How to Appoint an Auditor in India's Private Limited Company

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How to Appoint an Auditor in India's Private Limited Company

Meaning of Auditor

In simple words, we can define an auditor as a person who conducts an audit. An auditor can be an individual or a firm. An auditor is a person who verifies the accuracy of a company's operational and/or financial records. To act as an auditor a person must be certified by a regulatory authority of accounting and auditing or possess certain specified qualifications. If an auditor wants to work as an external auditor of a company then he must have a certificate of practice from the ICAI.

Types of Auditor

We have two types of auditor first one is an external auditor and the other one is an internal auditor. The external auditor is also known as the statutory auditor. The statutory auditor is an independent firm or individual engaged by the client subject to the audit, to express an opinion on whether the private limited company's financial statements are free of misstatements, whether due to fraud or error. On the other hand, internal auditors are employed by the organizations they audit. They work for government agencies.

What does an auditor do?

• An auditor examines an entity's financial statement to ensure that they are accurate and comply with the law and regulations.
• Compute tax liability of the company, prepares returns, and ensure that the taxes are paid properly on time.
• Organizes and maintains financial reports.
• Inspects accounts books and accounting systems for efficiency.
• Give directions to reduce costs, enhance revenues, and improve profits.

Appointment of the first Auditor

Every company be it a private limited company or a public limited company, is required to appoint an auditor. The company shall appoint its first auditor within 30 days of its incorporation. The first auditor of the company is appointed by the board of directors of the company. In the case of board's failure, an extraordinary general meeting in short EGM shall be called within 90 days to appoint the first auditor. The law is silent regarding the time limit of 90 days. So by taking a stricter view we interpret that the 90 days will be reckoned from the date of incorporation rather than the expiry of 30 days. Before the appointment of the auditor, the company is required to obtain consent and a certificate from the auditor.

Procedure for the appointment of the first auditor

1. Intimate the proposed auditor(s) regarding his/its appointment as an auditor and obtain his/its consent to act as auditor.
2. Obtain the consent of auditor and a certificate from him/it that the appointment does not exceed the specified limits.
3. In the case of a company is required to appoint audit committee under the prescribed section then obtain its recommendation.
4. Call the board meeting.
5. Approve the appointment of auditor at the first board meeting of the company which shall be held within 30 days of its incorporation.
6. Intimate the auditor regarding the appointment.

There is no need to file any form with ROC for the appointment of the first auditor.

Tenure of First Auditor:- the first auditor shall hold the office till the conclusion of 1st Annual General Meeting. 

Remuneration:- Remuneration of the first auditor can be decided by the board.

Appointment of the first auditor in case of Government Company

In the case of Government Company procedure for the appointment of the first auditor is altogether different. In the case of a Government Company first, the auditor is appointed by the CAG. The auditor is appointed within 60 days from the date of registration of the government company. In case CAG fails to appoint the first auditor then the board of the company shall appoint the first auditor within 30 days. If Board fails to appoint the auditor then the board will intimate the same to the members of the company and on receiving of information regarding the non-appointment of the first auditor members will appoint the first auditor within 60 days of information at an EGM.

Tenure: - The first auditor shall hold office till the conclusion of the first AGM.

Also Read: What Are The Benefits of Private Limited Company Registration

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