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June 24, 2016 Registrationwala

Audit your Auditor before Appointment

Private Limited Company

Audit your Auditor before Appointment

The Auditor is considered to be a watchdog when it comes to checking or audit the financial documents company. Therefore, the governing body of CA profession keeps on working to inculcate the knowledge in Chartered Accountant which can make them a vigilant Auditor who can whistle a blow in case of any frauds.

New companies Act, 2013 made drastic changes in the auditor appointment regarding his term of appointment and more responsibility on the shoulders of auditors. It states that now businesses can appoint the audit firm for not more than 2 terms of five years. After completing the term there prescribes a cooling off period of five years. It means that the same audit firm can be appointed in the businesses after 5 years.

Under the old regime, there was hardly any situation when companies change their auditor.

This move has been taken to enhance the auditor independence and quality of audit which would increase the auditor confidence. Expectations from the auditors have been growing. However, the auditorís legal responsibility to the shareholders because ultimately shareholders appoint auditor in the general meeting except the first auditor of the company who is appointed by the board of directors within 30 days of incorporation of the company.

In the case of the board of directors fail to appoint an auditor or auditor firm, the power to appoint the first auditor goes in hands of the shareholders.

Letís understand how to appoint the auditor:

Firstly, you have to start to search a credible chartered accountant who is fit and eligible to audit your business. If your business is small then you can appoint an Individual auditor but in the case of large business houses, you should hire an audit firm who can check your business financial health within a financial year.

Once the search is over, you must obtain the consent of the auditor and certificate.

After obtaining all these papers, you have to call the board meeting to consider the appointment of the auditor before the board of directors to approve the auditorís appointment. In certain companies, where the audit committee is constituted, a name of the auditor has to be recommended by this committee. This audit committee short list name of the auditors on the basis of their qualifications, experiences in the relevant industry.

If directors raise no issue then finally auditor is appointed. This appointment intimation has to be sent to the concerned auditor.

There is also a regulatory requirement which you have to comply with. You have to intimate appointment of the auditor to ROC (Registrar of Companies) in Form ADT-1.

As I have already stated above that tenure of the auditor can not be more than 5 years (for individual auditor) or 2 terms of five years i.e. 10 years in the case of auditors firm.† One more thing which you have to consider that appointment of the auditor has to be ratified at each AGM. Ratified or ratification is simply a formality to note the auditor continuity with the company which is not considered to be a new appointment at all.

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