All About Company Audit in a Tabular Format

(1)   In case of a company that is required to constitute an Audit Committee u/s 177, the committee, and, in cases where such a committee is not required to be constituted, the Board, shall take into consideration the qualifications and experience of the individual or the firm proposed to be considered for appointment as auditor and whether such qualifications and experience are commensurate with the size and requirements of the company:

While considering the appointment, the Audit Committee or the Board, as the case may be, shall have regard to any order or pending proceeding relating to professional matters of conduct against the proposed auditor before the ICAI or any competent authority or any Court.

(3) Subject to the provisions of sub-rule (1), where a company is required to constitute the Audit Committee, the committee shall recommend the name of an individual or a firm as auditor to the Board for consideration and in other cases, the Board shall consider and recommend an individual or a firm as auditor to the members in the AGM for appointment.

(4) If the Board agrees with the recommendation of the Audit Committee, it shall further recommend the appointment of an individual or a firm as auditor to the members in the AGM.

(5) If the Board disagrees with the recommendation of the Audit Committee, it shall refer back the recommendation to the committee for reconsideration citing reasons for such disagreement.

(6) If the Audit Committee, after considering the reasons given by the Board, decides not to reconsider its original recommendation, the Board shall record reasons for its disagreement with the committee and send its own recommendation for consideration of the members in the AGM; and if the Board agrees with the recommendations of the Audit Committee, it shall place the matter for consideration by members in the AGM.

• • Before such appointment is made, the written consent of the auditor to such appointment, and a certificate from him that the appointment, if made, shall be in accordance with the conditions as may be prescribed, shall be obtained from the auditor.
  • The certificate shall also indicate whether the auditor satisfies the criteria provided in section 141.

(A) the individual or the firm, as the case may be, is eligible for appointment and is not disqualified for appointment under the Act, the CA Act, 1949 and the rules or regulations made there under;

(B) the proposed appointment is as per the term provided under the Act;

(C) the proposed appointment is within the limits laid down by or under the authority of the Act;

(D) the list of proceedings against the auditor or audit firm or any partner of the audit firm pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct.

• • No listed company or other prescribed companies, shall appoint or re-appoint an individual as auditor for more than one term of five consecutive years.
  • Cooling Off Period: An individual auditor who has completed his term shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term.

• • No listed company or other prescribed companies, shall appoint or re-appoint an audit firm as auditor for more than two terms of five consecutive years:
  • Cooling Off Period: An audit firm which has completed its term, shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term:
  • It is also provided 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.

(1) all unlisted public companies having paid up share capital of rupees 10 crore or more;

(2) all private limited companies having paid up share capital of rupees 50 crore or more;

(3) all companies having paid up share capital of below threshold limit mentioned in (1) and (2) above, but having public borrowings from financial institutions, banks or public deposits of rupees 50 crores or more.

Accordingly, manner of rotation is prescribed under Rule 6 of Companies (Audit & Auditor’s) Rules, 2014 which provides as follows:

(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.

(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. The term “same network” includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control.

(iii) 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.

(4)  Where a company has appointed two or more individuals or firms or a combination thereof as joint auditor, 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.

(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.

• • In case the CAG of India does not appoint such auditor within the said period, the BOD of the company shall appoint such auditor within next 30 days;
  • In the case of failure of the Board to appoint such auditor within the next 30 days, it shall inform the members of the company who shall appoint such auditor within 60 days at an EGM.

• • Any casual vacancy in the office of an auditor shall, be filled by the BOD within 30 days.
  • 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 3 months of the recommendation of the Board and he shall hold the office till the conclusion of the next AGM;

• • Any casual vacancy shall be filled by the CAG within 30 days.
  • In case the CAG does not fill the vacancy within the said period, the BOD shall fill the vacancy within next 30 days.

(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.

As per Sec. 177, in addition to listed companies, following classes of companies shall constitute an Audit Committee:

(i)   all public companies with a paid-up capital of ` 10 Cr. or more;

(ii)   all public companies having turnover of ` 100 Cr. or more;

(iii)   all public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding ` 50 Cr. or more.

Explanation: The paid-up share capital or turnover or outstanding loans, or borrowings or debentures or deposits, as the case may be, as existing on the date of last audited Financial Statements shall be taken into account for the purposes of this rule.

• • The auditor appointed under section 139 may be removed from his office before the expiry of his term only by a special resolution of the company and after obtaining the previous approval of the Central Government by making an application in Form ADT-2 and shall be accompanied with the prescribed fees.
  • The application shall be made to the Central Government within 30 days of the resolution passed by the Board.
  • The Company shall hold the general meeting within 60 days of receipt of approval of the Central Government for passing the special resolution.
  • Before taking any action for removal of auditor before the expiry of his term, the auditor concerned shall be given a reasonable opportunity of being heard.

• • The auditor who has resigned from the company shall file within a period of 30 days from the date of resignation, a statement in the Form ADT-3 with the company and the Registrar.
  • In case of Govt. companies or Govt. owned/controlled companies, the auditor shall also file such statement with the CAG, indicating the reasons and other facts as may be relevant with regard to his resignation.

*As amended by Companies (Amendment) Act, 2020.

• • appointing as auditor a person other than a retiring auditor, or
  • providing expressly that a retiring auditor shall not be re-appointed, except where the retiring auditor has completed a consecutive tenure of five years or ten years as the case may be, as provided u/s 139(2).

(a)  in any notice of the resolution given to members of the company, state the fact of the representation having been made; and

(b)  send a copy of the representation to every member of the company to whom notice of the meeting is sent, whether before or after the receipt of the representation by the company,

• • If a copy of the representation is not sent as required because it was received too late or because of the company’s default, the auditor may (without prejudice to his right to be heard orally) require that the representation shall be read out at the meeting.
  • If a copy of representation is not sent as required, a copy thereof shall be filed with the Registrar

• • Company or any other aggrieved person may apply to Tribunal for not sending or reading the representation, if this right is being abused by the auditor.
  • If the Tribunal is satisfied, then, the copy of the representation may not be sent and the representation need not be read out at the meeting.

(ii) on an application made to Tribunal by the C.G. or by any person concerned.

• • it shall within 15 days of receipt of such application, make an order that he shall not function as an auditor

AND

• • the C.G. may appoint another auditor in his place.

• •  an auditor, whether individual or firm, against whom final order has been passed by the Tribunal under this section shall not be eligible to be appointed as an auditor of any company for a period of 5 years from the date of passing of the order

AND

• • the auditor shall also be liable for action under section 447.