drafting of resolution(s) for taking note of Resignation of Auditor and Appointment of Auditor in casual vacancy so created- allied paperwork with filling and submission of Form(s) at an all-inclusive price, including Government Fees*

Complete By* : 02 Jun, 2023

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Resignation of Auditor

 

Under the Companies Act 2013, the resignation of an auditor of a company must be done in compliance with the provisions mentioned in Section 140 of the Act.According to this section, an auditor who wishes to resign must first inform the company's board of directors and provide them with a written notice. The notice must contain the reason(s) for the resignation and the date on which the resignation will take effect. The auditor must also file a copy of the resignation letter in e form ADT-3 with the Registrar of Companies (RoC) within 30 days of resigning.

 

Documents Required

Resignation Letter of Auditor

Copy of the Board Resolution noting the resignation

Consent from Auditor to be appointed in Casual vacancy

Copy of the Board Resolution appointing Auditor in Casual vacancy

Notice for General meeting

* (All documents in Pdf scanned. Image file in jpeg format)

* (All documents to be Self Attested and signed on each page)

Compliances-Procedural

Resignation of Auditor

Resignation of Auditor through a written letter

Steps for Appointment

Collect information and documents

Convene a board meeting to consider the casual vacancy and to appoint an auditor to fill the vacancy.

Written Consent from new auditor

File ADT-1 for appointment

Notice for General Meeting

Hold General meeting and approve the appointment

Important points to be noted

Appointment of Auditor in Casual Vacancy

A casual vacancy in auditor refers to a situation where the auditor of a company vacates his/her office before the end of his/her term due to resignation, death, incapacity, removal, or any other reason. In such cases, the company must appoint a new auditor to fill the vacancy.

Letter from resigning auditor

The resigning auditor should intimate the Company in writing, his reasons for tendering resignation

Letter from new auditor

The Auditor to be appointed in Casual Vacancy so created should give his consent in writing

NOC from resigning Auditor

The new auditor should also seek No Objection from the resigning Auditor for his appointment in the Company

Eform ADT-3

The Company should make sure that they have received a copy of the eform ADT-3 that has been filed by the resigning auditor.

Who is an Auditor?

to conduct an audit of its financial statements, books of accounts, and other financial records. The primary responsibility of an auditor is to provide an independent opinion on the company's financial health and performance and to ensure that the financial statements are prepared in accordance with the applicable accounting standards, regulations, and laws.

 

The Companies Act 2013 makes it mandatory for every company registered under it to appoint an auditor. The auditor must be a Chartered Accountant and must be registered with the Institute of Chartered Accountants of India (ICAI).

 

The main duties of an auditor include:

 

  • Examining the company's financial records, books of accounts, and other financial statements
  • Checking the accuracy of financial statements and ensuring that they comply with applicable accounting standards and regulations
  • Identifying and reporting any irregularities or inconsistencies in the financial records or statements
  • Providing an independent opinion on the company's financial health and performance
  • Ensuring that the company has adequate internal controls and procedures in place to safeguard its assets and prevent fraud.

 

Overall, the auditor plays a critical role in ensuring that the company's financial statements are accurate, reliable, and transparent, which is essential for the effective functioning and governance of the company.

 

Process for appointment of Auditor in Casual Vacancy:

 

The appointment of an auditor in a casual vacancy under the Companies Act 2013 involves the following steps:

 

Resignation Letter: The Auditor has to give his resignation in writing with reasons thereof and the effective date of resignation alongwith duly filed ADT-3.

 

Written Consent: The proposed auditor must give a written consent to the company for his appointment, and he must also disclose his eligibility as per the provisions of the Companies Act 2013.

 

Board Meeting: The Board of Directors of the company must convene a board meeting to consider the casual vacancy and to appoint an auditor to fill the vacancy. 

 

Pass a Board Resolution: The Board of Directors must pass a resolution for the appointment of the auditor to fill the casual vacancy, pending approval of shareholders at a General Meeting, within 3 months of such within three months of the recommendation of the Board.

 

Notice to Members for General Meeting: The company must then inform all its members about the casual vacancy and the proposed appointment of the auditor to fill the vacancy. Such appointment will be only till the ensuing Annual General Meeting.

 

Filing with ROC: Within 30 days of the appointment of the auditor, the company must file Form ADT-1 with the Registrar of Companies (RoC), along with the required fee and necessary documents.

 

It is important to note that the provisions related to the appointment of an auditor in a casual vacancy may vary depending on the specific circumstances and the type of company. Therefore, it is always advisable to seek professional advice and refer to the relevant provisions of the Companies Act 2013 before proceeding with the appointment process.

 

Change in Auditors

 

A change in the Auditors as appointed by the Company may happen as follows:

 

Resignation Of Auditor- Section 140 (2), 140 (3) read with Rule 8

The auditor who has resigned from the company shall file a statement in Form ADT-3 indicating the reasons and other facts as may be relevant with regard to his resignation as follows:

(i) In case of other than Government Company, the auditor shall within 30 days from the date of resignation, file such statement to the company and the registrar.

(ii) In case of Government Company or government controlled company, auditor shall within 30 days from the resignation, file such statement to the company and the Registrar and also file the statement with the Comptroller and Auditor General of India (CAG).

 

Removal Of Auditor-Section 140 (1) read with Rule 7

The auditor appointed under section 139 may be removed from his office before the expiry of the term only by –

(i) Obtaining the prior approval of the Central Government by filling an application in form ADT-2 within 30 days of resolution passed by the Board

(ii) The company shall hold the general meeting within sixty days of receipt of approval of the Central Government for passing the special resolution.

(iii) The auditor concerned shall be given a reasonable opportunity of being heard.

 

Removal by Tribunal- Section 140(5)

National Company Law Tribunal (NCLT) can either –

(i) suo moto or

(ii) on an application from Central Government, or

(iii) on an application from person concerned,

 

direct the company to change the auditor 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.

 

In the case of application being made by the Central Government and the NCLT being satisfied that change of auditor is required, it shall within 15 days of the receipt of such application, make an order that the Auditor shall not function as an auditor of the company and the Central Government may appoint another auditor in his place. This will happen only when an application is made by the Central Government and not by any other person.

 

 

Eligibility, qualifications and disqualifications of auditors as per Section 141 of the Companies Act, 2013

 

(1) A person shall be eligible for appointment as an auditor of a company only if he is a chartered accountant:

 

Provided that a firm whereof majority of partners practising in India are qualified for appointment as aforesaid may be appointed by its firm name to be auditor of a company.

 

(2) Where a firm including a limited liability partnership is appointed as an auditor of a company, only the partners who are chartered accountants shall be authorised to act and sign on behalf of the firm.

 

(3) The following persons shall not be eligible for appointment as an auditor of a company, namely: —

 

(a) a body corporate other than a limited liability partnership registered under the Limited Liability Partnership Act, 2008

 

(b) an officer or employee of the company;

 

(c) a person who is a partner, or who is in the employment, of an officer or employee of the company;

 

(d) a person who, or his relative or partner—

 

(i) is holding any security of or interest in the company or its subsidiary, or of its holding or associate company or a subsidiary of such holding company:

 

Provided that the relative may hold security or interest in the company of face value not exceeding one thousand rupees or such sum as may be prescribed;

 

(ii) is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of such amount as may be prescribed; or

 

(iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, for such amount as may be prescribed;

 

(e) a person or a firm who, whether directly or indirectly, has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associate company of such nature as may be prescribed;

 

(f) a person whose relative is a director or is in the employment of the company as a director or key managerial personnel;

 

1(g) a person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies;

 

(h) a person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction;

 

(i)2[a person who, directly or indirectly, renders any service referred to in section 144 to the company or its holding company or its subsidiary company.

 

Explanation.—For the purposes of this clause, the term “directly or indirectly” shall have the meaning assigned to it in the Explanation to section 144.]

 

(4) Where a person appointed as an auditor of a company incurs any of the disqualifications mentioned in sub-section (3) after his appointment, he shall vacate his office as such auditor and such vacation shall be deemed to be a casual vacancy in the office of the auditor.

 

Disqualifications of Auditor as per Rule 10 of theThe Companies (Audit and Auditors) Rules, 2014  

 

(1) For the purpose of section 141(3)(d)(i), a relative of an auditor may hold securities in the company of face value not exceeding rupees one lakh:

 

Provided that the condition under this sub-rule shall, wherever relevant, be also applicable in the case of a company not having share capital or other securities:

 

Provided further that in the event of acquiring any security or interest by a relative, above the threshold prescribed, the corrective action to maintain the limits as specified above shall be taken by the auditor within sixty days of such acquisition or interest.

 

(2) For the purpose of 141(3)(d)(ii), a person who or whose relative or partner is indebted to the company or its subsidiary or its holding or associate company or a subsidiary of such holding company, in excess of rupees five lakh shall not be eligible for appointment.

 

(3) For the purpose of 141(3)(d)(iii), a person who or whose relative or partner has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiary of such holding company, in excess of one lakh rupees shall not be eligible for appointment.

 

(4) For the purpose of 141(3)(e), the term "business relationship" shall be construed as any transaction entered into for a commercial purpose, except -

 

(i) commercial transactions which are in the nature of professional services permitted to be rendered by an auditor or audit firm under the Act and the Chartered Accountants Act, 1949 and the rules or the regulations made under those Acts;

 

(ii) commercial transactions which are in the ordinary course of business of the company at arm’s length price - like sale of products or services to the auditor, as customer, in the ordinary course of business, by companies engaged in the business of telecommunications, airlines, hospitals, hotels and such other similar businesses.

 

Remuneration of auditors as per Section 42 of the Companies Act, 2013

 

The remuneration of the auditor of a company shall be fixed in its general meeting or in such manner as may be determined therein. The Board may fix remuneration of the first auditor appointed by it.

 

 The remuneration payable to an Auditor shall, in addition to the fee payable to an auditor, include the expenses, if any, incurred by the auditor in connection with the audit of the company and any facility extended to him but does not include any remuneration paid to him for any other service rendered by him at the request of the company.

 

Auditor not to render certain services.

An auditor appointed under this Act shall provide to the company only such other services as are approved by the Board of Directors or the audit committee, as the case may be, but which shall not include any of the following services (whether such services are rendered directly or indirectly to the company), company or its holding company or subsidiary company, namely:-

 

(a) accounting and book keeping services;

 

(b) internal audit;

 

(c) design and implementation of any financial information system;

 

(d) actuarial services;

 

(e) investment advisory services;

 

(f) investment banking services;

 

(g) rendering of outsourced financial services;

 

(h) management services; and

 

(i) any other kind of services as may be prescribed:

 

Provided that an auditor or audit firm who or which has been performing any non-audit services on or before the commencement of this Act shall comply with these provisions before the closure of the first financial year after the date of such commencement.

 

For the purposes of this sub-section, the term “directly or indirectly” shall include rendering of services by the auditor,—

 

(i) in case of auditor being an 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 individual;

 

(ii) 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 or trade mark or brand is used by the firm or any of its partners.


 

Powers and duties of auditors and auditing standards as per Section 143 of the Companies act, 2013

 

(1) Every auditor of a company shall have a right of access at all times to the books of account and vouchers of the company, whether kept at the registered office of the company or at any other place and shall be entitled to require from the officers of the company such information and explanation as he may consider necessary for the performance of his duties as auditor and amongst other matters inquire into the following matters, namely: —

 

(a) whether loans and advances made by the company on the basis of security have been properly secured and whether the terms on which they have been made are prejudicial to the interests of the company or its members;

 

(b) whether transactions of the company which are represented merely by book entries are prejudicial to the interests of the company;

 

(c) where the company not being an investment company or a banking company, whether so much of the assets of the company as consist of shares, debentures and other securities have been sold at a price less than that at which they were purchased by the company;

 

(d) whether loans and advances made by the company have been shown as deposits;

 

(e) whether personal expenses have been charged to revenue account;

 

(f) where it is stated in the books and documents of the company that any shares have been allotted for cash, whether cash has actually been received in respect of such allotment, and if no cash has actually been so received, whether the position as stated in the account books and the balance sheet is correct, regular and not misleading:

 

Provided that the auditor of a company which is a holding company shall also have the right of access to the records of all 8[its subsidiaries and associate companies] in so far as it relates to the consolidation of its financial statements with that of 8[its subsidiaries and associate companies]

 

(2) The auditor shall make a report to the members of the company on the accounts examined by him and on every financial statements which are required by or under this Act to be laid before the company in general meeting and the report shall after taking into account the provisions of this Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of this Act or any rules made thereunder or under any order made under sub-section (11) and to the best of his information and knowledge, the said accounts, financial statements give a true and fair view of the state of the company’s affairs as at the end of its financial year and profit or loss and cash flow for the year and such other matters as may be prescribed.

 

(3) The auditor’s report shall also state—

 

(a) whether he has sought and obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit and if not, the details thereof and the effect of such information on the financial statements;

 

(b) whether, in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books and proper returns adequate for the purposes of his audit have been received from branches not visited by him;

 

(c) whether the report on the accounts of any branch office of the company audited under sub-section (8) by a person other than the company’s auditor has been sent to him under the proviso to that sub-section and the manner in which he has dealt with it in preparing his report;

 

(d) whether the company’s balance sheet and profit and loss account dealt with in the report are in agreement with the books of account and returns;

 

(e) whether, in his opinion, the financial statements comply with the accounting standards;

 

(f) the observations or comments of the auditors on financial transactions or matters which have any adverse effect on the functioning of the company;

 

(g) whether any director is disqualified from being appointed as a director under sub-section (2) of section 164;

 

(h) any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters connected therewith;

 

(i) whether the company has adequate 6[internal financial controls with reference to financial statements] in place and the operating effectiveness of such controls;

 

(j) such other matters as may be prescribed.

 

(4) Where any of the matters required to be included in the audit report under this section is answered in the negative or with a qualification, the report shall state the reasons therefor.

 

(5) Where a company has a branch office, the accounts of that office shall be audited either by the auditor appointed for the company (herein referred to as the company’s auditor) under this Act or by any other person qualified for appointment as an auditor of the company under this Act and appointed as such under section 139, or where the branch office is situated in a country outside India, the accounts of the branch office shall be audited either by the company’s auditor or by an accountant or by any other person duly qualified to act as an auditor of the accounts of the branch office in accordance with the laws of that country and the duties and powers of the company’s auditor with reference to the audit of the branch and the branch auditor, if any, shall be such as may be prescribed:

 

Provided that the branch auditor shall prepare a report on the accounts of the branch examined by him and send it to the auditor of the company who shall deal with it in his report in such manner as he considers necessary.

 

(6) Every auditor shall comply with the auditing standards.

 

(7) The Central Government may prescribe the standards of auditing or any addendum thereto, as recommended by the Institute of Chartered Accountants of India, constituted under section 3 of the Chartered Accountants Act, 1949, in consultation with and after examination of the recommendations made by the National Financial Reporting Authority:

 

Provided that until any auditing standards are notified, any standard or standards of auditing specified by the Institute of Chartered Accountants of India shall be deemed to be the auditing standards.

 

(8) The Central Government may, in consultation with the National Financial Reporting Authority, by general or special order, direct, in respect of such class or description of companies, as may be specified in the order, that the auditor’s report shall also include a statement on such matters as may be specified therein.

 

Provided that until the National Financial Reporting Authority is constituted under section 132, the Central Government may hold consultation required under this sub- section with the Committee chaired by an officer of the rank of Joint Secretary or equivalent in the Ministry of corporate Affairs and the committee shall have the representatives from the Institute of Chartered Accountants of India and Industry Chambers and also special invitees from the National Advisory Committee on Accounting Standards and the office of the Comptroller and Auditor-General

 

Documents Required

Resignation Letter of Auditor

Copy of the Board Resolution noting the resignation

Consent from Auditor to be appointed in Casual vacancy

Copy of the Board Resolution appointing Auditor in Casual vacancy

Notice for General meeting