VISION COLLEGE OF MANAGEMENT

SUBMITTED TO,
MISS.KEERTI TIWARI
SUBMITTED BY,
MS.ANAM FATIMA
3rd year
ROLL NO. : 0204566
PROVISION OF RE-APPOINTMENT OF COMPANY
AUDITOR
APPOINTMENT OF FIRST AUDITOR
As per section 139(6) the first auditor of the company
shall be appointed by the Board within 30 days of
Incorporation. In case of Board’s failure, an EGM
shall be called within 90 days to appoint the first
auditor. The law is silent regarding from when this
time limit of 90 days be reckoned, it is better to take a
stricter view and interpret that the 90 days limit starts
from Incorporation rather than expiry of 30 days(i.e.
failure of Board) from it.
Tenure: – Till conclusion of 1st annual general
meeting.
Article Section

Audit and Appointment of Auditors –

Companies Act
All companies registered in India are required to appoint
an Auditor and have its book of accounts audited each
year. In this article, we look at all aspects of audit and
appointment of auditors under Companies Act in detail.

Appointment of Auditors
After incorporation of a company in the first annual
general meeting, an Auditor must be appointed by the
Board of Directors. The Auditor will typically hold term till
the conclusion of 6th AGM or 5 years. The appointment
of an Auditor can also be made for a period of 1 year,
renewable at each annual general meeting.
Before the appointment of the Auditor, a written consent
along with Certificate must be obtained from the CA,
that he/she is eligible for appointment as Auditor of a
company and that the proposed appointment is in
accordance with the Companies Act.
The appointment of First Auditor of the Company must
be completed by the Board of Directors within 30 days of
incorporation. In case the Board of Directors fail to
appoint an Auditor, the members of the company must
be informed. The members will then be required to
appoint an Auditor within 90 days at an Extra Ordinary
General Meeting. An Auditor so appointed will hold
office until the conclusion of 1st Annual General
Meeting.

Rotation of Auditors
While re-appointing Auditors for a limited company or
specified company, it is important to be aware of the
regulations pertaining to rotation of auditors. Individuals
as an Auditor cannot be appointed as an Auditor for a
term of more than 5 years. A firm of Auditors cannot be
appointed as Auditors for more than two terms of 5
years. An Auditor who has completed his/her term of 5
years will also not be eligible for re-appointment for 5
years from completion of his/her term.
While rotating Auditors of a company, the following
points must be taken in to account by the Board of
Directors:
 In case of an auditor, the period for which he has
held office as auditor prior to the commencement of
the Act shall be taken into account for calculating
the period of five consecutive years or ten
consecutive years, as the case may be.
 The 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
 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, such other firm shall also be ineligible
to be appointed for a period of five years.

Casual Vacancy of Auditor

Any casual vacancy of the auditor must be filled by the
Board of Directors within 30 days. If the casual vacancy
is on account of a resignation of an auditor, then the
appointment of the auditor must be approved at an
Extra-Ordinary General Meeting convened within 3
months of the recommendation of the Board.

Re-appointment of Retiring Auditor

Aa retiring auditor can be re-appointed at an Annual
General Meeting if:
 The auditor is not disqualified for re-appointment.
 The auditor has not given the company a notice in
writing of his unwillingness to be re-appointed.
 A special resolution has not been passed at that
meeting appointing some other auditor or providing
expressly that he shall not be re-appointed.
If at any Annual General Meeting, no auditor is
appointed or re-appointed, the existing auditor will
continue to be the auditor of the company.
 DIFFERENCE BETWEEN AUDIT
REPORT AND AUDIT CERTIFICATE
VARIOUS TYPE OF AUDIT REPORT
 1. Unmodified/ Unqualified/ Clean Opinion
2. Modified Opinion
 Qualified / Modified Opinion
 Adverse Opinion
 Disclaimer of Opinion
1. Unmodified Opinion – In this case, based on the
evidence obtained the auditor expresses an unmodified/
unqualified opinion that the financial statements have
been prepared in accordance with the applicable fair
presentation framework, which indicates that the
financial statements are free from material
misstatements.
2. Modified Opinion – In this case, the auditor expresses
a modified opinion in the following ways:-
(a) Qualified / Modified Opinion – Here the auditor is
either unable to obtain any evidence of misstatement or
obtains evidence that the financial statements are
misstated but the same is not pervasive. Now, let us
look at an illustration to understand the concept.
Illustration 1: Let us assume a case where the
inventories have been misstated due to non-application
of appropriate accounting principle. Based on the audit
evidence obtained, the auditor may conclude that there
is no material uncertainty regarding the entity’s ability to
continue as a going concern. Thus, the misstatement is
deemed to be material but not pervasive. Hence, the
audit opinion is qualified as a misstatement.
(b) Adverse Opinion – It is known as adverse opinion
when the auditor obtains evidence that misstatement is
material as well as pervasive. Now, let us look at some
of the illustrations to understand the concept.
Illustration 1: Let us now consider a case where the
company has not consolidated the financial statements
of a subsidiary it had acquired last year. It came to
notice that had the subsidiary been consolidated, many
elements of the accompanying financial statements
would have been materially affected. However, the
effects on the financial statements could not be
determined because it is practically not possible to do
so. In this case, the misstatement can be considered to
be material as well as pervasive.
Illustration 2: In case, a company has filed for
bankruptcy and as such, it may be unable to realize its
assets and discharge its liability in the normal course of
business. In such scenario, the independent auditor can
issue an adverse opinion on the true and fair view of the
financial statements on account of events that indicate a
material uncertainty that cast significant doubt on the
company’s ability to continue as a going concern. This
event is considered as material and pervasive.
(c) Disclaimer of Opinion – In this case, the auditor is
unable to obtain any evidence with respect to a
misstatement that is both material and pervasive due to
limitations imposed by the management, or natural
calamities or extraordinary circumstances. Now, let us
look at some of the illustrations to understand the
concept.
Illustration 1: Let us look into a case where the auditor
was unable to obtain sufficient appropriate audit
evidence about a single element of the financial
statements because it was not allowed access to
relevant source of information. The element represented
the company’s investment in a joint venture valued at
Rs.90 crores in the company’s Balance Sheet, which
represents 90% of the company’s closing net assets as
on 31st March 20XX. The probable effects of this inability
to obtain sufficient appropriate audit evidence are
deemed to be both material and pervasive to the
financial statement. Hence, a disclaimer of opinion can
be given in such circumstances.
Illustration 2: Let us look into a case where the auditor
was unable to obtain sufficient appropriate audit
evidence about multiple elements of the financial
statements. In fact, the auditor was also unable to obtain
audit evidence about the entity’s inventories and
accounts receivable. The probable effects of this inability
to obtain sufficient appropriate audit evidence are
deemed to be both material and pervasive to the
financial statement. Hence, a disclaimer of opinion can
be given in this case.
ST