3 - Appointment of Auditor

4/14/2022
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This presentation may be used by any person with due acknowledgement
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14 April 2022 © CA.(Dr) Prithvi Ranjan Parhi 1
Audit
of
Limited
Companies
CA. Prithvi Ranjan Parhi
1
4/14/2022
Chapter- X
Audit & Auditors
Sec Contents
138 Internal audit
139 Appointment of Auditors
140 Removal, resignation of auditor and giving of special notice.
141 Eligibility, qualifications and disqualifications of auditors.
142 Remuneration of auditors.
143 Powers and duties of auditors and auditing standards.
144 Auditor not to render certain services
145 Auditor to sign audit reports
146 Auditors to attend general meeting
147 Punishment for contravention
148 Central Govt to specify audit of Items of cost in respect of certain
companies
Appointment of Auditor
Sec 139
Subsequent
First Auditor
Auditor
Other than Govt Co Govt Co

Sec 139(6) Sec 139(7)
Appointed by BoD Appointed by C&AG

within 30 days from within 60 days from
Dt of Regtn Dt of Regtn
If failed, by members in EGM If failed, by BoD

within 90 days within next 30 days
If failed, by members in EGM

within 60 days
14 April 2022 Holds office till© the

CA.(Dr) conclusion
Prithvi Ranjan Parhi of first AGM 4
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Appointment of Auditor
Sec 139
Subsequent
First Auditor
Auditor
Other than Govt Co Govt Co

Sec139(1) Sec139(5)
Appointed by C&AG
Appointed by members in GM within 180 days from
the commencement of the year
Holds office from 1st AGM to

6th AGM subject to certain Holds office till the conclusion
conditions of AGM
Non Govt Company

Sept Sept Sept Sept Sept Sept
2021 2022 2023 2024 2025 2026
1st 2nd 3rd 4th 5th 6th
Appoint Continue Continue Continue Continue Appoint
Govt Company
Sept Sept Sept Sept Sept Sept
2021 2022 2023 2024 2025 2026
Appoint Appoint Appoint Appoint Appoint Appoint
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Government company
• 2 (45) “Government company” means any
company in which not less than fifty one per
cent. of the paid-up share capital is held by
– the Central Government, or
– by any State Government or Governments, or
– partly by the Central Government and partly by one
or more State Governments,
Not < 51%
• and includes a company which is a subsidiary

company of such a Government company;
1st Auditor of Govt Co-139(7)

• (7) Notwithstanding anything contained in sub-section (1) or sub-
section (5), in the case of a
• Government company or any
• other company owned or controlled, directly or indirectly, by the Central
Government, or by any State Government, or Governments, or partly
by the Central Government and partly by one or more State
Governments,
• the first auditor shall be appointed by the Comptroller and Auditor-
General of India within sixty days from the date of registration of the
company and
• in case the Comptroller and Auditor-General of India does not appoint

such auditor within the said period, the Board of Directors of the
company shall appoint such auditor within the next thirty days; and
• in the case of failure of the Board to appoint such auditor within the
next thirty days, it shall inform the members of the company who shall
appoint such auditor within the sixty days at an extraordinary general
meeting, who shall hold office till the conclusion of the first annual
general meeting.
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1st Auditor : Other than Govt Co : Sec 139

• (6) Notwithstanding anything contained in sub-section (1),
• the first auditor of a company,

• other than a Government company,
• shall be appointed by the Board of Directors
• within thirty days from the date of registration of the company
and
• in the case of failure of the Board to appoint such auditor, it shall

inform the members of the company,
• who shall within ninety days at an extraordinary general meeting

appoint such auditor and
• such auditor shall hold office till the conclusion of the first annual
general meeting.
Appointment of auditors. 139

• (1) Subject to the provisions of this Chapter, every
company shall, at the first annual general meeting, 1st AGM
appoint an individual or a firm as an auditor who
shall hold office from the conclusion of that meeting
till the conclusion of its sixth annual general meeting 5 Years
and
• thereafter till the conclusion of every sixth meeting
and Every Year
• the manner and procedure of selection of auditors ratification
by the members of the company at such meeting
shall be such as may be prescribed:
• Provided that the company shall place the matter

relating to such appointment for ratification by
members at every annual general meeting*: *The Companies
Amendment Act, 2017 read with Notification S.O. 1833(E) dated 7th May 2018 deletes provision of annual ratification of the
appointment of auditor.
5
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Auditor’s Appointment & Ratification

A R R R R
A R R R R
1st
A
Appointment of Auditors. 139

• Provided further that before such appointment is
made, the written consent of the auditor to such Written
Consent
appointment, and
• a certificate from him or it that the appointment, Certificate

if made, shall be in accordance with the about
conditions as may be prescribed, shall be conditions
obtained from the auditor:
Certificate
• Provided also that the certificate shall also about
indicate whether the auditor satisfies the criteria Eligibility
provided in section 141: criteria
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Inform the Auditor
• Provided also that the company shall inform

the auditor concerned of his or its Inform
appointment, and
• also file a notice of such appointment with

the Registrar within fifteen days of the Notice
meeting in which the auditor is appointed.
• Explanation.—For the purposes of this

Chapter, “appointment” includes
reappointment.
7
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Auditor’s
appointment
letter
An Example
Example of
Notice to
RoC on
Auditor’s
appointment
8
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Rotation of Auditors: 139(2)

• (2) No listed company or a company belonging to
such class or classes of companies as may be
prescribed, shall appoint or re-appoint—
– (a) an individual as auditor for more than one term of

five consecutive years; and
– (b) an audit firm as auditor for more than two terms of

five consecutive years:
Individual
5 Years
Auditor
Audit Firm 5 Years 5 Years

Rotation of Auditors: Applicability of Sec 139(2)

Rule: 5 of Companies (Audit & Auditors) Rules, 2014
1. Listed Cos
2. Following companies excluding one person company;
a) All unlisted public companies having paid up capital of

Rs. 10 Crore or more.
b) All private limited companies having paid up capital of

Rs. 20 Crore or more.
c) All companies having paid up share capital of below

threshold limit mentioned in (a) & (b) above, but having
public borrowing from financial institutions, banks or
public deposit of Rs. 50 Crore or more.
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• Provided that—
• (i) an individual auditor who has completed his term under clause
(a) shall not be eligible for re-appointment as auditor in the same
company for five years from the completion of his term;
• (ii) an audit firm which has completed its term under clause (b),
shall not be eligible for re-appointment as auditor in the same
company for five years from the completion of such term:
Not eligible
Individual 5 years
for 5 years
Not Eligible
Audit Firm 5 years 5 years
for 5 years

• Provided further that as on the date of
appointment 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:
Can not be
Old New appointed
Audit Audit
Firm Firm
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Provided also that every company, existing

on or before the commencement of this Act
which is required to comply with provisions
of this sub-section, shall comply with the
requirements of this sub-section within three
years from the date of commencement of
this Act:
• Provided also that, nothing contained in

this sub-section shall prejudice
–the right of the company to remove an

auditor or
–the right of the auditor to resign from

such office of the company.
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Manner of Rotation
Rule 6 of Companies ( Audit & Auditors) Rules, 2014
• 6. Manner of rotation of auditors by the companies on expiry
of their term. —
• (1) The Audit Committee shall recommend to the Board, the

name of an individual auditor or of an audit firm who may
replace the incumbent auditor on expiry of the term of such
incumbent.
• (2) Where a company is required to constitute an Audit

Committee, the Board shall consider the recommendation of
such committee, and in other cases, the Board shall itself
consider the matter of rotation of auditors and make its
recommendation for appointment of the next auditor by the
members in annual general meeting.
Manner of Rotation
Rule 6 of Companies ( Audit & Auditors) Rules,
2014
• (3) For the purpose of the rotation of auditors-
• (i) in case of an auditor (whether an individual or audit firm),

the period for which the individual or the firm 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;
• (ii) 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.
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Manner of Rotation
• Explanation. I - For the purposes of these rules the term “same
network” includes the firms operating or functioning, hitherto
or in future, under the same brand name, trade name or
common control.
• Explanation. II - For the purpose of rotation of auditors,-
• (a) a break in the term for a continuous period of five years

shall be considered as fulfilling the requirement of rotation;
• (b) 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.
Manner of Rotation
• (4) Where a company has appointed two or

more individuals or firms or a combination
thereof as joint auditors, the company may
follow the rotation of auditors in such a manner
that both or all of the joint auditors, as the case
may be, do not complete their term in the same
year.
13
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Number of consecutive years for Maximum number of Aggregate period which

which an individual auditor has consecutive years for the
been functioning as auditor in the which he may be auditor would complete
same company appointed in the same in the same company in
company (including view of column I and II
[in the first AGM held after the transitional period)
commencement of provisions of
section 139(2)]
I II III
15 years or more 3 18 years or more
4 3 7
3 3 6
2 3 5
1 4 5
Notes:
• 1. Individual auditor shall include other
individuals or firms whose name or trade
mark or brand is used by such individual, if
any.
• 2. Consecutive years shall mean all the

preceding financial years for which the
individual auditor has been the auditor until
there has been a break by five years or more.
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Number of consecutive years for which Maximum number of Aggregate period which the
an audit firm has been functioning as auditor consecutive years for which the firm would complete in the
in the same company firm may be appointed in the same company in view of
same company (including column I and II
[in the first AGM held after the commencement transitional period)
of provisions of section 139(2)]
I II III
10 Years or more 3 13 years or more
9 3 12
8 3 11
7 3 10
6 4 10
5 5 10
4 6 10
3 7 10
2 8 10
14 April 2022
1 9
© CA.(Dr) Prithvi Ranjan Parhi
10 29
Notes:
• 1. Audit Firm shall include other firms whose
name or trade mark or brand is used by the firm
or any of its partners.
• 2. Consecutive years shall mean all the preceding

financial years for which the firm has been the
auditor until there has been a break by five years
or more.
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139(3)
• (3) Subject to the provisions of this Act,
members of a company may resolve to
provide that—
– (a) in the audit firm appointed by it, the auditing

partner and his team shall be rotated at such
intervals as may be resolved by members; or
– (b) the audit shall be conducted by more than

one auditor.
139 (4)
• (4) The Central Government may, by rules,

prescribe the manner in which the companies
shall rotate their auditors in pursuance of
sub-section (2).
• Explanation.—For the purposes of this

Chapter, the word “firm” shall include a
limited liability partnership incorporated under
the Limited Liability Partnership Act, 2008.
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Appointment of auditor: Govt Co

-Subsequent Auditor
• (5) Notwithstanding anything contained in sub-section
(1), in the case of a
• Government company or
• any other company owned or controlled, directly or
indirectly, by the Central Government, or by any State
Government or Governments, or partly by the Central
Government and partly by one or more State
Governments,
• the Comptroller and Auditor-General of India shall, in

respect of a financial year, appoint an auditor duly
qualified to be appointed as an auditor of companies
under this Act,
• within a period of one hundred and eighty days from the

commencement of the financial year, who shall hold
office till the conclusion of the annual general meeting.
Casual Vacancy
• A vacancy in the office of the auditor of the company
before the term has expired is a casual vacancy.
• The term has not been defined in the Act.
• But there are several circumstances in which the casual

vacancy arises.
1. Death of the auditor
2. Resignation of the auditor
3. Disqualifications subsequent to appointment
4. Incapacity to contract
5. Ceasing to be a member of ICAI
6. Change in status of the auditor
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Casual Vacancy
Sec 139(8)
Govt Company Other Company
To be filled by C& AG within To be filled by BoD within

30 days 30 days
In case of resignation,
In case failure BoD shall fill
appointment by BoD should
within next 30 days
be approved by Co at GM
Casual vacancy : Govt Co

• (ii) in the case of a company whose accounts
are subject to audit by an auditor appointed
by the Comptroller and Auditor-General of
India, be filled by the Comptroller and
Auditor-General of India within thirty days:
• Provided that in case the Comptroller and

Auditor-General of India does not fill the
vacancy within the said period, the Board of
Directors shall fill the vacancy within next
thirty days.
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Casual vacancy: Other than Govt Co

• (8) Any casual vacancy in the office of an auditor shall—
• (i) in the case of a company other than a company whose

accounts are subject to audit by an auditor appointed by
the Comptroller and Auditor-General of India, be filled by
the Board of Directors within thirty days,
• but if such casual vacancy is as a result of the resignation

of an auditor, such appointment shall also be approved by
the company at a general meeting convened within three
months of the recommendation of the Board and
• he shall hold the office till the conclusion of the next

annual general meeting;
Reappointment
• (9) Subject to the provisions of sub-section (1)
and the rules made thereunder, a retiring
auditor may be re-appointed at an annual
general meeting, if—
– (a) he is not disqualified for re-appointment;
– (b) he has not given the company a notice in writing

of his unwillingness to be re-appointed; and
– (c) a special resolution has not been passed at that

meeting appointing some other auditor or providing
expressly that he shall not be re-appointed.
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• (10) Where at any annual general meeting, no

auditor is appointed or re-appointed, the existing
auditor shall continue to be the auditor of the
company.
• (11) Where a company is required to constitute

an Audit Committee under section 177, all
appointments, including the filling of a casual
vacancy of an auditor under this section shall be
made after taking into account the
recommendations of such committee.
CA.(Dr) Prithvi Ranjan Parhi

prithvi.baps@gmail.com
20

3 - Appointment of Auditor

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4/14/2022

Disclaimer & Copy right

CA. Prithvi Ranjan Parhi

14 April 2022 © CA.(Dr) Prithvi Ranjan Parhi 2

Other than Govt Co Govt Co

Appointed by BoD Appointed by C&AG

If failed, by members in EGM If failed, by BoD

If failed, by members in EGM

14 April 2022 Holds office till© the

Other than Govt Co Govt Co

Holds office from 1st AGM to

14 April 2022 © CA.(Dr) Prithvi Ranjan Parhi 5

Non Govt Company

14 April 2022 © CA.(Dr) Prithvi Ranjan Parhi 6

• and includes a company which is a subsidiary

1st Auditor of Govt Co-139(7)

• in case the Comptroller and Auditor-General of India does not appoint

1st Auditor : Other than Govt Co : Sec 139

• the first auditor of a company,

• in the case of failure of the Board to appoint such auditor, it shall

• who shall within ninety days at an extraordinary general meeting

14 April 2022 © CA.(Dr) Prithvi Ranjan Parhi 9

Appointment of auditors. 139

• Provided that the company shall place the matter

Auditor’s Appointment & Ratification

1st 2nd 3rd 4th 5th 6th

14 April 2022 © CA.(Dr) Prithvi Ranjan Parhi 11

Appointment of Auditors. 139

• a certificate from him or it that the appointment, Certificate

14 April 2022 © CA.(Dr) Prithvi Ranjan Parhi 12

14 April 2022 © CA.(Dr) Prithvi Ranjan Parhi 13

Inform the Auditor

• Provided also that the company shall inform

• also file a notice of such appointment with

• Explanation.—For the purposes of this

14 April 2022 © CA.(Dr) Prithvi Ranjan Parhi 15

14 April 2022 © CA.(Dr) Prithvi Ranjan Parhi 16

Rotation of Auditors: 139(2)

– (a) an individual as auditor for more than one term of

– (b) an audit firm as auditor for more than two terms of

Audit Firm 5 Years 5 Years

Rotation of Auditors: Applicability of Sec 139(2)

2. Following companies excluding one person company;

a) All unlisted public companies having paid up capital of

b) All private limited companies having paid up capital of

c) All companies having paid up share capital of below

Rotation of Auditors: 139(2)

14 April 2022 © CA.(Dr) Prithvi Ranjan Parhi 19

Rotation of Auditors: 139(2)

14 April 2022 © CA.(Dr) Prithvi Ranjan Parhi 20

Rotation of Auditors: 139(2)

Provided also that every company, existing

14 April 2022 © CA.(Dr) Prithvi Ranjan Parhi 21

Rotation of Auditors: 139(2)

• Provided also that, nothing contained in

–the right of the company to remove an

–the right of the auditor to resign from

• (1) The Audit Committee shall recommend to the Board, the

• (2) Where a company is required to constitute an Audit

14 April 2022 © CA.(Dr) Prithvi Ranjan Parhi 23

• (i) in case of an auditor (whether an individual or audit firm),

• (ii) the incoming auditor or audit firm shall not be eligible if